Federal Reserve press conference, 2023-05-03 — Chair Jerome Powell

Question (Matthew Boesler, Bloomberg): The Committee also noted in March that wage growth was still well above levels that would be consistent with 2 percent inflation. Do you see that as well? And could you kind of explain, you know, how you come to that judgment?
Answer: Sure. So we look at a range of wage, wage measures. And then that’s in nominal. And then—so you assume wages should be equal to productivity increases plus inflation. And so you can—you can look at, you know, the employment compensation index, average hourly earnings, the Atlanta wage tracker, compensation per hour—basically, those four and many others. And you can—you can look at, at what the—what they would have to run at over a long period of time for that to be consistent with 2 percent inflation. They can deviate. You know, corporate margins can go up and down. And there is a feature of long expansions where they do go down—where labor gets a bigger share toward later, later in a recession—sorry, later in an expansion. So, yeah. The, the—you know, and we calculate those, and you have to take the precision with a degree of—a degree of salt. But I would say that what they will show is that, you know, if, if the—if wages are running at 5 percent, 3 percent is closer to where they need to be. Wage increases and closer to 3 percent, roughly, is what it would take to get—to be consistent with inflation over a longer period of time. I—by the way, I don’t want to—I do not think that wages are the principal driver of inflation. You’re asking me a very specific question. I think there are many things. I think wages and prices tend to move together. And it’s very hard to say what’s causing what. But, you know, I’ve never said that, you know, that—that wages are really the principal driver, because I don’t think that’s really right.