Employers should stop giving salary increases to their staff, said a member of the Federal Reserve’s board, in a bid to help bring down inflation.
Christopher Waller, one of the six members of the Fed’s board, used a speech in Phoenix, Arizona to urge bosses to take into account inflation when looking at their workforce.
He pointed out that there are now almost two jobs for every job seeker, and that wages are rising faster than in decades – making the 2 percent inflation target harder to achieve.
‘Wage growth has been a contributing factor to inflation, especially in the service sector, so it is important to get the labor market into a better balance to bring future wage growth down to a more sustainable level that will help in moving all inflation down,’ said Waller.
‘At any other time, I would be very happy about slowing down growth, but not now.’
Christopher Waller, a member of the Fed’s six-person board of governors since December 2020, said he was concerned that wage increases were fueling inflation.
The Fed has issued an unusually large series of 75 basis point rate hikes, raising the policy rate to a range of 3.75 to 4 percent from near zero in March.
Unemployment in the United States is at an almost 50-year low, and wage growth, said Waller, is increasing inflation
HarperCollins Publishing employees protested outside their Manhattan office on November 15
The Fed has been aggressively raising its policy rate in an effort to tame inflation by cooling the economy with higher borrowing costs.
Consumer Prices Inflation has decreased in October to 7.7 percent, down from the 40-year high in June of 9.1 percent.
Waller said the ‘tight’ labor market was still a concern, telling his audience: ‘Business contacts are telling me about empty offices and idle production capacity because employers can’t find workers.’
The job market in the United States remains very strong, with unemployment at a near 50-year low.
The latest government data, from November 4, showed that payrolls grew by 261,000 in October.
The increase was less than in the first quarter of the year, when an additional 539,000 jobs were added per month.
He noted the recent spate of tech layoffs — with Amazon, Twitter and Facebook all shedding thousands of jobs — but said it had not spread to other sectors.
“Whereas there was about one job opening for every job seeker in the strong labor market before the pandemic, now there are almost two jobs for every job seeker,” he said.
He pointed to the Federal Open Market Committee’s (FOMC) goal of having inflation at 2 percent, and said rising wages were making that target harder to reach.
‘Wages have been rising faster than they have in a decade, faster than productivity growth plus 2 percentage points which I think is consistent with the FOMC’s 2 percent inflation goal,’ he said.
‘But I see tentative signs of some cooling in the labor market, which is important to keep rising labor costs from putting upward pressure on inflation.’
Waller said he won’t make a final decision on what to do at the Fed’s policy meeting in December until he reviews the rest of the data between now and then.
‘I’m not going to be head-faked by one report,’ Waller said of consumer price data released last week, showing inflation fell to the lowest annual rate since January.
‘I can not emphasize enough that a report does not create a trend. It is too early to conclude that inflation is headed sustainably down,” he added.
However, Waller also said that the latest inflation report was a ‘positive development’ that he hoped would be ‘the beginning of a meaningful and persistent decline in inflation’ back to the Fed’s 2 percent target.
Waller said he was now ‘more comfortable’ with a smaller rate hike
Waller spoke after consumer price data released last week showed inflation fell to the lowest annual rate since January
Waller said the Fed’s rate hike has had a significant impact on the housing market, which is the sector most responsive to interest rates.
‘When home purchases fall, so does demand for items that normally accompany purchases—new carpets, new furniture, new lawnmowers, and so on.
“So slowing home sales will reduce demand for goods that complement new home purchases and that will put downward pressure on the prices of those goods,” added Waller.
“Our goal is to control demand, bring demand and supply into a better balance, which will help reduce the upward pressure on inflation,” he said.
Waller praised the latest inflation report, showing that total inflation and core inflation both decelerated in October.
“Although the news is welcome, we must be careful about reading too much into one inflation report,” he said. ‘I do not know how sustained this deceleration of consumer prices will be.’
To fight inflation, the Fed has issued an unusually large series of 75 basis point rate hikes, raising the policy rate to a range of 3.75 to 4 percent from near zero in March.
Waller said that as it stands ‘the data of the past few weeks makes it more reasonable for me to consider going back to a 50-basis-point hike,’ in December and the possibility of a smaller quarter-point increase after that.
The Fed’s latest policy statement indicated a possible slowdown in future rate hike measures, with officials shifting their focus to a more nuanced approach that gives them more time to monitor how the economy and inflation behave while leaving themselves free to push rates higher. .
The latest positive news on inflation has led investors to bet the Fed may not have to do as much as expected, and may only have to raise the target policy rate around 5 percent.
Waller said signs the economy and wage growth are slowing have added to the sense that Fed policy is starting to do its job.
But he cautioned that it was too early to indicate how the price level should go.
“Getting inflation down meaningfully and steadily toward our 2% target will require an increase in the federal funds rate into next year,” he said. ‘We still have a way to go.’