Federal Reserve Chair Jerome Powell said Wednesday he likes what he’s seeing on the wage growth front: a steady and gradual easing.
“Wage increases have really come down significantly over the course of the last 18 months, where they are substantially closer to a level that would be consistent with 2% inflation over time,” Powell said, noting that a variety of gauges have shown similar trends.
Data released earlier this week showed that the Employment Cost Index, a closely watched measurement of pay and benefits, rose 1.1% during the third quarter from the quarter before, according to the Bureau of Labor Statistics. That’s up a touch from the second quarter’s 1% growth rate.
Annually, however, there’s a much clearer picture of slowing wage gains. The latest ECI rose 4.3% on a year-over-year basis, which was down from 4.5% the quarter before and 4.8% in the first quarter.
“If you look back a couple of quarters, it was much higher, came down substantially in June, and then the September reading was more level than the June reading,” Powell said. “So, in a way, it was validating and very close to our expectations internally, too.”
Still, wage growth is running at a quicker pace than it did pre-pandemic (from 2015 to 2019, BLS data shows the ECI with an average growth rate of 2.47%).
“In my thinking, it’s not the case that wages have been the principal driver of inflation so far,” he said. “I do think it is fair to say as we go forward, as monetary policy becomes more important relative to supply-side issues I talked about in the unwinding of the pandemic effects, it may be that the labor market becomes more important over time, too.”