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Fed’s Fischer Says Wages Beginning to Respond to Labor Market

by           

  • Says pay gains edging toward level that suppports inflation
  • Zero rates unhealthy in theory, means capital not productive

Federal Reserve Vice Chairman Stanley Fischer said low interest rates have helped deliver U.S. labor market gains that are feeding through to higher wages.

“With unemployment now below 5 percent we’re beginning to see the fruits of a higher-pressure labor market,” Fischer said Monday in response to questions following a speech at Howard University in Washington. “So, we’ve been getting there, and again, it’s pressure keeping, keeping interest rates low, that helps cause this to happen.”

Fischer, who didn’t discuss the timing of any increase in borrowing costs, said the move in wage inflation from about 2 percent last year to about 2.5 percent this year provides evidence the connection between unemployment and inflation, which looked less convincing over the past decade, still exists.

“We think that 3 percent is a rate that’s consistent with a reasonable rate of inflation,” he said, referring to wage gains.

Confidence that gains in employment will bring inflation back toward the Fed’s 2 percent target will be central to policy makers’ debate over when to raise interest rates next. Fed officials were divided over the question when they gathered Sept. 20-21, deciding ultimately to leave rates unchanged.  Read More…

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