A wobbling U.S. jobs market was the Federal Reserve’s biggest worry last fall. Now the focus appears to have shifted back to stubborn inflation.

Investors will get twin reports this week on employment and consumer prices that will help set the stage for when the Fed cuts interest rates this year — if it reduces them at all.

The central bank cut a key U.S. interest rate three times toward the end of 2025 in response to rising unemployment and a big slowdown in hiring. The Fed wanted to make sure the labor market didn’t get any worse.

Missioned accomplished?

Hiring partly recovered in the final two months of 2025 after a summer of job losses. The unemployment rate also fell a tick, to 4.4% in December, after having reached a four-year high.

For January, economists polled by the Wall Street Journal predict a 55,000 increase in new jobs, with the unemployment rate sticking to 4.4%.

Fed officials would be relieved — if not outright pleased — if the January report came in on target.

What is most critical is the unemployment rate. The economy doesn’t have to add many net new jobs — job takers minus job leavers — to keep unemployment low. Most estimates peg the ”breakeven” rate at around 50,000.

So long as the unemployment rate remains low, the economy can continue to expand and avoid a recession.

The Fed isn’t declaring victory just yet — not by a longshot. Chair Jerome Powell and several other senior officials say they believe the labor market had ”stabilized,” but they admit it’s early days to declare a turnaround.

”It’s a difficult time to read the labor market,” Powell said after the Fed’s last meeting.

Some Wall Street economists contend it’s actually getting even weaker, pointing to a big drop in job openings.

“Even if the January payrolls numbers look robust, we still see signs that the labor backdrop is worsening,” economists at Jefferies wrote in a note to clients.

Still, the Fed was confident enough about the health of the jobs market to vote 10-2 in late January to leave interest rates unchanged for the first time in four meetings.

“By all accounts, most — but not all — [Fed] participants are comfortable where policy is and in no rush to cut rates anytime soon,” said Will Compernolle, macro strategist at FHN Financial.

Most Fed officials were wary of cutting interest rates again with inflation remaining persistently above their 2% annual target.

The good news? The consumer price index for January might bring the Fed closer to its goal.

Economists predict a 0.3% increase in January in both the CPI as well as the so-called core rate that gets the most attention from investors.

The yearly rate of inflation, meanwhile, could slow to 2.5% from 2.7% in December.

The 12-month core rate could also taper to 2.5% from 2.6%, estimates show.

The big question is, will inflation continue to wane in 2026?

Fed officials and most Wall Street economists believe inflation will slow further — and some even see price increases coming close to the Fed’s 2% target by year’s end.

Under this view, high tariffs imposed by the Trump administration would only lead to a small and temporary increase in inflation. The effects of the tariffs are supposed to fade this year.

The cost of shelter — rents and home prices — are also slowing. Shelter was the biggest source of inflation in the past few years.

What’s more, labor costs are rising more slowly and keeping a lid on inflation. Labor is historically a major contributor to rising prices.

These developments are all well and good, but ultimately the Fed has to see the proof in the form of a steadily declining inflation rate. Not every senior official is convinced they are on the right path.

“Inflation appears to have stalled stubbornly above our 2% goal,” Fed governor Lisa Cook said last week.

That’s why the January report is critical. Not just to the Fed’s battle against inflation, but to extend a five-year-old economic expansion and add more fuel to a bull market in stocks.

What is especially important about the January CPI is that it’s a table-setter: It’s the month a lot of companies raise prices for the upcoming year.

The Bureau of Labor Statistics tries to account for this phenomenon through seasonal adjustments, but price increases have been unusually large in January since 2021 as the U.S. emerged from the pandemic.

“The ‘January effect’ remains a factor in the post-COVID economy,” said economists at RBC Economics.

Potentially adding to the problem could be an effort by companies to pass through increases in their own costs from U.S. tariffs onto their customers.

If the increase in inflation in January is bigger than expected, it would be a setback for the Fed and perhaps even reset the clock on the next interest-rate cut.

Investors don’t expect another reduction at least until June, when a new Fed chairman is supposed to take over. Trump has picked Kevin Warsh to replace current Fed chief Jerome Powell when his term ends in May.