Fed Governor Implies Employers Should Slow Down Wage Increases

 Speaking at the 59th Annual Economic Forecast Luncheon in Phoenix, Arizona, Federal Reserve Governor Christopher Waller implied that employers should slow down any wage increases they hand out so that the American economy can temper inflation.

Waller warned that the economic growth in the third quarter the first half of the year had experienced economic doldrums was only temporary, and that “weak growth has returned in the last quarter of this year and will persist into 2023.” He surmised that because consumer and business spending had softened and Americans had voiced near-record-low consumer attitudes vis-à-vis the economy because of high inflation.

Yet he championed the slowing growth, calling it “absolutely necessary to bring inflation down to our 2 percent target” while crediting the Federal Reserve’s actions as the cause, using as an example the housing market, which has been hit hard by rising interest rates.

“Housing may be the first but won’t be the last sector of the economy where higher interest rates will have the effect of dampening demand and will ultimately help moderate price increases,” he asserted.

Then he turned to the labor market, acknowledging, “There are almost two jobs for every person looking for work. Wages have been rising more quickly than they have in decades …”

“We are starting to see some tentative signs of a moderation in wage growth,” Waller pronounced, before giving his implicit warning to employers: “Wage growth has been a contributing factor to inflation, especially in the service sector, so it is important to get the labor market into better balance to bring future wage growth down to a more sustainable level that will assist in moving overall inflation lower.”

In March 2022, Fed Chair Jerome Powell offered a similar message regarding wage hikes, saying, “The promise of wages moving up is a great thing. But the increases are running at levels that are well above what would be consistent with our 2% inflation goal over time.”

In May, Powell commented, “Wages are rising at the fastest pace in many years,” also declaring, “In principle, it seems as though, by moderating demand, we could see vacancies come down, and as a result—and they could come down fairly significantly and I think put supply and demand at least closer together than they are, and that that would give us a chance to have lower—to get inflation—to get wages down and then get inflation down without having to slow the economy and have a recession and have unemployment rise materially.”

Fed Governor Implies Employers Should Slow Down Wage Increases Fed Governor Implies Employers Should Slow Down Wage Increases Reviewed by Your Destination on November 18, 2022 Rating: 5

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