Federal Reserve officials, facing an economic jumble as 2016 begins, will almost certainly keep short-term interest rates steady at a policy meeting this month and turn their focus toward a potential cliffhanger decision about whether to lift them when they gather again in March.

Job growth is strong, but financial markets are volatile and downward pressures on inflation are building. The employment picture gives officials an incentive to raise rates to prevent the U.S. economy from overheating, but market instability and the inflation outlook provide reasons to hold off.

Officials are likely to wait to see several new rounds of economic and market data in coming weeks before deciding whether to raise interest rates in March, according to their public comments and interviews.

“The markets and the [Fed] are not thinking about a January move,” James Bullard, president of the Federal Reserve Bank of St. Louis, said Thursday. “As far as March, I think we’d want to get more information and see how things play out.”

Futures markets place a 35% probability on a Fed rate increase by the March 15-16 meeting and a 65% probability that the Fed will stand pat, according to the Chicago Mercantile Exchange.

Fed officials have penciled in four quarter-percentage-point rate increases in 2016, but have said they would adjust that plan if economic data don’t support it. For now, many are reluctant to shift their views on the economy.

“In terms of the economic outlook, the situation does not appear to have changed much since the last [Fed] meeting,” New York Fed President William Dudley said in a speech Friday. “Some recent activity indicators have been on the softer side, pointing to a relatively weak fourth quarter for real [gross domestic product] growth. But this needs to be weighed against the strength evident in the U.S. labor market.”

He spoke shortly after the government released reports showing U.S. retail sales and a gauge of business prices both fell in December from the prior month.

The Fed also reported that U.S. industrial production also fell in December.

The U.S. central bank in December raised its benchmark short-term rate by a quarter percentage point after keeping it near zero for seven years.

One potential concern for the Fed—if it persists—is that financial conditions already have become notably more restrictive as the new year begins. In addition to falling stock prices, yields on corporate bonds are rising relative to safe-haven Treasury bonds. This is especially true in the risky junk bond market, where yields have risen by more than a percentage point since early December to near 9%. Meantime, a strengthening dollar is making exports more expensive abroad, slowing economic growth.

The Goldman Sachs Financial Conditions Index—which accounts for a range of factors such as stocks, bonds and the dollar which could weigh on growth—has move up by half a point since the Fed raised rates in mid-December, meaning markets have become a bigger headwind to growth.

The move in the Goldman index since December is a bigger move than occurred in the summer of 2013, when Fed discussions of ending a bond-buying program led to market turbulence known as a “taper tantrum.” That turmoil, in turn, led officials to delay ending the bond program. The move in financial conditions is also approaching the size of the index’s move that occurred in August, when Fed officials became so unsettled about market unsteadiness that they delayed a rate increase that had been expected in September.

The events of late summer provide a potential window into how Fed officials are likely to respond to episodes of market volatility or uncertainty like the current one.

Because inflation is low and economic growth slow, they plan to proceed cautiously toward rate increases. Market uncertainties could leave them apt to delay until they have a better handle on events, as they did in the fall.

“If the volatility continues for several weeks, I may have to revise my view” about the economy’s path, Atlanta Fed President Dennis Lockhart told reporters Monday. “It’s a matter of how long it lasts.”

The decisions about rates ultimately come down to the behavior of jobs and inflation. On that front, economic data is pointing them in two directions.

Employers added a robust 292,000 jobs in December and job gains averaged 283,000 a month in the fourth quarter, a strong performance despite slowing economic growth overseas.

Analysts surveyed by The Wall Street Journal project the unemployment rate will recede from 5% in last December to 4.8% by June and 4.7% by December. If job growth continues at the fourth-quarter pace, it could well drop below those projections and below the Fed’s own 4.7% projection for year-end.

“We’re very close to full employment, and the economy still has a good head of steam,” San Francisco Fed President John Williams said in a speech last week.

Officials believe slack in the economy is diminishing as the jobless rate recedes.

In theory that should push inflation up toward the Fed’s 2% objective. Instead, however, inflation has run below the goal for more than 3½ years. New downward pressures are building with the decline in oil prices and a strengthening in the dollar, which weighs on import prices.

Falling oil and import prices could lead Fed officials to lower their inflation projections at their March meeting. Last month they estimated inflation, as measured in the personal consumption expenditure price index, would rise from below 1% to 1.6% by the end of 2016. Downward revisions to their inflation estimates—in particular so-called core inflation, which excludes food and energy prices—could lead them to delay rate increases.

Mr. Dudley said he took comfort from the fact that core inflation has been stable despite falling oil prices. That suggests the core inflation outlook could become a key factor for the Fed as it considers a March move.

But of growing concern to Mr. Dudley and other Fed officials is the fact that expectations among households and investors about future inflation have been receding. For instance in bond markets, the compensation that investors demand for inflation five to 10 years in the future has dropped below 2%, according to Barclays. The Fed wants expectations to remain steady because they can become a self-fulfilling prophesy.