Fed Economists: Inflation Eroding Most Americans’ Wage Gains
‘The current time period is unparalleled in terms of the challenge employed workers face,’ says Federal Reserve Bank of Dallas
Getty Images Reuters • October 4, 2022 5:00 pm
By Michael S. Derby
NEW YORK (Reuters)—Americans’ wages are losing ground to inflation at a steep rate, a report on Tuesday from the Federal Reserve Bank of Dallas said, a finding that offers some support for the central bank’s super-charged campaign to lower price pressures.
“Despite the stronger wage growth due to the tightness of the labor market, a majority of workers are finding their wages falling even further behind inflation,” economists for the Dallas Fed wrote. A majority of workers’ wages, once adjusted for inflation, “have failed to keep up with inflation in the past year. For these workers, the median decline in real wages is a little more than 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 “the current time period is unparalleled in terms of the challenge employed workers face.”
The paper said the average 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 arrives 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 the comments of officials, the Fed’s efforts are far from finished. At its September policy meeting officials penciled in a year-ending funds rate of 4.4% and a 4.6% rate for next year.
The Fed has justified this as a necessary rebalancing of the economy. It has acknowledged that its effort to bring inflation down from the annualized 6.2% increase seen in August back to the 2% target will take time and will drive up
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