"The gain in wages
will add to concerns that inflationary pressures are building in the economy.
It solidifies expectations that the Fed will hike in March. The question is,
what will they signal for hikes after that? "
Chief US Economist,
"If the labour market
is this strong and the tax cuts have yet to kick in, what will it look like
when households and businesses actually start spending the money? No good
economy goes unpunished and the punishment may already be starting to be meted
– Joel Naroff,
Chief Economist, Naroff Economic Advisors
The latest data showed that the US labour market added more than anticipated positions in January, while wages continued to increase, but at the strongest pace since the moderation. Meanwhile, the unemployment rate remained at its 17-year low of 4.1%, confirming that the economy was nearing a full employment.
The Fed policymakers were tracking the labour market data very closely, both for pay growth and payroll gains. Gradual improvement in the US labour market would keep the Fed on the path for at least three rate increases in 2018. In addition, if the wage growth tendency changes to stronger, the Fed would hike in a more aggressive manner.
The latest policy statement also revealed expectations for inflation to increase and stabilise near the 2% target over the course of 2018.