NEW YORK - Americans' wages are losing ground to inflation at a steep rate, a report from the Federal Reserve BankFederal Reserve Bank of Dallas said on Tuesday that it offers some support for the central bank's super-charged campaign to lower price pressures.
Even though wages are higher due to the tightness of the labor market, a majority of workers are finding their wages falling further behind inflation, according to economists for the Dallas Fed. A majority of workers' wages have failed to keep pace with inflation in the past year, despite the fact that they were adjusted for inflation. The median decline in real wages for these workers is a little over 8.5%. The report acknowledged over the last 25 years there have been other periods of lost ground on wages relative to inflation but added that the current time period is unparalleled in terms of the challenges that employed workers face. The paper said that the median decline in real wages over the last quarter century is 6.5%, with real wage declines typically ranging between 5.7% and 6.8%, highlighting the pain of the current period.
The report comes as the U.S. central bank is pressing a historically aggressive campaign to raise rates. Since March, the Fed has lifted its overnight target rate range from near zero levels to the current 3% to 3.25% range, trying to lower the highest inflation rates in forty years.
According to central bank forecasts and comments of officials, the Fed's efforts are far from finished. At the September policy meeting, officials penciled in a year-ending funds rate of 4.4% and a 4.6% rate for next year.
The Fed justified this as a necessary rebalancing of the economy. It has acknowledged that it will take time to bring inflation down from the annualized 6.2% increase seen in August and drive up unemployment.
On Monday, New York Fed president John Williams said that while the unemployment rate will likely go up from 3.7% to around 4.5% next year, history shows that price stability is essential to achieving maximum employment over the long term. Williams said that high inflation hurts Americans unaffected by high inflation, and those who can't afford essentials - like food, gas, and housing - suffer the most. The Fed has faced criticism from some that its bid to lower inflation will cause too many job losses, and Fed Chair Jerome Powell has warned of economic pain.
On Tuesday in New York, San Francisco Fed leader Mary Daly said she believes there is room to bring better balance to the job market without sending that part of the economy into outright decline.
Daly acknowledged that wage earners were losing ground against surging inflation and noted that her bank is collecting evidence pointing to a moderation in wage gains.
She said she is seeing a very different pace for wage gains, as a number of the rapid churn seen during and after the most acute phase of the coronaviruses has passed. She said big wage increases give way to smaller gains or attempts to improve work conditions outside of pay.
There is a catch for the Fed, that wage earners could lose ground on their pay before prices are brought under control, with underlying levels of inflation having grown worse.