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The strong growth in the US economy in 2018 is forcing employers to create new jobs at an even faster rate than in 2017. As a result, labor markets are getting even tighter, creating clear upward pressure on wages.
The two most popular wage measures, the Employment Cost Index, released two days ago, and average hourly earnings, released today, broke the 3% threshold in the same week. Wages have been accelerating faster in 2018 than in prior years. We expect wages to accelerate further by about half a percentage point through the end of 2019, as economic growth remains above trend, the labor market continues to tighten, and the other main determinants of wage growth—inflation and labor productivity—may grow faster.
Federal Reserve concerns about inflation will only grow as a result of labor market news this week. They will be more determined to continue raising rates to slow down growth and prevent labor market conditions from causing the economy to overheat and inflation from exceeding the bank's target.