Sticky core inflation & wages growth a headache for the Fed

US inflation and wages growth have peaked, but remain uncomfortably high for the Fed.
Kieran Davies

Coolabah Capital

The Fed meets on 2-3 May and should raise the funds rate by 25bp to a range of 5-5¼%.

Recent instability in regional banks will tighten financial conditions, but the problem for the Fed is that core inflation and wages growth are not decelerating as fast as policy-makers would like and remain uncomfortably high.  

The stickiness of consumer prices and wages growth is clear from the most recent readings of the Fed’s preferred measures of consumer prices and labour costs:

  • Monthly trend inflation for the core PCE deflator is running at 4½%, which is still very high relative to history and well above the Fed’s 2% target; and
  • Annualised trend growth in the private-sector employment cost index is running at 4¾%, which is still the strongest growth in years and well above trend growth of 3½% in the more volatile average hourly earnings series.   
US core inflation remains sticky ...


... with trend inflation still very high relative to both history and the Fed's 2% target 


The Fed's preferred measure of wages growth is still growing strongly ... 


... both relative to history and to other measures of wages 




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Kieran Davies
Chief Macro Strategist
Coolabah Capital

Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...

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