Fed Policy Guarantees Economic Stratification

It seems there is plenty of inflation going on in the economy, but the Federal Reserve has recently given signals that it won’t raise interest rates anytime soon. 

What could they be waiting for?

2018 article from the Federal Reserve reveals that Fed economists use “wage growth” to signify the end of the “economic slack” given before raising interest rates. With unemployment at high levels, wages will likely only have modest growth for the next while. Since wages are a lagging indicator, this means that you’ll watch the price of everything go up until your salary shows signs of rising—then the Federal Reserve will come to the rescue of the employers and crush your hopes.

Doesn’t a policy like this guarantee increased wealth stratification? Stock and property prices are certainly allowed to bubble (the bubbling process is even celebrated). Doesn’t this help the wealthiest one percent become wealthier? But no wage appreciation allowed. Hmm. 

Since the Phillips Curve (the previous method of determining the Fed’s interest rate policy) already stressed wages, it’s no wonder that “today’s real average wage…has about the same purchasing power it did 40 years ago.” With even more emphasis put on wage growth as an indicator, could we see purchasing power actually decrease in the coming years? Only time will tell.

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