US economists see higher wages feeding inflation for 3 years

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Nearly three-quarters of US economists don’t see inflation falling past the Fed’s target rate of 2 percent until the second half of 2023 or later, a new poll shows.

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A panel of economists surveyed by the National Association of Business Economics (NABE) had raised their expectations for inflation significantly since they last campaigned in September, calling for near-term relief from price hikes. Expecting Americans received a dose of despair.

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Nearly three quarters of the 48 economists surveyed – 71 percent – saw the Federal Reserve’s preferred inflation gauge – personal consumption spending minus food and energy – not falling at or below the Fed’s 2-percent year-over-year target rate. “By the second half of 2023 or later,” said NABE Vice President Julia Coronado, who is also founder and president of Macropolicy Perspectives LLC.

Americans’ huge paychecks are behind the extended increase in inflation expectations, thanks to a nearly record number of job openings.

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“Two-thirds of the panelists expect wage increases to drive inflation out of the next three years,” said survey chair Yelena Shulyateva, who is also senior US economist with Bloomberg.

The Federal Reserve has been prioritizing getting Americans back to work during the recovery over keeping a lid on price pressures as it sees this year’s inflation spike as a temporary consequence of supply chains and resulting from businesses around the world. The shortage has to be reopened in a big way.

But during Congressional testimony last week, Fed chief Jerome Powell indicated that a change in the Fed’s thinking was underway. Powell told US lawmakers that it was probably time to “retire” the word “holiday” when describing inflation, adding that the Fed could intensify its reluctance to buy bonds to help keep long-term borrowing costs low. has helped.

A sharp tapering could set the ground for an inflation-cooling interest rate hike as early as the first half of next year — rather than the second half as previously expected.

The Fed is scheduled to hold its last two-day policy-making meeting of the year next week.

Despite the US economy adding a dismal 210,000 jobs last month, there are myriad signs that the labor market is on its way to a full recovery.

The country’s unemployment rate fell 0.4 percentage points to 4.2 percent last month as it narrows the gap with February’s 2020 rate of 3.5 percent.

Even more encouraging, the unemployment rate decreased last month, even as the labor force participation rate, which measures the number of people working or actively looking for a job, reached 61.8 percent. It is still 1.5 percentage points shy of reclaiming its pre-pandemic levels.

And the average hourly wage rose eight cents to $31.03 in November — continuing the trend of healthy wage growth this year.

More than half of NABE panelists – 58 percent – see the economy reaching full employment by the end of next year. But panelists are divided about whether the labor force participation rate will ever be able to recapture its pre-pandemic level of 63.3 percent.

Economists have put forward a number of factors that may have contributed to the decline in labor force participation, from fears of COVID-19 putting workers on edge, Baby Boomers seeking early retirement and Americans working for someone else. Stopped doing it and started working. For yourself by opening your own business.

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