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Another strong jobs report complicates the inflation outlook

Federal Reserve chairman Jerome Powell told the Senate Banking Committee on Tuesday that continued strength in the jobs market could lead the central bank to quicken the pace of rate increases.Al Drago/Bloomberg

Trendlines, my new business newsletter, covers the forces shaping the economy in Boston and beyond. If you’d like to receive it via e-mail on Mondays and Fridays, you can sign up here.

US employers continued to create jobs at a robust pace in February, the Labor Department said on Friday morning, leaving the Federal Reserve with a tough call on whether to get more aggressive in its fight to bring down inflation.

The report was good news for American workers, showing that jobs remain abundant despite a sharp hike in borrowing costs by the Fed over the past year that has raised fears of a recession.


But with the labor market still running hot, the central bank must decide whether its next move is to boost interest rates by a quarter of a percentage point, as it did at the start of this month, or return to the half-point increases it deployedin the latter part of 2022.

Yields on US Treasuries fell following the Labor Department report, suggesting that bond investors see the Fed sticking with a quarter-point move. But stock prices declined amid the uncertainty about the central bank’s next step and escalating losses among bank stocks following a run by depositors of Silicon Valley Bank, a bank that caters to tech startups.

Employers added 311,000 jobs last month, led by gains in leisure and hospitality, retail trade, government, and health care. While that was down from 504,000 new jobs in January, the pace of hiring is well above the level that economists, including those at the Fed, say is needed to see inflation retreat.

But there were signs in the report that higher rates are pressuring the labor market. The 311,000 gain in February compared with the average monthly increase of 343,000 over the prior six months.


The information sector shed 25,000 jobs, most likely reflecting the big layoffs announced this year by tech companies.

The unemployment rate rose to 3.6 percent from 3.4 percent as more people entered the labor force and began looking for work. If the labor force continues to expand, it should ease pressure on employers to raise wages.

Average hourly earnings climbed 0.2 percent from January, the smallest increase in a year. Earnings rose 4.6 percent from a year ago, down from a peak last year but still above the Fed’s comfort level of under 4 percent.

The financial markets will now turn their attention to next Tuesday’s consumer price index report. In January, inflation came in at a 6.4 percent annual rate. Wall Street forecasters expect the February number to be about 6 percent.

The actual result will likely determine whether the Fed holds steady or once again steps up it rate hikes.

This story appeared in Trendlines, our business newsletter from Globe columnist Larry Edelman that covers the trends shaping the economy in Boston and beyond. If you’d like to receive it via e-mail on Mondays and Fridays, you can sign up here.

Larry Edelman can be reached at larry.edelman@globe.com. Follow him on Twitter @GlobeNewsEd.