A member of the Federal Reserve said employers should stop giving wage increases to their employees, in an effort to help reduce inflation.
Christopher Waller, one of the Fed’s six members, used a speech in Phoenix, Arizona, to urge bosses to consider inflation when looking at their workforce.
He noted that there are now nearly two jobs for every person looking for work, and wages have been rising faster than they have been in decades – making the 2 per cent inflation target more difficult to reach.
“Wage growth has been a contributing factor to inflation, particularly in the services sector, so it is important to get the labor market into a better balance to lower future wage growth to a more sustainable level that will help reduce headline inflation,” Waller said.
“Any other time, I’d be so upset about slowing growth, but not now.”
Christopher Waller, who has been a member of the Fed’s six-person board of governors since December 2020, said he’s concerned that higher wages push up inflation.
The Fed issued a series of unusually large rate hikes of 75 basis points, which lifted the policy rate to a range of 3.75 to 4 percent from near zero in March.
Waller said unemployment in the United States is at its lowest level in 50 years, and wage growth is fueling inflation
HarperCollins Publishing employees protest outside their offices in Manhattan on November 15
The Fed has been aggressively raising its policy rate in an attempt to tame inflation by cooling the economy as borrowing costs rise.
Consumer price inflation in October fell to 7.7 percent, down from a 40-year high in June of 9.1 percent.
The “tight” job market remains a cause for concern, Waller said, telling his audience, “Labor contacts tell me of empty offices and idle production capacity because employers can’t find workers.”
The US job market remains very strong, with unemployment at its lowest level in 50 years.
The latest government data, from November 4, showed that payrolls grew by 261,000 in October.
This rise is less than it was in the first quarter of the year, when 539,000 additional jobs were added per month.
He pointed to the recent wave of layoffs in tech — with Amazon, Twitter and Facebook cutting thousands of jobs — but said it had not spread to other sectors.
“While there was roughly one job for every job seeker in what was a strong job market before the pandemic, there are now roughly two jobs for every person looking for work,” he said.
He pointed to the FOMC’s 2% inflation target, and said higher wages make that target more difficult to reach.
“Wages have risen more quickly than they have been in decades, much faster than productivity growth, plus a couple of percentage points that I think is consistent with the FOMC’s 2% inflation target,” he said.
“But I do see initial signs of some calm in the labor market, which is vital to preventing rising labor costs from putting upward pressure on inflation.”
Waller said he won’t make a final decision on what to do at the Fed’s December policy meeting until reviewing the rest of the data between now and then.
“I’m not going to be fake on one report,” Waller said of last week’s consumer price data showing that inflation fell to its lowest annual rate since January.
I can’t stress enough that one report doesn’t make a trend. It is too early to conclude that inflation is on a sustained downward trend.
However, Waller also said the latest inflation reports were a “positive development” that he hopes will be “the beginning of a meaningful and sustained decline in inflation” to the Fed’s 2 percent target.
Waller says he now feels “more comfortable” with fewer interest rate increases in the future
Waller spoke after consumer price data released last week showed inflation fell to its lowest annual rate since January
Waller noted that rate hikes by the Fed have already had a significant impact on the housing market, which is the sector that is most responsive to interest rates.
“As home purchases decline, so does the demand for goods that usually accompany purchases—new carpeting, new furniture, new lawn mowers, and so on,” he explained.
“So a slowdown in home sales will reduce the demand for commodities that complement a new home purchase and this will lead to downward pressure on the prices of those commodities,” Waller added.
“Our goal is to rein in demand and achieve a better balance between supply and demand, which will help reduce upward pressure on inflation,” he said.
Waller applauded the latest inflation report, which showed headline and core inflation slowed in October.
“Despite the welcome news, we should be careful about reading too much into a single inflation report,” he said. “I don’t know how long this slowdown in consumer prices will last.”
To fight inflation, the Fed issued a series of unusually large interest rate hikes of 75 basis points, which pushed the interest rate to a range of 3.75 to 4 percent from near zero in March.
As it stands, Waller said, “the data of the past few weeks has made me more comfortable considering stepping down to a 50 basis point increase,” in December and possibly to quarter-point increases after that.
The Fed’s latest policy statement signaled the potential for a moderation in the magnitude of upcoming interest rate hikes, with officials shifting focus to a more nuanced approach that gives them more time to monitor the behavior of the economy and inflation while leaving themselves free to continue driving prices higher. .
Recent positive news about inflation has investors betting that the Fed may not have to do as expected, and may just need to raise its policy rate target to around 5 percent.
Waller said signs of a slowing economy and wage growth added to his sense that Fed policy is starting to do its job.
But he cautioned that it is too early to say how much higher rates you might need.
“Substantial and sustained inflation reduction toward our 2% target will require increases in the federal funds rate next year,” he said. “We still have a ways to go.”
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