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At the beginning of this year, employee salary costs increased more than expected, which is another dangerous sign of continued inflation.
The employment cost index, which measures worker wages and benefits, rose 1.2% in the first quarter. Department of Labor Report Tuesday. That’s up from 0.9% in the fourth quarter of 2023 and higher than the Dow Jones consensus estimate for a 1% gain.
From a larger perspective, the rate hike fuels concerns that the Fed’s 11th consecutive rate hike will not be enough to ease price pressures and could help the Fed stay on hold before starting to ease monetary policy.
The Federal Reserve regards the ECI as an important indicator of potential inflationary pressures.
The rate-setting Federal Open Market Committee begins a two-day meeting on Tuesday. The market has given little consideration to the possibility that the FOMC will change its overnight borrowing rate target from the current range of 5.25%-5.5%.
Following the ECI index’s release, traders changed their expectations for a first rate cut in September, shifting the odds to a coin flip. CME Group’s Fed Watch A measure of federal funds futures pricing. The implied probability of no production cuts this year has also risen to about 23%, from close to zero a month ago.
Compared with the same period last year, civilian payroll costs increased 4.2%, which was down from 4.8% a year ago but still above the level the Fed considers consistent with its 2% inflation goal. Wages and salaries rose 4.4%, and benefit costs rose 3.7%.
Payroll costs for state and local government workers rose 4.8%, down slightly from the same period in 2023. 5.3%.
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