Fears of wage inflation are unnerving Wall Street. Labor markets are tight. A Federal Reserve Board governor stokes inflation-phobia by remarking that growing wage pressures may signal a higher potential for inflation. Skittish investors sent interest rates soaring and stock prices tumbling late last week. Yet overall labor costs are restrained.
Economic growth remains moderate by historic standards.
And, with the benefit of hindsight, the rise in the stock market over the past several years appears more rational than many vocal skeptics and die-hard bears thought possible. Fact is, workers and higher wages are not a threat to the great bull market in stocks or the continued health of the economic expansion. Economy-wide gains in efficiency and productivity are more than adequate to accommodate higher overall wages and robust corporate profits. The longer the good times roll, the more exuberant lenders seem to get. The economic turmoil in East Asia largely reflects an abundance of bad loans after too many years of easy credit.