Move over, inflation. The labor market is now the most important factor in the Federal Reserve’s decision on how high to raise interest rates next year.

The annual rate of increase in consumer prices has slowed since June, helped by deflation in commodity prices as supply difficulties eased and spending shifted to services. The consumer price index will decline further next year as housing costs decline and more U.S. households enter into new leases at lower prices.

However, the downward trend in price growth risks flattening out next year and surpassing the Fed’s 2% target unless and until prices in sectors other than housing begin to decline. This will require some easing in the labor market to bring labor supply and demand into alignment. Thus, jobs remain a key area to watch to determine how much further the Fed should move in its current tightening cycle.

According to the central bank’s own projections, the unemployment rate will rise to 4.6% next year. While that level is not alarming by historical standards, it would require the loss of more than a million jobs to reach it