All eyes will be on the February jobs report when it comes out Friday morning after a surprising burst of hiring last month left economists scratching their heads and raised fresh concerns about the pervasiveness of high inflation.

The Labor Department's high-stakes payroll report is projected to show that hiring increased by 203,000 last month and that the unemployment rate held steady at 3.4%, a half-century low, according to a median estimate by Refinitiv economists.

That would mark a drop from the 517,000 gain in January and would be the weakest monthly job growth since December 2020.

While monthly jobs data is always important, the Federal Reserve signaled that it is closely watching this particular report for signs that the labor market is finally softening and that the blowout figures in January were an anomaly as policymakers try to wrestle inflation under control. The consumer price index has cooled slightly from a peak of 9.1% in June, but it remains about three times higher than the pre-pandemic average.

FED CHAIR POWELL SAYS INTEREST RATES ARE ‘LIKELY TO BE HIGHER’ THAN PREVIOUSLY EXPECTED

A hotter-than-expected figure on Friday could be a worrisome sign for the U.S. central bank, which has already approved eight straight interest rate hikes and signaled that it intends to keep rates elevated for "some time." In testimony before Congress this week, Chairman Jerome Powell indicated that officials may need to raise rates higher than previously projected in the face of hotter-than-expected economic data.

"Last month’s data raised the possibility that the labor market was much stronger than anyone had suspected and that inflation might be about to take off again," said Brad McMillan, chief investment officer for Commonwealth Financial Network. "Data since then, from other areas besides the labor market, has confirmed that."

He added, "The question this month is whether we get another incredibly strong report — in which case we likely will see a continued acceleration in inflation again — or whether last month was a one-off."

There is a risk that jobs data surprises to the upside on Friday morning, according to RSM chief economist Joe Brusuelas. RSM is projecting that hiring increased by 310,000 last month and that the unemployment rate dropped even lower to 3.3% due to unseasonably warm weather in February.

"Given how warm February was, there is a risk of another upside surprise in the jobs data like there was in January with the gain of 517,000, even as the Bureau of Labor Statistics tries to correct for the seasonal noise," Brusuelas said. "Even if there is a healthy downward revision to the January estimate, it will require another month at least for the noise in the data to be corrected and the true pace of hiring to be understood."

The labor market has remained historically tight for most of the year. A separate report released Wednesday showed there were about 10.8 million job openings in January, or roughly 1.9 available positions per unemployed worker. The number of available jobs has now topped 10 million for 20 consecutive months; before the pandemic began in February 2020, the highest on record was 7.7 million.

There are other signs the labor market is starting to weaken.

INFLATION STILL OUTSTRIPPING WAGES IN MOST US CITIES

There has been a wave of notable layoffs over the past few months, and the list grows longer by the day: Amazon, Apple, Meta, Lyft, Facebook, Google, IBM and Twitter are among the companies letting workers go.

That could soon bleed into the broader labor market. Powell has made it clear that policymakers anticipate job growth will slow and unemployment could climb as they raise interest rates higher, but he has argued that an alternative where prices soar unchecked is worse.

For many economists, the possibility of unemployment rising has become a question of when not if.

CLICK HERE TO READ MORE ON FOX BUSINESS

The central bank previously projected the jobless rate will march substantially higher to 4.6% and remained elevated in 2024 and 2025 as steeper rates continue to take their toll by pushing up borrowing costs. That could amount to more than 1 million job losses.

Hiking interest rates tends to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut back on spending.