It’s a big week for the US economy.

Crucial jobs data will be a verdict not just on February’s labor market trends, but also on January’s. Was 2023’s first jobs report the anomalous product of warm weather and statistical quirks? Or was it the real deal — a testament to the notion that the Fed’s efforts to cool inflation are destined to be frustrated by persistently hot wage growth tied to a shortage of workers and robust demand for services?

Ostensibly, February’s NFP report will provide some answers. Consensus, for whatever it’s worth these days, expects 210,000 from the headline print.

Revisions will be watched closely, as will the update on average hourly earnings, which are seen posting a 0.3% MoM gain.

The unemployment rate dropped to what might as well have been a 70-year low in January. Notwithstanding the ongoing debate about any “undue” influence from statistical tinkering, the fact is, the Fed makes decisions based on the data as reported (and as revised). Recently, that data suggested disinflationary momentum was lost in Q4, and that in January, the seeds were sown for a re-acceleration in price pressures.

At this point, it’s absolutely fair to say the Fed would welcome a jobs report that suggests hiring momentum moderated materially. Evidence that wage growth is still cooling would likewise be greeted warmly by policymakers.

As a reminder, pay growth needs to fall to roughly 3.5% in order to be consistent with 2% inflation. Suffice to say we’re not there yet. In fact, according to the various categories analyzed by the Atlanta Fed’s wage tracker, there isn’t a single key cohort where wage growth is anywhere near levels conducive to the Fed’s definition of “price stability.”

Terminal rate expectations reached 5.5% last week, and the consensus among strategists and most traders seems to be that the bar for the hawkish repricing to escalate from these levels is exceptionally high, as discussed at some length in the weekly+.

“Further strength in the data will likely show up as ‘high for longer’ pricing, with either a reduction in the cuts being priced or the cuts being pushed further out,” Goldman’s Praveen Korapaty said, adding that with traders “pricing a roughly even chance that the Fed will raise the policy rate corridor to 5.5-5.75%, we believe it will be difficult for markets to move the peak rate without an explicit signal from the Fed.”

Among the last non-WSJ “signals from the Fed” prior to the pre-meeting quiet period will come this week from Jerome Powell’s semi-annual congressional testimony which, at least on day one, will serve as a veritable wellspring of punchlines for Fed critics and a source of headline fodder for mainstream financial media outlets. Do note: This is a different Congress.

Alongside more aggressive terminal rate pricing, markets have priced in some possibility of a 50bps re-escalation from the Fed this month. “Powell could offer some clues about the Fed’s openness to reaccelerating the pace of hikes, though we suspect the Fed actually following through with upsizing at the March meeting is a low probability outcome,” Goldman’s Korapaty went on to say.

“Conversations regarding the potential for a half-point hike have been making the rounds, even if it’s unlikely the Fed will so quickly shift the cadence of tightening based on a single-month’s data,” BMO’s Ian Lyngen and Ben Jeffery remarked. “The Committee is actively engaged in the process of reestablishing its credibility following a challenging 2022 in this regard, [so] the transition to a more traditional quarter-point tightening program will prove durable, even if the realized data between now and the June meeting could ultimately up the ante on terminal,” they added.

Payrolls will be preceded by January JOLTS. The job openings data has turned into a nail-biter. The Fed has staked the legitimacy of the “soft landing” narrative on the idea that demand moderation facilitated by policy tightening will ultimately render millions of openings superfluous, thereby helping to balance the labor market without too many currently employed workers having to lose their jobs. Skeptics abound.

So far, Fed doubters have the upper hand. There’s scant evidence (if there’s any at all) to support the Fed’s line. Job openings remain at record highs, matching efficiency is apparently very impaired and the longer this conjuncture persists, the higher the risk of a wage-price spiral, as the desperation for labor manifests in employer wage concessions.

The excuses never seem to abate, though. “Our analysis suggests many of the high-profile layoffs that have been announced — in tech, for example — only translate to job losses about two months later,” Bloomberg Economics said. “If that’s correct, we should expect to see initial jobless claims climb in March.”

Fair enough (I guess), but the tech layoffs started midway through last year. Initial jobless claims haven’t budged. In fact, they’ve been below 200,000 for seven consecutive weeks now.

Also on deck in the US this week: Factory orders, an update on consumer credit, mortgage apps (which have become a “must cover“) and ADP.

Elsewhere, the Bank of Canada is likely to hold rates after tipping a pause in January. If Tiff Macklem does indeed call a provisional end to the BoC’s tightening campaign after eight hikes, it’d mark the first hold from a G7 central bank.

The RBA, by contrast, will probably hike again on Tuesday. Philip Lowe is in a terrible bind. Another hike would be the 10th straight.

Finally, Haruhiko Kuroda will preside over his final policy meeting as BoJ governor this week. Economists expect no change in policy settings.