Keep one eye on US wage inflation

RBC’s Chief Market Strategist, Jonathan Golub, and his research team say that “bull markets most often end when recessions ensue." And according to Golub, none of the “recessionary indicators” are flashing red at the moment. However, the one thing that could cause them to change is a spike in US wage inflation. “While the yield curve is generally the most important recessionary indicator, we believe the trend in wage inflation is paramount in the current environment. A sharp pickup in wages would likely cause the Fed to act more quickly, derailing the expansion. From an historical perspective, a 100 [basis point] move would be necessary to sound the alarm. While wages are clearly rising, such acceleration is absent.” The strong correlation between wages and the Fed’s benchmark interest rate can be seen in the chart below. (VIEW LINK)

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