The fight against high U.S. inflation is far from over if a resilient labor market and rapid increase in worker pay is any indication.
Senior Federal Reserve officials believe a weaker labor market and slowdown in wage growth would help them return inflation to prepandemic levels of 2% or less. Inflation is now running in the 4% to 5% range, depending on the measure.Senior Federal Reserve officials believe a weaker labor market and slowdown in wage growth would help them return inflation to prepandemic levels of 2% or less. Inflation is now running in the 4% to 5% range, depending on the measure.
The tightest labor market in decades largely explains the increase in wages. There’s too few workers for a high number of job openings. Lower-wage workers in particular were likely to hop from one job to another in search of extra pay, she said. “There’s a real arms race going on.” What’s more, unit-labor costs jumped at a stunningly high 6.3% annual pace in the first quarter. Businesses are paying a lot more to produce the same number of goods and services, a clear inflation accelerator.The economy is likely to continue to slow in response to higher interest rates orchestrated by the Federal Reserve to vanquish high inflation, he said. Once that happens companies will start laying off their least-productive workers.
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