The Fed Should Allow Wages to Rise

At MoneyWatch:

Why the Fed should allow wages to rise, by Mark Thoma: On Wednesday, the Federal Reserve's Open Market Committee announced its decision to leave its target interest rate unchanged. I believe that was a wise decision. However, the committee noted that labor market conditions will be a key part of its decisions about future rate increases:

A range of recent indicators, including strong job gains, points to additional strengthening of the labor market. ...

The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. ...

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. ...

In assessing the need for future rate increases, it's important to take a closer look at one component of labor market conditions: how wage increases have been distributed. In 2015, wages increased by 2.2 percent, enough to outpace inflation over that period by a small margin, and wages have continued to rise at close to this rate, but how has that growth been distributed?

According to a recent analysis by the Economic Policy Institute, the growth in wages adjusted for inflation, or alternatively, wages and benefits adjusted for inflation, has been concentrated among those at the top of the income distribution since the onset of the Great Recession (chart below). ...