Bloomberg News/Landov
A roaring U.S. jobs engine is powering the economy and provides the strongest bulwark against the threat of recession.

A gargantuan surge in new jobs in December, a recent lull in inflation and a more cautious Federal Reserve have dispelled fears that the U.S. faces a looming recession.

The 312,000 increase in jobs in the final month of 2018 was a badly needed salve for a shaken Wall Street after a series of hammered blows wiped out all the stock-market gains for the year. The Dow Jones Industrial Average DJIA, +0.51% and S&P 500 SPX, +0.45% both posted their biggest annual losses in a decade.

“The report capped the best year of job growth since 2015 and underscores the fact that the economy headed into 2019 with continued strength in the labor market,” said Omair Sharif, senior U.S. economist at Societe Generale.

Now senior Fed officials appear to have backed off plans to raise interest rates as high as they planned just a few months ago. Rising rates were major spur for the market selloff at year end.

Read: Powell says Fed is ‘watching and waiting’ on interest rates

What’s allowing the Fed to take a wait-and-see approach is waning inflation. Although wages are rising at the fastest pace in a decade, inflation more broadly has eased in the past few months because of falling oil prices and a slower world economy.

“Oil prices have continued to edge lower, contributing to a synchronized easing in inflationary pressures,” economists at Barclays wrote.

A new report Friday on consumer inflation at the end of 2018 is expected to show price pressures may have peaked for now. The consumer price index is forecast to fall slightly in December, potentially slicing the rate of increase over the past 12 months below 2%.

The yearly rate has fallen from a six-year high of 2.9% last summer.

The Fed is also willing to take a step back because the economy does seem more fragile.

The housing market tailed off toward the second half of 2018, for example, because of higher mortgage rates. And a pair of influential surveys suggested American manufacturers also had a tougher go of it at the end of the year due to a festering trade dispute with China and a slowing global economy.

The standoff with China has already taken a bite out of the hide of U.S. companies and added to a darker tone on Wall Street. Tech giant Apple