Now might be a good time for the Federal Reserve to start worrying about inflation.
August’s jobs report, besides being a big disappointment on the 235,000 headline number, also showed that even with weak hiring, wages are rising.
Average hourly earnings jumped 0.6% for the month, about double what Wall Street had been expecting, and the increase from a year ago stood at a robust 4.3%, up from a 4% rise a month ago. Even leisure and hospitality, which saw zero net job growth in August, saw wages jump 1.3% for the month and 10.3% on the year.
Those numbers come as the Fed is weighing when to start pulling back on the historically easy monetary policy in place since the early days of the Covid-19 pandemic. Some voices on Wall Street expect the wage and inflation numbers to start resonating with Fed officials.
“The 5.2% unemployment rate and rapidly rising wages suggest building inflationary pressure that will ultimately lead to more hawkish policy,” Citigroup economist Andrew Hollenhorst wrote in a detailed analysis of the current jobs situation.
While Fed officials mostly discuss the total payroll gains, Hollenhorst said he “would expect this rhetoric to shift a bit, perhaps at the September [Federal Open Market Committee] meeting, with more focus on the high level of job openings and increasing wages.”
Fed Chairman Jerome Powell went to great lengths in his annual speech in August during the central bank’s Jackson Hole symposium to knock down concerns about rising wage pressures as well as inflation overall, despite consistently higher numbers.
