By Michael S. Derby
NEW YORK (Reuters) – Americans’ wages are falling at a sharp rate to the rate of inflation, a report from the Federal Reserve Bank of Dallas said on Tuesday. Underneath, the finding provides some support for strong central bank action to reduce price pressures.
“Despite strong wage growth due to a tight labor market, most workers find wages trailing inflation even further,” Dallas Fed economists wrote. Wages for most workers, once adjusted for inflation, “have failed to keep pace with inflation over the past year. For these workers, the median decline in real wages was just over 8.5 percent.”
The report acknowledges that wages have fallen relative to other periods of inflation over the past 25 years, but adds: “In terms of challenges facing employed workers, current The period is unparalleled.”
The paper said that the average real wage decline over the past 25 years was a median of 6.5%, with real wage declines typically ranging from 5.7% to 6.8%, underscoring the current The pain of times.
The report comes as the U.S. central bank is pushing for a historically aggressive campaign to raise interest rates. Since March, the Fed has raised its overnight target rate range from near zero to its current range of 3% to 3.25% in an attempt to bring down the highest inflation rate in 40 years.
Based on central bank forecasts and comments from officials, the Fed’s efforts are far from over. At the September policy meeting, officials expected the funds rate to end the year at 4.4 percent and 4.6 percent next year.
The Federal Reserve has demonstrated that this is necessary to rebalance the economy. It acknowledged that efforts to reduce inflation to its 2 percent target from an annual rate of 6.2 percent in August will take time and will push up unemployment.
On Monday, New York Fed President John Williams said that while the unemployment rate is likely to rise from 3.7% to around 4.5% next year, “history tells us that price stability is critical to achieving maximum employment over the long term. It matters.”
High inflation hurts Americans unequally, Williams said, adding that “those who can least afford necessities like food, gas and housing suffer the most.”
The Federal Reserve has faced some criticism that its efforts to lower inflation will lead to excessive job losses, with Fed Chairman Jerome Powell himself warning of possible economic pain.
In New York on Tuesday, San Francisco Fed President Mary Daly said she believed the labor market still had room to improve its balance without causing an outright downturn in this part of the economy.
Daly acknowledged that the working class was losing ground amid soaring inflation, noting her bank was gathering evidence that wage growth was slowing.
She said she is now seeing a “very different pace” of wage growth, having seen some rapid churn during and after the worst of the coronavirus pandemic The popularity is over. Big pay increases are giving way to much smaller gains or attempts to improve working conditions beyond pay, she said.
The problem for the Fed is that as underlying inflation worsens, wage earners may lose more wages until prices are brought under control.