American’s Higher Wages Could Lead To Continued Rise In Inflation

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Federal Reserve Chair Jerome Powell said a rise in interest rates could be needed to further ease current high inflation and average weekly earnings among Americans might need to cool down.

Posted August 28, 2023

Based on the latest consumer price index from the Bureau of Labor Statistics, weekly earnings have increased to 3.5 percent year-over-year since July. However, the Federal Reserve is cautious about wage hikes and could affect its efforts to bring inflation down.

Federal Reserve Chair Jerome Powell said Friday, the ongoing wage hikes will need ease if inflation is to decrease. The Fed’s current goal for inflation is to bring the interest rates to a target of between 5.25 percent 5.5 and percent.

The Fed’s goal is for an annualized rate of inflation of 2 percent.

“The rebalancing of the labor market has continued over the past year but remains incomplete,” Powell said. “Labor supply has improved, driven by stronger participation among workers aged 25 to 54 and by an increase in immigration back toward pre-pandemic levels.”

Meanwhile, American’s real earnings increased by 1.3 percent from July 2022 through July 2023, according to the Bureau of Labor Statistics.

“We will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data,” Powell said. “Restoring price stability is essential to achieving both sides of our dual mandate. We will need price stability to achieve a sustained period of strong labor market conditions that benefit all.”

The national interest rate reached a record high last year of 9.1 percent.