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Commentary By Reade Ben

Economics Newsletter: The Crucial Role of Wage Growth

Economics Finance

Friday’s labor data eases recession fears, but it isn’t a silver bullet. Cooling job growth will likely reinforce the Fed’s “steady hand” on rates. However, the inflation dragon has not yet been slayed – wage growth is still something to watch. Wage growth is important to consider because it directly impacts services inflation. To maintain a 2% inflation rate, the Fed is seeking a 3% wage growth rate. As the attached WSJ chart shows, wage growth has slowed relative to earlier in 2023. However, November’s data could be a minor setback. While annual wage growth has slowed to under 4%, November’s “modest acceleration” has contributed to an increase in the three-month annualized wage growth rate from 3% to 3.4%. Keeping an eye on subsequent months will be important.

Sources: The Wall Street Journal, Barron's, Reuters

Reade Ben is a policy analyst at the Manhattan Institute.

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