Bloomberg News/Landov The cost of money —borrowing — is going up because inflation is.
Wall Street was already bracing for another increase in U.S. interest rates before the end of the month, but the long-awaited boost in worker paychecks has sealed the deal.
The hourly wage paid to the average American worker rose in August to a 2.9% yearly clip, the biggest gain since the final month of the Great Recession in June 2009.
Read: U.S. adds 201,000 jobs as worker wages accelerate to nine-year high
It’s been a long time coming, and it’s great for workers, but it comes with a cost. The Federal Reserve is widely expected to raise a key interest rate that dictates the cost of borrowing for major purchases such as homes, cars and appliances.
The spike in wages “virtually ensures another rate hike from the Fed at the September meeting and raises the probability of another in December,” said Scott Anderson, chief economist at Bank of the West.
Read: Why workers are earning better pay — and why it may not help them all that much
If the Fed had even a shred of doubt — unlikely — a raft of inflation barometers this week should bury them for good.
Indexes that track the cost of consumer goods, wholesale products and imports such as German BMWs and French wines are certain to show that inflation remains at elevated levels. CPI data is due for release on Thursday.
The Fed’s periodic report on the economy known as the Beige Book is sure to pile on and a bevy of senior central bank officials will lay the groundwork this week for an increase in rates.
The most pressing question is whether the Fed will raise rates one more time this year like it has signaled.
For now there’s little reason to think the answer is no. The economy is growing rapidly, unemployment is extremely low, layoffs are at a 49-low and job openings are near a record high.
Read: Obama claims ownership of U.S.’s economic recovery as he blasts Trump
The good times have loosened consumer wallets and purse-strings, with the August report on U.S. retail sales, due Friday, likely to show another healthy gain.
The most immediate worry is that White House trade spats with China and other countries will dampen a stoked U.S. economy. The Trump administration is preparing more tariffs on China and some industries such as manufacturing, construction and farming have already been harmed.
The increase in wages, meanwhile, is likely to remain gradual and not cause a great deal of trouble. By and large labor costs have not factored heavily into the recent upsurge in prices.
The biggest sources of higher inflation, what’s more, could actually taper off in the months ahead. Rents are not going up quite as fast with home sales slowing and gas prices typically ease off after the end of the summer driving season.
“The housing market is already showing clear signs of weakness,” contended Stifel chief economist Lindsey Piegza.
Be that as it may, labor costs are almost certain to keep going up. “The longer that job markets heat up, the greater the chance that inflation will boil over,” asserted Sal Guatieri, senior economist at BMO Capital Markets.
