Wage gains at long last have made an appearance in the US economy after a
baffling absence amid robust job growth but the Federal Reserve is
expected to hold its fire next week.
Central bankers certainly will take notice of the recent data, with
especial focus on everything contributing to inflation, but have made it
clear they are committed to a gradual pace of increases in the
benchmark lending rate, meaning the fourth hike of the year will not
come until December.
The Fed's rate-setting Federal Open Market (FOMC) meets Wednesday and
Thursday but, in keeping with recent custom, economists do not expect
any moves to be made since this meeting is not one that will be followed
by a press conference with Fed Chairman Jerome Powell.
That dynamic will change next year when Powell will hold a briefing
after every policy meeting, making economists' forecasts a bit more
lively.
Fed officials have made it clear the economy can continue to perform
well for some time with the current course of rate increases.
Three more are expected next year as the central bank removes stimulus
from the economy to prevent price pressures from accelerating.
The meeting takes place against the backdrop of President Donald Trump's
repeated attacks on Powell for raising rates, which has injected an
unwelcome political element into the deliberations.
Trump said the Fed has gone "crazy" and posed the greatest threat to his economic policies by moving too fast.
"He was
supposed to be a low-interest-rate guy. It's turned out that he's not," Trump said.
But the Fed has made it clear more rate hikes will be needed, since as
companies increasingly are having difficulty finding and keeping
workers, which likely means wages will rise faster.
And firms also are facing price increases due to Trump's aggressive
trade policies that have imposed steep tariffs on steel, aluminum and
thousands of needed inputs.
- Don't kill the recovery -
Diane Swonk of Grant Thornton said the central bank was trying to fine
tune the economy so that it can continue to grow without igniting
inflation.
"The Fed is not trying to kill the economy," she said in a research note.
Instead, the FOMC members "are trying to pace us so that we can extend the length of this marathon we are now running."
The recovery from the 2008 global financial crisis is now in its 10th
year, making it the second-longest of the post-World War II era. "The
FOMC would like it to exceed the 1990s in length," Swonk said.
Able to declare victory with half of its dual mandate achieved -- full
employment, as seen by the 48-year low in the jobless rate of 3.7
percent -- central bankers are watching closely for any buildup of
inflation.
The Fed's preferred measure of inflation is right on target at two
percent a year but policymakers will scrutinize the continued job
creation, the 3.1 percent gain in average hourly wages and a 2.8 percent
quarterly gain in total compensation.
Mickey Levy of Berenberg Capital Markets, said, "The moderate
improvement in wage growth keeps the Fed on track to hike again in
December and enables them to transition to a slower pace of rate
increases next year."
Economist Joel Naroff notes that the pace of job creation "seems to be unsustainable."
But he cautioned that the 3.1 percent wage gain "will be the data point
that catches the attention of the Fed members the most. And they will
not be happy about it."
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