Federal Reserve holds meeting to discuss interest rates

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US wage growth cooled in the final months of 2023 to its slowest pace in more than two years, according to a gauge closely watched by the Federal Reserve, offering the latest evidence of easing inflationary pressures.

The Employment Cost Index, a comprehensive measure of employers’ labor costs, rose 0.9% from October through December, new data released Wednesday showed.

That represents a slowdown from the 1.1% gain in the third quarter and below what economists were expecting, according to FactSet estimates. The index takes into account wages and benefits paid to US workers.

Still, the fourth quarter’s increase was above anything seen in the decade leading up to the Covid-19 pandemic. The ECI never breached 0.8% on a quarterly basis from 2008 to 2020. Excluding benefits, wages rose 0.9% in the fourth quarter, an even steeper slowdown from the 1.2% registered in the third quarter.

The latest ECI reading points to a cooling job market, which bodes well for slower inflation and, eventually, rate cuts.

“We continue to expect a moderation in wage gains in the coming months as labor market conditions soften and labor demand comes into better alignment with labor supply,” Gregory Daco, chief economist at EY-Parthenon, said in a note Wednesday.

“In a world where wage growth is moderating, pricing power is diminishing and monetary policy remains restrictive, we believe inflation will continue to move toward the Fed’s target,” he said.

Wage and benefits growth in service-providing industries, such as education and health care, slowed in the fourth quarter, while it picked up for manufacturers. Pay gains among US workers in retail, finance, construction and utilities cooled from October through December, while it rose substantially in transportation and warehousing, up to 3.1% from 0.8%.

Sumber: www.cnn.com

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