Economists are also hoping that high wages, combined with the ebbing of the pandemic, will lure

more people back to the job market. The

labor force grew earlier this year, but that progress has stalled in recent months, adding to employers’ difficulty filling jobs.

“The labor market is tighter and smaller than it’s been, so it’s really hard to assess its health,” said Nela Richardson, chief economist at
ADP, the payroll processor. “These high wages aren’t drawing workers in, and there’s something unhealthy about that.”

— Ben Casselman

Federal Reserve officials are keeping a close eye on jobs data.

Employment data are being closely watched by Jerome H. Powell, the Federal Reserve
chair, and other Fed officials. Haiyun Jiang/The New York Times

Federal Reserve officials are closely parsing incoming labor market data as they try to figure out how much underlying momentum the
economy has and how much they need to raise interest rates to restrain growth and lower inflation.

While Fed officials have raised rates from near zero in March to a range of 2.25 to 2.5 percent in July, they are still waiting for signs that
those higher borrowing costs are cooling consumer spending and business expansions, lowering demand and giving supply a chance to
catch up. So far, the evidence of a major slowdown has been spotty.

Consumption growth does seem to be slowing and overall growth has been volatile, but businesses continued to add workers at a rapid
clip in recent months, and wages have been climbing quickly as companies vie to hire and retain workers amid very low unemployment.

Central bankers have been clear that they are carefully watching data on both employment and inflation — which is showing hopeful, but
not yet conclusive, signs of slowing — as they decide how quickly to raise interest rates. Fed officials are contemplating an increase of
either a half percentage point or three-quarters of a point at their meeting on Sept. 20-21.

“Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook,” Jerome H. Powell, the
Fed chair, said in a speech last week.

Higher interest rates work to counter inflation partly by weighing on the labor market. As businesses face steeper borrowing costs, they
grow less and cut back on hiring. As job opportunities dwindle, competition for workers eases and wage growth slows — reining in
consumer spending. As demand wanes, companies become less able to raise prices, lowering inflation.

That process can push unemployment up and prove painful as people lose or struggle to find jobs. But Fed officials have argued that
getting inflation under control is critical — and that delaying the tough choices now would only make the situation worse down the road.

“We cannot continue having a strong labor market and get back to those very strong labor market conditions we had in the previous 10-
year-plus expansion unless we get inflation under control,” Loretta Mester, president of the Federal Reserve Bank of Cleveland, said in a
Yahoo Finance interview last week.

— Jeanna Smialek

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