Dallas Fed: Inflation Eroding Wage Gains

American wage increases are rapidly losing ground to inflation according to a new report from the Federal Reserve Bank of Dallas.

The report states that when there is a rising “real wage,” workers begin to see their standard of living improve. According to the Wall Street Journal, however, “vast numbers of Americans find their cost of living is rising faster than the income they’re bringing home.”

The “real wage” described above takes into account more than just the amount that average wages have increased or decreased year-over-year. Real wage takes into account the Consumer Price Index (CPI) inflation rate so that it can compare how the purchasing power of a person’s pay with the cost of goods.

The Dallas Fed’s report shows that median decline in real wages from July 2021 to July 2022 is 8.5%. While a median decline in real wages over the past 25 years has become commonplace, the 8.5% seen this past year is “the most severe faced by employed workers in the past 25 years.”

This report is also pressing for a historically aggressive campaign to raise interest rates. According to U.S. News, “Since March, the Fed has lifted its overnight target rate range from near zero levels to the current 3% to 3.25% range, trying to lower the highest inflation rates in forty years.”

According to Central Bank forecasts and the comments of Fed officials, efforts are far from finished and many experts believe there will be at least two additional rate hikes in the next few months that are just as substantial as they have been over the first two quarters of 2022.

A recent Reuters article states, “The Fed has justified this as a necessary rebalancing of the economy. It has acknowledged that its effort to bring inflation down from the annualized 6.2% increase seen in August back to the 2% target will take time and will drive up unemployment.”

New York Fed President John Williams said that the jobless rate will likely rise from its current 3.7% to 4.5% next year, but believes that for maximum long term job stability that has to happen.

In terms of the economic future of the U.S., none of this is good news. Experts are predicting continued high inflation, an increase in the jobless rate, and a continued decline in real wages. These predictions are assuming nothing changes in the short term, but with midterm elections coming next month, these economic predictions do not have to come true.