Worker wage growth accelerated in the first quarter, a potential concern for the Fed

WASHINGTON (AP) — Wages and benefits for U.S. workers rose faster in the first three months of this year, a trend that could contribute to higher inflation and raise concerns about the future path of U.S. price increases . Federal Reserve.

Compensation, as measured by the government’s Employment Cost Index, rose 1.2% in the January-March quarter, compared with a 0.9% increase in the previous quarter, the Labor Ministry said on Tuesday. Compared to the same quarter a year earlier, wage growth remained unchanged at 4.2%.

The increase in wages and benefits could increase Fed concerns that inflation could remain too high in coming months. The Fed is expected to leave its key short-term interest rate unchanged after its latest policy meeting concludes on Wednesday.

Fed Chairman Jerome Powell and other officials recently backed away from signaling that the Fed will necessarily cut rates this year after several months of higher than expected inflation rates. Large price increases for rents, auto insurance and health care have kept inflation stubbornly above the Fed’s 2% inflation target.

As a result, Fed officials have switched from suggesting they could cut rates as many as three times this year to emphasizing that they will wait until there is evidence that inflation is falling steadily toward 2% before taking any action.

The pace of employee compensation plays a major role in companies’ labor costs. When wages rise particularly quickly, it increases the labor costs of companies, which often respond by raising prices. This cycle can perpetuate inflation.