Worker paychecks still haven’t caught up to the growth in jobs

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Commuters transfer from Long Island railroad service to a New York City subway at the Barclays Center subway station.

Stephanie Keith | Getty Images

Commuters transfer from Long Island railroad service to a New York City subway at the Barclays Center subway station.

However, that tightness should be generating wage pressures, and so far it has not.

“The reality is that we are still seeing only a gradual move higher in wages on a trend basis,” Joseph Song, U.S. economist at Bank of America Merrill Lynch, said in a note. “This will continue to present itself as a puzzle for the Fed — with wages failing to accelerate, the natural conclusion will be that (equilibrium interest rate) is lower.”

For now, that puzzle is working in the Fed’s favor.

The central bank wants to gradually raise its benchmark interest rate over the next few years until it reaches a point that is neither overly accommodative nor tight. As of now, the rate is targeted between 1 percent and 1.25 percent, low by historical standards but one that has been unable to get the Fed to its 2 percent inflation target. (The Fed relies on the personal consumption expenditures index rather than the CPI as its inflation guide.)

“You could call that ‘Goldilocks,'” Krosby said, referring to an economy that balances between solid growth without rampant inflation. “You’re still looking and waiting to have those wages move up a little more and continue to rise, but not to the point that it induces more inflation.”

Overall, the market and the Fed seem to be dismissing the September and October reports as skewed because of the hurricane season.

Should wage growth continue to lag, it could put pressure on the Fed to slow down in 2018 from what the market expects will be three or four rate hikes.

“The market doesn’t want to see an economy heating up so significantly that it demonstrates that the Fed is behind the curve,” Krosby said. “So this report, while for economists it’s disappointing, doesn’t seem to bother the market. In fact, it appreciates this report.”

WATCH: Jim Cramer says the somewhat disappointing jobs report won’t deter the Fed.

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