The Chairman of the Federal Reserve Jerome Powell, whom I admire and think very highly of, said something in his speech yesterday that I think would helpful for everyone, no matter what they’re doing.
He’s seeking to explain why wages are not growing faster given the incredibly tight labor markets. My guess is that it’s because the Boomers who are leaving the labor force for retirement are at the top of the income scale, and the Gen Y kids replacing them are coming in at entry-level salaries – and so in the aggregate wage gains seem moribund, but if you actually look at wage gains on an individual basis, people are getting raises left and right.
That’s just my guess based on everything I’ve read, heard and seen. Chairman Powell warns us that maybe it’s not that simple. My QOTD:
My comments today have two main objectives. The first is to explain how changes in the Phillips curve help account for the somewhat surprising but broadly shared current forecasts of continued very low unemployment with inflation near 2 percent. At the risk of spoiling the surprise, I do not see it as likely that the Phillips curve is dead, or that it will soon exact revenge. What is more likely, in my view, is that many factors, including better conduct of monetary policy over the past few decades, have greatly reduced, but not eliminated, the effects that tight labor markets have on inflation. However, no one fully understands the nature of these changes or the role they play in the current context. Common sense suggests we should beware when forecasts predict events seldom before observed in the economy.
If we approach investment decisions this way, I think we leave ourselves room for the new, the novel and the inexplicable to take place without them doing irreparable damage in the process.