December’s strong job growth combined with slowing wage inflation is fueling optimism that the economy might just see a soft landing.

But economists disagree on whether that will be the case, given that a strong jobs market could continue to ignite price increases in the service sector and keep the Federal Reserve raising interest rates. Those higher interest rates could slow the economy further and push it into a recession.

According to the Bureau of Labor Statistics, the economy added 223,000 jobs in the final month of 2022, less than the 256,000 in November. Unemployment fell to 3.469%, which economists say is the lowest since 1969.

Meanwhile, average hourly wages increased 4.6% on an annual basis, less than the 5% economists expected. On a monthly basis, that was a gain of 0.3%, compared to Dow Jones expectations of 0.4%. The November wage gains were revised lower to a monthly gain of 0.4%, versus 0.6% previously reported.

“This may be the last hoorah. It’s about as close to a Goldilocks number the Fed could hope for at this point in time,” said Diane Swonk, KPMG chief economist. “You had a cooling in wage gains with an increase in participation and a fall in the unemployment rate. You hit it on all three notes.”

Stocks rallied after the report, and Treasury yields — which move opposite price — fell. Economists polled by Dow Jones expected 200,000 jobs were added in the month, and that the pace of job creation will continue to slow sharply.

Consumer inflation has been coming down. Economists surveyed by Dow Jones expect the consumer price index rose by 6.5% in December on an annual basis, down from 7.1% in November. The December CPI is slated for release Jan. 12.

“What the Fed is looking at is it is now getting into the stickiest part of inflation and that’s wages, and the market is looking at as the trend is in the right direction,” said Swonk.

Swonk said she expects job growth to slow more and the economy to fall into a shallow recession. Yet, the picture of the labor market is one of the strongest ever.

“We’ve got 4.5 million new payrolls for the year. That’s the second strongest year on record,” said Swonk. She said 2022 was second to 2021, when there were 6.7 million jobs created. “The only thing close was 1946 when soldiers returned to civilian work after World War II.”

Mark Zandi, chief economist at Moody’s Analytics, said the report is encouraging and confirms his expectation that there will be a soft landing for the economy. “It was about as perfect a report as one could ask for,” he said. “I don’t think there were any blemishes at all in the report. It shows a job market that is slowly but surely cooling off.”

While many economists expect a recession, Zandi points to strong growth even with a slowdown in the housing sector. According to the Atlanta Fed, gross domestic product was growing at a strong rate of 3.8% in the fourth quarter of 2022. Zandi notes wage growth is a full percentage point slower than when it peaked in the spring.

“This is consistent with the Fed threading the needle of slowing growth sufficiently to slow inflation but not pushing the economy into recession,” said Zandi. “We’re calling it a ‘slowcession.'”

The decline in unemployment came as the participation rate increased slightly to 62.3%. That is still a full percentage point below where it was in February 2020, the month before the Covid-19 pandemic hit.

“It’s one thing to say momentum in the labor market is moderating, but it’s another thing to say imbalances are being removed,” said Michael Gapen, chief U.S. economist at Bank of America.

The Federal Reserve has been hoping to crush inflation by raising interest rates enough to cool the economy, and that would be through the labor market. But with its fed funds rate at 4.25%-4.50%, the Fed has targeted more rate hikes until it reaches its forecast of 5.1% for the end, or terminal rate.

Gapen and other economists expect the Fed to increase rates by a half percentage point on Feb. 1, while traders in the futures market see just a quarter point hike. Gapen said the strong jobs report reinforces his rate hike forecast.

“There’s something in this report for everyone, but to look at this and say ‘soft landing,’ I don’t agree,” said Gapen. “The unemployment rate is falling and payroll growth is at 223,000. The Fed wants it below 100,000, probably more like 80,000.”

He expects to see negative job growth this year, after the Fed’s rate hikes. There have been seven rate hikes so far since March. “Here we are nine months later, and you’re still adding jobs at what would be considered a blowout rate in a normal recovery,” he said.

Gapen notes that there was still a surprisingly high 10.5 million job openings in November, according to the Jobs Opening and Labor Turnover Survey, released Wednesday.

“From the point of view of an unemployed worker looking for jobs, it’s still a very good report and it’s still a very good labor market,” said Gapen. “If you’re a policy maker things are going to stay persistently strong in a way you can’t meet your inflation mandate.”