This morning’s employment report showed the U.S. is gaining jobs at a healthy pace, but included a disappointing wage number, which were flat month-over-month.
Wage growth indicates higher labour costs, which is the missing link for the Fed in its inflation story, according to Societe Generale’s Aneta Markowska.
From the Fed’s standpoint, the report does not have enough juice to change the minds of the more dovish officials. The Fed needs to see sustained improvement on employment and evidence of price pressures reaffirmed in wages. Wage growth has flattened out over the past few months, suggesting that any price pressure in the economy are not yet deeply rooted.
So while market may be correctly projecting that QE3 is now out of the question, anyone thinking a rate hike is now likely by the end of 2011 has little proof.
A reminder of where we stand with labour costs:
Photo: Societe Generale