Wages continued to rise rapidly last month, giving little encouragement to the Federal Reserve as policymakers hope for a slowdown in wage increases that could moderate inflation.
Average hourly wages rose 5.1 percent in the year through June, and moderated slightly from 5.3 percent in the year through May. Economists in a Bloomberg survey had expected a slightly larger cooling, to 5 percent.
Fed officials spent the pre-pandemic years applauding any strong wage figure, but recent wage increases have been fast enough to make it difficult for rapid inflation to slow toward the central’s 2 percent annual target. Bank. That’s because, the more they pay, the more companies typically try to cover their costs by raising prices.
“Wages are not primarily responsible for the inflation we see, but they would be very important going forward, especially in the service sector,” said Fed Chair Jerome H. Powell. at his press conference in June. He has repeatedly argued that slowing down the labor market is necessary to put it on a more sustainable longer-term path.
“If you don’t have price stability, the economy really won’t work the way it should,” he added in June. “It won’t work for people – their wages will be eaten.”
For most people, wages are already not keeping pace with price increases.
The Fed is raising interest rates to cool the economy to control inflation, and slowing demand should weigh on hiring and paying. The question is how much moderation in wage growth is needed to allay inflationary concerns.
Economists at Goldman Sachs have estimated that using their wage growth tracker — which is a few tenths of a percent higher than the average hourly wage estimate — will likely need to slow wage gains to about 3.5 percent to match the inflation target. Fed.