A big reason people care about this morning's jobs report is that the Federal Reserve is widely expected to begin raising interest rates soon, after several years of holding those rates near zero. Lower rates boost short-term economic growth, but they also create a risk of inflation. The stronger the jobs report is, the stronger the argument is for the Fed to start raising rates.
So on the surface, today's news that the economy added 295,000 jobs in February, well above economists' expectations, seems like an argument for the Fed to raise interest rates sooner rather than later. However, the wage data tells another story:
Annualized rate of wage growth: - This month: 1.5% - Past 3 months: 1.6% - Past 6 months: 1.9% - Past year: 2.0% WHERE'S THE WAGE PRESSURE?— Justin Wolfers (@JustinWolfers) March 6, 2015
If the economy were really on the verge of overheating, we should be seeing wage growth above the Fed's 2 percent inflation target. But that hasn't happened. Workers have been getting raises of about 2 percent on average, which means that their incomes are barely keeping up with inflation. And with wage growth sluggish, there will be little reason for businesses to raise prices. Which means inflation isn't a serious risk.
At some point, the Fed will have to end its zero interest rate policy to avoid triggering inflation. But this jobs report suggests we haven't reached that point, and might not for a while yet.