Job growth in August likely slowed from July’s frenzied pace, but it is still expected to have been quite strong, with broad-based hiring across many sectors.

Monthly jobs data is always important, but the August report, released at 8:30 a.m. ET Friday, is particularly key since the state of the labor market will be an important consideration in the Federal Reserve’s next interest rate decision later this month.

The economy is expected to have added 318,000 jobs in August, less than the surprisingly strong 528,000 jobs added in July, according to Dow Jones. The unemployment rate is expected to hold steady at 3.5%, while average hourly wages are expected to rise 0.4%, or 5.3% on an annualized basis.

“The view from market participants is the employment report is more important than the CPI inflation report in determining whether a 75 basis point or larger hike in September is more appropriate than a 50 basis point hike, and I think that’s the right view,” said Michael Gapen, chief U.S. economist at Bank of America.

The other important data central bank officials will consider as they meet Sept. 20 and 21 is the August consumer price index, released Sept. 13. CPI is expected to be high but lower than July’s 8.5% pace, due to falling gasoline prices.

Stocks sold off ahead of the nonfarm payroll report this week on worries about inflation and rising interest rates. Strategists say the jobs report could be perceived as a “bad news is good news” type of report. A strong number could trigger more selling and a move up in bond yields, since investors will assume it will make the Fed more aggressive about raising interest rates.

“A weak number will lead to a rally in bonds,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “It will lead to weakness in the dollar and that will give us a relief rally in stocks, but I don’t know how long that will last because buying stocks into the teeth of a recession hasn’t been a great strategy. I think it’s going to be a recession for some and maybe not for others.”

Fed Chairman Jerome Powell spooked the market last week when he emphasized that the Fed is committed to battling inflation with higher rates, and it does not plan to back down. Many market pros expected the Fed to reverse some of its rate increases next year.

Powell used his Jackson Hole speech to bluntly warn that the economy and labor market will likely feel “pain,” as the Fed uses interest rate hikes to bring inflation under control. Investors have been debating whether the Fed will use its September meeting to fire off a third three-quarter point hike, or pare back to half a percentage point.

On Wednesday, Cleveland Fed President Loretta Mester, a voting member of the Fed’s policy setting committee, said the central bank will have to move it key lending rate above 4% by early 2023 and keep it there.

“The labor market situation has been a focus of the Fed,” said Diane Swonk, chief economist at KPMG. “It’s one thing to say that unemployment is unsustainably low, and it’s another thing to say we’re going to raise unemployment. They mean the same thing…Pain in the labor market is raising unemployment.”

Swonk said there is a lot of emphasis on the August jobs report, but it is the one month when economists expect the government’s monthly payroll data to be misleading.

“August tends to be the lowest response rate for the payroll survey of any month of the year, which makes it subject to some of the largest revisions,” she said. “This number is likely to get revised a lot. It’s a number you have to take with a little bit of a grain of salt.”

Swonk said small business hiring has probably been more affected by the pinch of inflation and higher rates than the larger employers. She expects there could be some degree of labor “hoarding,” as companies hold on to workers rather than lay them off because of the difficulties in finding workers.

Leisure and hospitality, for instance, may not see its usual end of summer downturn because businesses were already short staffed going into the summer vacation season, she added.

Both Swonk and Gapen expect the job market to begin turning out negative monthly numbers by early next year, as the Fed’s tightening takes a toll on the labor market.

Yet, the jobs market remains surprisingly resilient so far. The Bureau of Labor Statistics this week reported a stunning 11.2 million job openings in July, a million more than expected.

Tom Gimbel, founder of LaSalle Networks, a recruiting firm, said he is not really seeing a slowdown despite high profile announcements of layoffs in the technology sector.

“We’re seeing a big uptick in technology…It continues to grow. The biggest numbers tend to be in cybersecurity. I’m seeing a 20% increase year over year in the number of job openings,” he said. “I’m seeing an increase of 15% in project management. Companies are still doing special projects within the tech space.” He said sales jobs are also up by 10% since last year.

“We just heard the message again from Jackson Hole, the Fed is serious and we’re going to get inflation under control. The labor market is clearly out of balance,” said Gapen. “The stronger it is across the board, the more Fed tightening it’s going to bring.”