Federal Reserve Chair Jerome Powell has a new North Star to guide his fight against inflation, and it will put American paychecks at the heart of monetary policy next year.
Powell says he’s looking at a price-gauge that covers everything from health care and haircuts to a night in a roadside motel. Because wages are an especially big cost for those service industries, “the labor market holds the key to understanding inflation in this category,” he told the Brookings Institution in November, in his final set-piece speech before the Fed’s latest interest-rate hike.
In his press conference after that decision on Wednesday, Powell returned to the theme. Right now, he said, wages are growing “well above what would be consistent with 2% inflation.”
