Rising Productivity Will Finally Tame Inflation
Wage growth remains elevated not because companies need to pay up to find workers but because they’re now paying up for the right ones.
The right fit.
Photographer: Joe Raedle/Getty Images
The latest monthly US jobs report showed a moderation in employment growth, bolstering hopes that the Federal Reserve can stop raising interest rates. Not so fast, say the monetary policy hawks such as former Treasury Secretary Larry Summers. They point to elevated wage gains as a cause for concern. Specifically, Summers estimates that when combined with trends in productivity, the fatter paychecks indicate an inflation rate of around 3.5%, which is uncomfortably high for the Fed and begs for tighter monetary policy. That estimate sounds overly pessimistic to me.
This may all sound academic, but the debate is central to whether the Fed will be able to achieve a fabled “soft landing” in the economy, getting inflation under control without inflicting broader damage or whether its rate hikes will cause a crushing recession, resulting in millions of workers losing their jobs.