Wage hike is good news for workers but puts pressure on the Fed


Wages rose at a rapid pace in the year to March, a sign that labor shortages are prompting employers to raise wages to retain and attract workers – and a signal that the increase wages could keep inflation high, increasing pressure on the Federal Reserve as it considers how much and how quickly to cool the economy.

The central bank is trying to slow demand to a more sustainable pace at a time when inflation is at its fastest pace in 40 years. Officials began raising interest rates in March and suggested they could raise them by half a percentage point in May, twice as much as usual. Making money more expensive to borrow and spend can slow consumption and possibly hiring, tempering wage and price growth.

Friday’s jobs report likely bolsters the case for an oversized increase.

Wages have risen 5.6% over the past year, according to a report on Friday, a pace much faster than the 2-3% annual wage gains that were typical of the 2010s. the unemployment rate fell from 3.8% to 3.6%. Unemployment is now slightly above the half-century lows it reached before the pandemic.

“The salary numbers from a year ago continue to be very strong; it sort of shuts down any debate about whether the unemployment rate is giving a true and reliable signal about the labor market,” said Michael Feroli, chief US economist at JP Morgan. “The labor market is tight.

While the strength of the labor market has given policymakers confidence that they can slow the economy somewhat without causing an outright recession, such rapid wage gains could also perpetuate price increases by helping to support consumer demand and inducing companies to raise prices as they try to cover a higher workforce. costs.

“The promise of higher wages is a good thing,” Fed Chairman Jerome H. Powell said after the central bank’s decision to hike interest rates last month in a bid to calm the downturn. ‘economy. But the increases “are at levels well above what would be consistent with 2% inflation, our target, over time.”

With the March figures, wages are rising at an even faster rate through the year than they were when Mr Powell made his remark.

The rapid rise in wages comes as employers compete for a limited pool of workers. There are around 1.8 job openings for every unemployed person, and companies are complaining of struggling to hire across a range of skills and industries.

“If it stays this tight, a wage-price spiral will only accelerate from here,” Feroli said. Of the Fed, he said, “I think they probably think it’s unsustainable.”

Over the past year, wages have risen most sharply for workers in the recreation and hospitality industry, rising 14.9%, while workers in transportation and warehousing have also benefited from double-digit salary increases. These figures are for workers who are not supervisors.

Wages rose sharply again in leisure and hospitality last month, while wages also rose sharply for workers in the finance and durable goods sectors.

While rapid wage growth is a boon for many workers, families are finding that their paychecks, while bigger, aren’t buying as much as prices rise. Wage gains are not quite keeping pace with inflation for many workers.

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