Fed eyes sluggish wage growth

The latest inflation data arrives Wednesday, and the numbers that matter most aren't just the prices themselves but the gap between what things cost and what workers earn. Last Friday's jobs report showed average hourly earnings rose 3.4% year over year, while the Consumer Price Index for April sat at 3.8%. That 0.4-point gap means workers are effectively losing ground. "A 3.4% raise sounds great until you notice that what you buy is increasing at 4%," said Christina Sargent, an associate professor of economics at Middlebury College. "So that's not a pay bump, that's a pay cut."

The wage-price squeeze and what it means for the Fed

The May CPI update on Wednesday will arrive with that gap front and center. For the Federal Reserve, sluggish wage growth is actually a mixed blessing. Low wage gains temper the risk of an accelerating inflation spiral, which buys the Fed time to assess whether the Iran conflict will keep driving prices up and whether it needs to raise rates. Michael Puglisi, a senior economist with Wells Fargo, said policymakers will likely reassess all that in the fall before making any big interest rate moves. But workers don't have the luxury of waiting around. Christina Sargent at Middlebury College put it bluntly: "Stagnating wages and increasing cost of living... could make for some tough decisions in households, arguably harder choices than the ones Fed o