Labor Market Overheating. The Fed Will React to This.

Apollo Chief Economist

The latest wage data from the Atlanta Fed is out, and it shows the highest growth in wages on record. Job switchers are seeing particularly strong increases in compensation, see charts below.

The Fed will look at these trends and conclude that the labor market is overheating and financial conditions have to be tightened immediately. Either via higher rates, wider credit spreads, lower equities, or some combination. The goal now is demand destruction to get inflation under control, and the market should not underestimate the Fed’s commitment to make this happen.

Chart showing wage growth at record levels
Source: FRB Atlanta, Haver Analytics, Apollo Chief Economist
Chart showing strong wage growth among the major of earners
Source: FRB Atlanta, Apollo Chief Economist

Chart showing wage growth is particularly strong among 16-24 year olds
Source: FRB Atlanta, Apollo Chief Economist
Chart showing solid wage growth for people switching jobs
Source: FRB Atlanta, Apollo Chief Economist

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