Hefty US Employee Salaries Challenge Fed's Inflation Fight

In recent times, American employees have continued to receive considerable wage increases. While this is beneficial for the workers, it might pose a challenge for the Federal Reserve in its attempt to curb inflation.

Employers spent 1.1% more on wages and benefits from July to September than the previous quarter, as reported by the Labor Department's employment-cost index, according to the Wall Street Journal. This increase outstrips the 1% gain observed in Q2, indicating persistently strong wage pressures.

The Federal Reserve is expected to keep interest rates steady at their 22-year peak in their upcoming policy meeting, maintaining the possibility of potential rate hikes if wage growth and inflation don’t show significant slowdowns. The recent compensation report doesn’t foresee a change in this stance, predicting high-interest rates well into the next year.

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Private employers spent 4.3% more on wages and benefits in Q3 year-over-year, a slight drop from 4.5% in the previous quarter. However, state and local government employees saw their pay increase by 4.8% from a year earlier, the fastest rate since records began in 2001.

The Fed believes wage growth must decelerate to around 3% to 3.5% annually for inflation to reach its 2% target. This outlook raises questions about the necessary conditions for such a slowdown, especially given recent trends in consumer spending and recruitment.

Compensation raises varied across different regions and industries. While wage gains cooled in Phoenix and Miami, New York workers saw stable increases. Industries like restaurants and bars saw slowdowns in wage growth, while nursing compensation surged.

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