Powell prioritizes U.S. wage increases to fight Fed inflation in 2023

Federal Reserve Chair Jerome Powell is cautiously analysing the cost scale of various services in the labour market. This initiative is motivated by the fact that wages can impose particularly large costs on certain services. In November, the chairman outlined this problem in his final speech to the Brookings Institution before the Fed's last interest rate hike. Powell explained the labour market is the key to understanding inflation in this category. 

In his press conference, after the decision was announced, Powell came back to the topic. Now, he said, wages are getting well above the level that would correspond to 2% inflation.  

At this point, Fed members intend to find out if the increase in U.S. wages over the past 18 months is a one-time event. Companies are having to adapt to labour shortages. Besides that, the amount of wages paid to employees does not correlate with their workload. There is also the other situation when wage increases become a loop where price and wages mutually increase.

At this point, it is still difficult to analyse the U.S. labour market. This is due to the fact that businesses are still dealing with the massive disruptions caused by the pandemic.