, Columnists
How the Fed Misinterprets Wage Growth
The central bank is confused about the interplay between cycles in growth and inflation.
Watching wages.
Photographer: Andrew Harrer/BloombergThis article is for subscribers only.
Federal Reserve Chair Janet Yellen pointed to “nonexistent” real wage growth to justify holding rates at zero percent in 2014. There is room, she said, “for real wage gains before we need to worry that that is creating overall inflationary pressure for the economy,” suggesting that real wage growth was a precondition for rate hikes.
Fast-forward to today, and we find the Fed ignoring that dictum and in the midst of a series of rate hikes that are expected to continue, even with real wage growth back down around zero. Why the change?