There is another sliver of optimism in the battle against historically high inflation that is well into its second year. New figures show wage growth in the U.S. slowed down in 2022 compared to 2021, signaling the wage-price spiral may be easing up. If that happens, it could allow the Federal Reserve to back off on the interest rate hikes it has planned for 2023. But most economists are still taking a wait-and-see approach. "It's too soon to say...it's very unclear right now," says Richard Rosso, Certified Financial Planner.
Rosso tells KTRH while wages for some industries may trend down a bit, the overall labor market is still depressed in the post-pandemic world. "We see labor force participation at a multi-decade low, we've got people who have retired, and we've got people still missing from the work force," he says. "So that's going to keep upward pressure on wages."
"That may start to to turn around in a year or two," Rosso continues. "Economists are calling it the great rebalancing, where employees are not going to have the leverage over employers that they did in the past."
Ultimately, he believes wage growth will depend on the industry. For instance, while the tech sector is already seeing layoffs, the service sector can't hire people fast enough. "Plus you still have employers who want to keep the employees they have, so they will have to use incentives to keep them," says Rosso. "There's no telling how long that type of inflation will continue."
"The bottom line is the Fed is going to have to keep hitting the brakes, and a lot of people think that they're going to be able to coast now...but it's way too soon for that," he continues. "They might slow down the pace, they might slow down how large these rate increases are, but that does not mean they are going to halt or pivot, and say we're not doing this anymore."