The US jobs report provides further tentative evidence that the labour market is cooling. Non-farm payrolls advanced 263,000 in September, broadly matching expectations for a 255,000 gain. The number was down from the respective July and August increases of 537,000 and 315,000.

Despite slowing jobs creation, the unemployment rate eased back to 3.5%, against expectations for it to hold steady at 3.7%. Still, wages remained unresponsive. Hourly earnings rose 0.3% over the month, unchanged compared to the previous month, with the annual rate slowing slightly to 5.1%.

Other leading indicators similarly suggest hiring momentum is beginning to moderate. Job openings fell 1.1 million in August, the second-sharpest decline in the series’ two decade history. Also, fewer workers are quitting their jobs in a sign it is more difficult to find new work.

But it is far from “mission accomplished” for the Federal Reserve (Fed). Unfilled vacancies still stand at an elevated 10.1 million, or 1.7 to every unemployed worker, while the quits figure is 4.2 million (a rate of 2.7%).

As such, the risk of second-round effects remain elevated, particularly with consumer prices index (CPI) inflation still well above target. Until there are clear signs tighter financial conditions are beginning to gain traction, the Fed is likely maintain its "hawkish" stance. Monetary policymakers are often described as hawkish when expressing concerns about limiting inflation.

With this in mind, next week’s CPI release will likely be a key determinant in how aggressively the Fed raises rates at its next meeting. Although it may be some time before we can conclude that the war on inflation has been won.

But as Nobel prize winning economist Milton Friedman famously observed, monetary policy works with long and variable lags, and what was true 50 years ago remains so to this day.

We expect the Fed to hike rates to 4.25% by the end of the year, before then taking stock to observe the impact of the significant tightening it has done. But in our view, it is difficult to see how a recession can be avoided if inflation is to return to target within a reasonable timeframe.