If job creation drops back down to a level consistent with the downward trajectory seen late last year and CPI inflation pulls back significantly from the January numbers and resumes its downward path, then I would endorse raising the target range for the federal funds rate a couple more times, to a projected terminal rate between 5.1 and 5.4 percent.5 On the other hand, if those data reports continue to come in too hot, the policy target range will have to be raised this year even more to ensure that we do not lose the momentum that was in place before the data for January were released.
At a sectoral level, the euro area’s recent favourable labour productivity performance has been mainly driven by positive cyclical developments in “industry excluding construction”. In contrast, productivity growth in services has not improved much, despite a few modest, but nevertheless encouraging, signs in the financial and business services sector.