Slower wage growth would be a relief for Fed officials, who view wage increases as a driver of future inflation.

Last month’s job growth capped a second straight year of strong hiring during which the nation regained all but 22 million jobs it lost to the COVID-19 pandemic. Yet rapid hiring and massive wage growth likely contributed to price increases that pushed inflation to its highest level in 40 years.

The picture is much cloudier for 2023. Many economists predict a recession in the second half of the year, the result of a succession of rapid rate hikes by the Fed. Central bank officials have forecast those increases will push the unemployment rate to 4.6% by the end of the year.

Although the Fed’s higher rates have begun to moderate inflation from the peak of the summer, they have also made mortgages, auto loans and other consumer and business borrowing more expensive.

For now at least, the job market is showing surprising resilience in the face of higher interest rates in the economy. Employers will add 4.6 million jobs in 2022, on top of 6.7 million in 2021. All the appointments were part of a powerful rebound from the 2020 pandemic recession.

In June, year-on-year inflation rose to 9.1%, the highest level in 40 years, before slowing to 7.1% in November. Last year, in an aggressive drive to drive inflation back toward its 2% target, the Fed raised its benchmark rate seven times.

Fed Chair Jerome Powell has emphasized in recent comments that continued strong job growth, which may compel employers to raise wages to find and keep workers, can sustain inflation: Raises prices to pass on higher labor costs. And higher wages generally spur more consumer spending, which can keep inflation high.

For this reason, Powell and other Fed officials have indicated their belief that to keep inflation under control, unemployment must rise above its current low level.

Fed officials forecast they would raise their benchmark short-term rate this year to about 5.1%, the highest level in more than 15 years. If hiring and inflation remain strong, the Fed may need to raise rates even higher.

Technology companies have been laying off employees for months, with some including Amazon saying they laid off too many people during the pandemic. Amazon has increased its layoffs to 18,000 from an earlier announcement of 10,000. Cloud software provider Salesforce says it will cut 10 percent of its workforce. And Facebook’s parent company Meta says it will shed 11,000.

Small tech companies are also being affected. Fast fashion provider Stitch Fix said on Thursday it is cutting 20% ​​of its salaried workforce. DoorDash has said it will eliminate 1,250 jobs.

Yet outside of high tech, smaller companies, in particular, are still hiring. Companies with more than 500 employees cut jobs in December, according to payroll processor ADP, while businesses below that threshold added many more workers. And an analysis by investment bank Jefferies showed that smaller companies were posting a historically higher proportion of job openings.

The Fed is concerned about the faster pace of wage growth, which it sees as a sign that inflation is likely to remain high. Average hourly wages are growing at nearly 5%, one of their highest levels in decades.

Economists expect growth in the final three months of last year to be a solid annual rate of around 2.5%. But there are signs that this is slowing, and most analysts expect weaker growth in the current first quarter of 2023.

Consumers barely increased their spending in November due to modest holiday shopping. And manufacturing activity contracted for the second month in a row in December, with both new orders and output shrinking.

And the housing market, a key economic bellwether, has been severely hit by the Fed’s rate hikes, which have more than doubled mortgage rates over the past year. Home sales have declined in the last 10 months.

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