Federal Reserve Chair Janet Yellen said she is encouraged by tentative signs that wage growth is picking up, but these are “not yet definitive.”
“We have seen an increase in the growth rate of the employment-cost index, and the growth of average hourly earnings,” Yellen said at a press conference Wednesday in Washington following a meeting of the policy-making Federal Open Market Committee. “I would call these tentative signs of stronger wage growth. I think it is not yet definitive, but that’s a hopeful sign.”
As the rate of unemployment has declined, companies are finding they must offer higher pay to attract workers. Wages for private-sector employees rose 2.8 percent in the 12 months through March, the biggest gain in more than six years, according to the employment cost index published by the Labor Department. The U.S. jobless rate stood at 5.5 percent in May, down from 6.3 percent a year earlier.
The committee has said it will raise interest rates when it sees further labor-market improvement and is “reasonably confident” that inflation will rise to its 2 percent goal over time. Higher wages could strengthen that confidence.
Yellen said she wants to see “additional strength in the labor market” for her to have confidence that inflation will move back up to 2 percent, “but have made some progress.”
The Fed’s favorite price gauge, based on the personal consumption expenditures index, was unchanged in April from the prior month and was up 0.1 percent from a year earlier. That was the smallest 12-month gain since October 2009.