Jerome Powell had his first ever broadcast interview as Fed chair with the Marketplace. On wages, he acknowledged that annual wage growth has moved up from “low twos” five years ago, to close to three” now. And there’s been “very gradual move up”. He noted that wages should “reflect inflation plus productivity”. A “big part” of the slow wage growth is “certainly that inflation has been low and productivity has been low”. Yet, he didn’t have the answer to the question on why employers are not paying higher wages while the labor markets appear to be very tight.
Though, he also noted that “the economy’s in a really good shape” with unemployment at 4%, the lowest in 20 years. And, people are “coming back into the labor force or not leaving it” in the past five years. Fed’s target of PCE, which is “a little bit lower than the CPI” has been below 2% for some time. But it finally hit the 2% core PCE level last month.
Regarding trade policy, Powell noted Trump’s administration “said” it’s trying to lower tariffs. And, “if it works out that way, then that’ll be a good thing for our economy.” However, “if it works our other ways” and there will be high tariffs on a lot of products for a sustained period of tie, “that could be a negative for our economy”. But it’s “hard to sit here today and say which way that’s going”.
But Powell also emphasized that when Fed doesn’t make the policy, “we don’t praise it, we don’t criticize it”. And, “part of the independence that we have is to stick to our lane, stick to our knitting, so really wouldn’t want to comment on fiscal policy really, or trade policy.”
Transcript of the full interview.
ECB’s Wunsch: Early rate cut bets may trigger opposite action
ECB Governing Council member Pierre Wunsch today expressed skepticism regarding market expectations of an early easing of monetary policy. His comments highlight a crucial divergence between market forecasts and ECB’s potential policy path in the face of ongoing inflationary pressures.
Wunsch described the market’s anticipation of a reduction in ECB’s deposit rate from the current 4% by April as “optimistic.” He pointed out the necessity for ECB to either continue with the current rate or possibly increase it, contrary to market expectations.
He raised concerns about the implications of market bet on rate cuts. “Is it a problem if everybody believes we’re going to cut?” he questioned. This could lead to “less restrictive monetary policy” which may then be insufficient, and eventually, “it increases the risk that you have to correct in the other direction.”
Wunsch emphasized the ECB’s readiness to adapt its strategy based on inflation trends. “If we arrive at the conclusion that inflation is not going down fast enough, we’ll communicate it through our projection and through our communication,” he stated.