ZIRP——The Monetary Trick Which Killed Wages
Stupid Fed Trick Number 1
The Fed thinks that keeping interest rates low spurs inflation. It was probably happy to see the purported uptick in wage inflation in the just released May jobs report. It wants to see wages start rising to create a bit of inflationary pressure.
That would be a real trick.
See, it doesn’t work that way. In fact, it’s just the opposite.
For the past 35 years, every time the Fed reversed monetary policy, wage rates immediately followed…in the same direction! When the Fed eased, the wage inflation rate fell. When the Fed tightened, wages rose faster. Not just a couple of times. Every single time!
If you want to know what’s killing workers wages in the US there it is. ZIRP.
If the Fed wants to get a little wage inflation, all it needs to do is start raising interest rates.
The above chart shows the annual rate of change in the average hourly wages of production and nonsupervisory employees, which comes from the BLS.
The same data reveals the second stupid trick. It’s not really a Fed trick, it’s a Wall Street economist, financial media trick. But trust me, the Fed will use it.
By now you’ve heard the G-R-R-REAT news that wage gains are heating up! Here’s how the Wall Street Journal put it a few minutes after the jobs report was released on Friday:
“At $24.96, average hourly earnings for private-sector workers were up 2.3% in May from a year earlier. That’s the biggest increase since the summer of 2013 a modest acceleration over the past four months and a little faster than the 2% average during the latest economic expansion.”
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