Wage growth picked up in April, good news for American workers but bad news for Federal Reserve officials.
Average hourly wages rose 4.4% in the year to April. That was above economists’ expectations of his 4.2% compared to his 4.3% the previous month.
Wage increases compared to last month — 0.5% — was the fastest since March 2022.
Hourly wage measures can fluctuate from month to month, so the rise in April could be temporary rather than a reversal of the trend of slower wage growth. Still, the data highlights that the Fed faces a bumpy road as it seeks to slow the economy and keep inflation under control.
The Federal Reserve is watching the pace of wage growth closely as it tries to assess how quickly inflation could fall. Officials regularly admit that wage increases did not initially cause a sharp rise in prices, but with wage increases rising so quickly, returning inflation to normal has proven difficult. I am afraid that
Businesses may charge more to cover rising labor costs. Also, increased household income allows them to accommodate higher expenses without having to spend less. This allows businesses to increase prices for hotel rooms, childcare and restaurant meals without scaring consumers off.
From March 2022, the Fed will raise interest rates at the fastest pace since the 1980s. Officials this week hiked borrowing costs to just about 5% and signaled they could pause interest rate movements at their June meeting, depending on upcoming economic data. .
Fed Chairman Jerome H. Powell said at a press conference this week that wage growth remains strong. He suggested that a strong job market is one reason the Fed is likely to keep interest rates high to keep the economy slowing “for a while.”
“Right now, the labor market is still very tight,” he said, noting that older wage figures released last week were “several percentage points above those consistent with 2% inflation over time.”
Its measure, the Cost of Employment Index, showed wages and salaries for private-sector U.S. workers rose 5.1% year-over-year in March. That’s slightly faster than the increase reported in April’s overall average hourly wage figures released on Friday, but a closely watched measure within the monthly employment report that tracks wage increases for general workers. values are almost identical.
Pay production and non-supervised workers (basically people who are not managers). 5 percent increase For the year to April, Friday’s report showed. Even though the overall exponential slowdown has stalled, the numbers continue to slow down over time.
Fed policymakers will have another month of employment and wages data before making their next rate decision on June 14, so Friday’s numbers put a pause on rate hikes It is just one of many factors that decide whether to continue or pursue additional policies. adjustment. Officials will also have more evidence by the next meeting on how the recent turmoil in the banking sector is slowing the economy.
A series of high-profile bank failures could unnerve investors and caution lenders across the country. This could make it harder to access financing for construction projects and mortgages, slowing growth, but it’s unclear how big the impact will be. will be
Perhaps most importantly, authorities receive fresh inflation data before the next decision.
“They will have to look at the inflation data and digest this holistically,” said Kathy Bostjancic, chief economist at Nationwide. She said the strong hiring numbers were just one month of data, but it was “jarring” to see at a moment when economists were calling for a slowdown.
“Assuming inflation is on a gradual downward trend, I think we can keep the rate unchanged in June,” he said of the Fed. “But that depends on the rate of inflation,” he said.
