Wage inflation causes fed overreaction

(Wolf, “Wage Inflation is Finally here, and it’s Toxic for the Fed,” pg online @ https://wolfstreet.com/2018/02/02/wage-inflation-is-finally-here-and-its-toxic-for-the-fed/ //um-ef)

Yet the moment wages tick up, suddenly it gets his attention. It gets every Fed governor’s attention. Wage increases give them the willies. Creating asset price inflation, including the most glorious housing bubble imaginable, became the Fed’s publicly stated policy goal under Chairman Bernanke – his infamous “wealth effect” doctrine. And consumer price inflation must always be high enough to eat up wage gains and help companies show growing revenues, but not so high that it blows down the whole house. But wage inflation is toxic for the Fed. Wage inflation means that people get paid more for the same amount of work. A higher income due to promotions, for example, is not part of wage inflation. So Kashkari explained to CNBC why he voted against every rate hike last year: “We’ve been undershooting our inflation target for basically 10 years. And there has been very muted wage growth.” So to “assess supply and demand in the labor market,” you “start by looking at the price. And the price of labor – wages – had not been climbing. This jobs report now at least shows some signs of wages picking up.” While “there might still be some slack in the labor market,” he said, “the wage measure is really important.” In its statement after the January 31 meeting, the Fed specifically pointed at the “low” unemployment rate, and some Fed governors have said that the unemployment rate, at 4.1% for the past four months, might inch down to 3.9% by the end of the year and stay there in 2019, and that these levels would put further pressure on wages as employers might have to raise wages to attract workers. When wage inflation picks up, the Fed steps on the brakes. Even Kashkari. While he rotated into a non-voting slot at the FOMC this year, he will be just as active during the discussions and in his public appearances. But now, even the most fervent dove is watching wage inflation with a worried eye. And if wage inflation continues to rise, expect some fireworks.