October wage data came in hotter than expected. Average hourly earnings rose 0.4% month-over-month, beating the 0.3% estimate. Even more telling: September's number got revised up from 0.1% to 0.3%.
This matters because wage growth feeds directly into inflation expectations. When workers earn more, they spend more. When they spend more, prices have room to rise. The Fed watches this closely.
Two consecutive months of upward momentum in wages suggests the labor market still has heat. That complicates the narrative that inflation is fully under control. Markets will need to recalibrate rate cut expectations accordingly.
The psychology here is important. People feel richer when wages rise, even if inflation eats some of it away. That confidence drives consumption, which is 70% of the economy. A virtuous cycle until it becomes a vicious one.
This matters because wage growth feeds directly into inflation expectations. When workers earn more, they spend more. When they spend more, prices have room to rise. The Fed watches this closely.
Two consecutive months of upward momentum in wages suggests the labor market still has heat. That complicates the narrative that inflation is fully under control. Markets will need to recalibrate rate cut expectations accordingly.
The psychology here is important. People feel richer when wages rise, even if inflation eats some of it away. That confidence drives consumption, which is 70% of the economy. A virtuous cycle until it becomes a vicious one.