Wages managed to rebound last month for workers in the United States. The Federal Reserve policymakers see it as a sign of inflation. The sharp increase in hourly earnings comes after the lowest level of wage growth in decades. The US economy recovery has a lot of room before inflation alarms kicks off. It is still unclear what kind of inflation will make the Fed tighten its policy.
The US economy is slowly recovering and the time is just right for employers to pay more for their workers. December’s wage inflation could be an early indication of change after four years of pressure on paychecks prior to the Great Recession and the US Federal Reserve’s efforts to bolster the economy.
The increasing wage inflation is also a sign of victory for Fed policymakers trying to improve the labor market. It is also a signal for investors to tighten their monetary policy. The increase in wage inflation is seen as a good sign even if the rise was limited.
At present, Fed policy is still easy even if economists are hopeful that the US economy regains its pace. Since the recession in the late 2008, the Federal Reserve has kept interest rates near zero and purchased around $2.5 trillion in bond markets that made some economists, including some Fed policymakers, to worry that it could spike in inflation.
Prices have remained contained near the Fed’s target rate of 2 percent growth that allowed it to continue with its stimulus program to improve economic growth and lower unemployment from the current level of 7.8 percent. Fed Chairman Ben Bernanke said that high joblessness is a major reason why wages have been low. Workers couldn’t demand for higher wages while others are still looking for work.
In the previous economic recoveries, wage inflation started to increase while unemployment was around 7 percent. Some economists believe that the median unemployment will not return to pre-recession levels near 5 percent.