Fed’s Soft Landing Hinges on a Wage Inflation ‘Head Scratcher’
- Pay pressures ebb even as unemployment falls to 53-year low
- Competing theories pose different implications for the economy
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Federal Reserve Chair Jerome Powell and his colleagues confront a “legitimate head scratcher” as they probe how high to raise interest rates in the coming months: Why is wage growth slowing if the jobs market is so tight?
The answer will go a long way in determining whether the Fed can bring down inflation without doing that much damage to employment and the economy. If pressure on pay keeps easing even as employers keep hiring, policy makers may feel less compelled to push rates ever deeper into restrictive territory in their drive to return inflation to their 2% goal.