US Employment Costs Grow Less Quickly Than Anticipated, Lowering Rate Expectations
Karl Schamotta - Chief Market Strategist, email@example.com
Worker compensation costs increased by less than expected in the final quarter of 2021, allaying fears of a wage-price spiral that might feed into broader inflation measures and force the Federal Reserve into a faster tightening trajectory. Data released by the Bureau of Labor Statistics this morning showed the Employment Cost Index - which Chair Jerome Powell has highlighted as a key variable in the central bank’s decision making - rose just 1 percent, down from 1.3 percent in the prior quarter. Markets were steeled for a print around 1.2 percent or higher.
The Fed’s inflation measure rose at the fastest pace since 1982: A separate report from the Bureau of Economic Analysis showed the personal consumption expenditures index - the Fed’s preferred inflation target - rising 5.8 percent year-over-year in December, up from 5.7 percent the prior month.
Spending fell: Household outlays dropped -1.0 percent in December, following a weak retail sales print in suggesting that worries about rising prices and product shortages led to front-loaded spending patterns during the holiday season. Personal income climbed 0.3 percent month-over-month, down from the 0.5 percent recorded in November.
The greenback slipped: Yields lost ground as investors lowered odds on five rate hikes coming before the end of 2022, but with risk premia elevated across the curve, the currency remained far stronger on the week. After Wednesday’s policy meeting, Mr. Powell refused to rule out increasing rates at each of the central bank's seven meetings this year, shocking market participants expecting a more cautious response. Traders are bracing for a more unpredictable Fed.