Rising U.S. employment costs may prompt Fed to take hawkish stance



On Tuesday, ING analysts pointed out that U.S. employment costs have risen significantly, especially in the government sector, which may indicate that the Federal Reserve will take a tougher stance. The rise in labor costs comes ahead of tomorrow's Federal Open Market Committee (FOMC) meeting.

The employment cost index, a key indicator of inflationary pressure in the labor market, rose sharply in the first quarter of 2024.

The U.S. employment cost index increased by 1.2% in the first quarter, exceeding the 0.9% increase in the fourth quarter and the previously expected 1% increase. The figure beat all individual forecasts in a Bloomberg survey and showed stronger inflationary pressures than expected.

The index is an important indicator for the Federal Reserve to assess labor costs, a significant expense in a service-driven economy like the United States.

The detailed report showed that the government sector led the increase, with annual wage and salary growth rising from 4.7% to 5%, while private sector wages and salaries maintained a growth of 4.3% compared with the same period last year.

Overall compensation continued to increase by 4.1% year-on-year. On a quarter-on-quarter basis, government workers' salaries increased by 1.3%, compared with 1.0% in the previous quarter; private enterprise salaries increased by 1.1%, which was higher than the 0.9% in the previous quarter.

The minimum wage levels in various states have increased significantly, leading to an increase in private sector labor costs. It is worth noting that California’s decision to raise the minimum wage for fast food workers to $20/hour, which will take effect in the second quarter, is expected to have a significant impact.

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ING analysts said the developments could strengthen prospects for a hawkish message from the Fed at its upcoming meeting.

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