Last week the Federal Reserve described the US labour market as “solid” and noted that the unemployment rate had stabilised. This week’s monthly jobs report on Friday will put that view to the test.

Economists forecast 170,000 new jobs were created in January, according to a Reuters poll — a number in line with the average over the past three months, although down from the blowout rise of 256,000 reported for December. The unemployment rate, calculated from a separate survey, is expected to hold steady at 4.1 per cent.

An extra difficulty this month however is that the numbers may have been hit by the Los Angeles wildfires, as well as being potentially affected by a barrage of annual revisions to the underlying figures. Both raise the risk that investors will have to look beyond headline “noise” to discern any longer-term trends.

“Past fires have had an inconsistent impact on employment, but the central location and timing relative to the employment surveys lead us to expect a 20,000-30,000 impact this month,” said Jeremy Schwartz, US economist at Nomura.

Annual revisions to the data could make it tough for investors to read too much into January’s headline payroll figure. The unemployment rate, however, should be “relatively clean”, according to economists at Bank of America.

“A large pick-up that pushes the rate closer to 4.3 per cent would increase the chances of additional [interest rate] cuts,” said economists at Bank of America. “But another decrease would give the Fed greater confidence that the labour market has stabilised around full employment.”

Markets are currently pricing in two quarter point Fed rate cuts this year. Jennifer Hughes

Is inflation still above the ECB’s target?

Eurozone inflation is expected to hover above the European Central Bank’s 2 per cent target for the third month in a row when figures for January are published this week, in a potential headache after it just delivered its fifth interest rate cut since the summer.

Annual consumer price inflation is expected to remain at 2.4 per cent, the same as in December, according to forecasts compiled by Reuters.

ECB president Christine Lagarde on Thursday said that she expects price pressures to ease later this year even if there is a further short-term pick-up in inflation, as the central bank reduced borrowing costs to 2.75 per cent.

“We are confident that headline inflation will reach our target in the course of 2025 . . . sustainably so,” Lagarde said, adding that the “next couple of [inflation] readings” will be elevated as temporary drops in energy prices a year ago distort the year-on-year comparison. “But from there on, we see this declining path in the course of 2025,” she added.

However, not all economists share that confidence. ING’s global head of macro Carsten Brzeski warned after the ECB meeting that policymakers were “currently looking at a mild version of stagflationary tendencies: continued sluggishness of the economy and accelerating inflation”.

The rebound in inflation in recent months has fed through to higher household inflation expectations. In December, consumers in the euro area on average expected annual inflation of 2.8 per cent over the next 12 months, up from 2.6 per cent in November and the highest level since July. In Germany, the bloc’s largest economy, inflation remained elevated at 2.8 per cent in January, preliminary data from the statistical office showed on Friday.

However, the combination of elevated price rises and subpar growth would not hold back the ECB from cutting rates further for now, according to Brzeski. “The ECB seems to be looking through this temporary acceleration of inflation,” he said. Olaf Storbeck

Will the Bank of England signal faster rate cuts?

Investors will scrutinise the Bank of England’s interest rate decision on Thursday for clues over its future policy course.

Since August, the BoE has lowered borrowing costs by a quarter of a percentage point every other meeting. It left rates unchanged in December and has signalled a “gradual” approach to easing, so economists and investors expect a quarter-point cut to 4.5 per cent.

But beyond Thursday’s decision, “it’s less clear whether the bank will keep this cadence at future meetings”, said Paul Dales, an economist at Capital Economics.

The UK economy has weakened, stagnating in the three months to November, while businesses have warned of job cuts following April’s increase in employers’ national insurance contributions. However, inflationary pressures remain, with wage growth exceeding BoE forecasts.

Many economists expect the BoE to downgrade GDP growth estimates, with negative revisions for the labour market and stronger near-term wage growth. Inflation might also be revised up on the back of higher gas and oil prices and surveys pointing to increased cost pressures.

Dales expects the BoE to reiterate that rates must remain “restrictive for sufficiently long” and that a gradual approach is appropriate — implying no acceleration in cuts.

However, he noted the possibility that more members of the Monetary Policy Committee may anticipate continued disinflation. In that case, some could vote for a larger cut, and the BoE’s guidance might shift to indicate that if activity remains weak it could reduce rates faster. “The latter would open the door to consecutive rate cuts at each meeting from the next meeting in March,” said Dales.

Sanjay Raja, an economist at Deutsche Bank, said: “There’s a good chance, given the emergence of spare capacity following the bank’s updated projections and supply side update, the [BoE] explicitly states that further rate cuts are likely.” Valentina Romei