Wage increase in the USA makes it harder for the Fed to fight inflation


Economists point to a cooling trend in average wages. Salaries and wages of private sector employees, excluding bonus and incentive payments, increased by only 0.9% compared to the 1.1% increase in the previous quarter. The ECI is an important metric for Federal Reserve officials because it reflects pay changes in the same job roles over time.

In the autumn of last year, the increase in wages and benefits tracked by the ECI peaked at 5.1%. However, rapid inflation has eroded Americans’ purchasing power. The Fed’s goal is to slow inflation, making it easier to increase inflation-adjusted income, even if it means smaller wage increases. Fed Chairman Jerome Powell has suggested that annual wage increases of about 3.5% are consistent with the central bank’s 2% inflation target.

By October this year, the inflation rate in Europe decreased to 2.9% due to the decrease in fuel prices, but growth remained stagnant. Rising interest rates and an uncertain economic outlook could lead the Federal Reserve to remain inactive. Meanwhile, the United States experienced strong wage growth this summer, making it even more difficult for the Fed to fight inflation.



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