US wage growth, once an inflation risk, may now be the prop a soft landing needs
By Howard Schneider
WASHINGTON (Reuters) — Federal Reserve officials will look at new wage data due out Friday to confirm what many have come to suspect: That rising worker pay at this point is helping to keep the U.S. economy growing at a modest pace without fanning the inflationary pressures they are trying to squelch.
Wages last month likely rose at a 4% annual rate, according to a Reuters poll of economists, extending a slow decline in the pace of pay increases but still above the 3% level policymakers view as consistent with their 2% inflation target.
However alongside a recent jump in worker productivity and a moderation in the average number of hours worked by each employee, labor costs for each unit of output actually fell during the third quarter of the year, muting wage growth as a reason for companies to raise prices even as it left workers with more money to spend.
In remarks at Spelman College last week Fed Chair Jerome Powell noted while the pandemic-era savings that had been driving consumer demand may be about exhausted, rising pay had picked up the slack.
«As long as unemployment remains low...and wages are moving up above inflation, there's no reason why spending wouldn't continue to hold up,» Powell said.
The hope for the Fed is that demand moderates enough to allow inflation to continue slowing without collapsing altogether in a slide towards recession.
'SUDDEN COLLAPSE LOOKS UNLIKELY'
The November payrolls report, including figures on hourly wages and hours worked, is among the last major data releases before the Fed's Dec. 12-13 policy meeting. Fed officials are expected to leave the benchmark interest rate steady at 5.25% to 5.5%, remaining on hold for the third meeting in a row.
Economists polled
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