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Last week, economists eagerly awaited the Labor Department’s monthly jobs report for July.

This would be the first real test of the Federal Reserve’s anti-inflationary monetary policy, following consecutive 75 basis point hikes in interest rates designed to slow the economy by reducing demand and cooling the labor market. Second-quarter gross domestic product had already registered a second consecutive contraction in output, a common, though unofficial, measure of a recession.

Estimates centered on a monthly job gain of 250,000, with one Wall Street firm even suggesting the number would be 75,000. The real number: 528,000 new jobs, bringing the economy back to pre-pandemic levels and lowering the unemployment rate to 3.5%, the same rate it was before the coronavirus was declared a global health emergency .

“There are more people working in America today than before the pandemic began. In fact, there are more people working in America than at any time in American history,” President Joe Biden said Friday from the House White.

But no good deed goes unpunished. As soon as the report was released, economists came out with their comments, and while many celebrated the outsized number, there were also concerns that it would mean an even more aggressive stance from the Fed that could still stifle the economy and cause a recession. .

“Falling unemployment and the participation rate will frustrate central banks as a tighter labor market adds inflationary risk to the economy,” Jeffrey Roach, chief economist at LPL Financial, said on Friday.

“Markets are having trouble digesting the implications of July’s strong labor market. The big headline job gain was a surprise and could convince people like San Francisco Fed President Mary Daly that the economy needs another 75 basis point hike at the Fed’s next meeting. Now all eyes are on inflation.”

This is what is so confusing about today’s economy and its recovery from a once-in-a-century pandemic. Experts misjudged how strongly it would bounce back after the steepest and shortest quarterly decline on record. And now they may misjudge how they will manage the downward shift to a more normal growth rate, and how resilient the labor market will be in the second half of the year and beyond.

“On the one hand, exogenous events over the past nearly three years have fundamentally reshaped the structure of the US and international economy,” said Bernard Baumohl, chief global economist at the Economic Outlook Group. “This is not your typical business cycle. This is also not your typical employment pattern. The dynamics driving inflation also have little in common with previous inflation cycles.”

There will be another chance for experts to weigh in on Wednesday, when the government reports July’s consumer price index. With inflation surprisingly on the rise in June, with a monthly gain of 1.3% taking the annual rate to 9.1%, economists are looking for a downward shift from the increase in the 1, 3% in June to 0.2% in July. This would bring the overall CPI to a level of 8.7%.

But everything is possible. There have been some promising signs of a slowdown in prices, the most notable of which is the cost of a gallon of gas. Prices for a gallon of regular have fallen 68 cents in the past month to a national average of 4.069. That’s still about a dollar above where they were a year ago, but it’s a significant drop, and one that cheers the Biden administration.

After Russia’s unprovoked invasion of Ukraine in late February, analysts said gas prices would rise, and they did, with some even warning that oil would hit $200 a barrel.

Today, it’s close to $95. But as gas prices climbed to $5 a gallon, drivers stopped using as much.

“According to new data from the Energy Information Administration (EIA), gas demand fell to 9.25 million b/d from 8.54 million b/d last week,” AAA said Thursday. “The rate is 1.24 million b/d lower than last year and in line with demand at the end of July 2020, when there were COVID-19 restrictions and fewer drivers hit the road “.

“Also, according to the EIA, total domestic gasoline inventories rose slightly by 200,000 bbl to 225.3 million bbl,” AAA added. “If gas demand remains low and inventories continue to rise along with falling crude oil prices, drivers will likely continue to see pump prices decline.”

A drop in the price of energy, a key component in many items ranging from gasoline to agricultural fertilizers, would have a ripple effect throughout the economy and help control inflation. But strong demand for labor could keep pressure on wages, another key driver of headline inflation.

“This is not an economy in recession,” James McCann, abrdn’s deputy chief economist, said on Friday. “A very tight labor market is generating strong wage pressures, which are likely well above those consistent with the Fed’s mandate.”

While Fed Chairman Jerome Powell said last month that the central bank would consider all incoming data before raising rates further, he also signaled that another 75 basis point hike would not be out of the question. of doubt at the next Fed meeting in September.

On Saturday, Federal Reserve Governor Michelle Bowman said that “increases of a similar size should be on the table until we see inflation decline in a consistent, meaningful and lasting way,” according to CNBC.

And with Wednesday’s CPI report coming to markets this week, expect a back-and-forth between moods on Wall Street and among economists.

“In short, the economy has undergone something of a mutation due to the cumulative impact of the pandemic, supply chain vulnerabilities, looming geopolitical risks and a realignment of globalization,” said the Group’s Baumohl Economic Perspectives.

“And yet, we continue to rely on forecasting models that cannot incorporate such historic and permanent changes,” he added. “The Federal Reserve and many private economists seem tied to an economic paradigm that no longer exists. The result: too many economic forecasters find themselves increasingly out of step with what’s happening in the real world.”