The Fed doesn’t need to crush labor

One of the Fed’s justifications for raising interest rates in recent months
has been that incomes adjusted for inflation are falling, notes Skanda Amarnath, executive director at employment research organization Employ America. This was true from late 2021 until the summer of 2022, but real incomes have recovered as inflation has declined—which has pulled up consumer confidence data.

If the Fed keeps aggressively hiking rates, says Amarnath, its raises will begin to look punitive rather than helpful.

“It puts them in an awkward place of saying, ‘Yeah you’ve got too much of a good thing in terms of wage growth, and even though it’s posing no immediate inflationary pressure, we’ve got to put the foot firmly on the brake,’” Amarnath says.

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