It's a jam-packed week for the global economy, with labor market data in the U.S., inflation and growth figures in Europe, plus important monetary policy decisions from both continents. More on what to expect below.

  • But first, we lay out the huge question facing Federal Reserve policymakers, as Tuesday marks the beginning of 2023's first policy meeting.

Today's newsletter, edited by Javier E. David, is 593 words, a 2.5-minute read.

1 big thing — The big question: When to pause?

Illustration: Aïda Amer/Axios

This week, the Fed's policy committee is set to raise interest rates again, this time by a modest quarter percentage point. The real debate will be over when the central bank will press pause on its tightening campaign.

  • We'll be watching the post-meeting statement and news conference closely for signs of what the answer might be.

Why it matters: The vibes around the economy have improved in recent weeks, with a run of strong job market data, more benign inflation readings, and a surging stock market. The Fed has to decide how much it wishes to rain on that parade.

  • Markets increasingly believe the Fed will end its campaign following the March policy meeting. The central bank could push back against that expectation with its communication this week.

State of play: In every meeting since last March, Fed policymakers have said they anticipate "ongoing increases in the target range [of interest rates] will be appropriate."

  • Note the plural "increases." If officials think they may only need to enact one more rate hike after this week (presumably at the meeting in March), that language would no longer be apropos.
  • But if they were to strike that language, markets would interpret it as the Fed saying "we're done here" and could rip higher. That would loosen financial conditions, making it less likely that inflation continues its downward march.
  • It would also imply backing away from projections Fed officials made in December in which 17 out of 19 of them envisioned pushing rates above 5% this year, implying at least three rate hikes, not two.

The intrigue: Financial markets pretty clearly aren't buying the Fed's communications, and continue to price in a pause in rate hikes in March followed by cuts in the second half of the year — a possibility that chair Jerome Powell explicitly talked down last month.

  • That being the case, Powell may see the need to stick to the tough-talking tone he adopted in December, despite the recent run of more benign inflation data.
  • "The safe assumption is that Powell’s basic message leans in a hawkish direction as has been typical of recent FOMC press conferences," said Tim Duy, chief economist at SGH Macro Advisors, in a note.

What's next: One key indicator of wage trends is due out tomorrow morning, just as the Fed gets set to begin its meeting. Economists expect the Employment Cost Index to show a 1.2% rise in wage and benefit costs in the fourth quarter.

2. 😮‍💨 A busy week for the global economy

From left: Fed chairman Jerome Powell, European Central Bank president Christine Lagarde, and Bank of England governor Andrew Bailey. All three central banks are set to release policy decisions this week. Photos: Olivier Douliery, Ronald Wittek, Jason Alden via Getty Images

ECI data and the Fed decision are just the beginning of what promises to be an eventful run of economic news this week.

What's happening: There are two crucial reports that will give shed light on the state U.S. labor market: job openings, hires and quits data for the month of December on Wednesday; plus, the all-important January jobs report on Friday.

  • The Labor Department will also release revisions for last year's payrolls data, based on updates to its annual benchmarking process. (We'll have more on this later this week.)
  • Also, productivity figures for the final three months of 2022 are due out on Thursday.

That's also when the European Central Bank and the Bank of England will release policy decisions.

  • Both are expected to raise interest rates by a half percentage point, matching the pace at their last meetings. Much like the Fed, both central banks are facing questions about how much further policymakers expect to raise rates.

Meanwhile, fourth-quarter growth data for the eurozone is due on Tuesday, while inflation data for the bloc is out the following day.