Inflation, wage data, challenge Fed 'transitory' narrative

WASHINGTON (Nov 1) - Price and wage increases running at multi-decade highs may challenge Federal Reserve officials this week as they try to maintain a balance between ensuring inflation remains contained and giving the economy as much time as possible to restore the jobs lost since the pandemic.

With investors already wagering the Fed will raise rates twice next year, a much sooner and faster pace than policymakers themselves have projected, economists at Goldman Sachs have become the latest to accelerate their rate hike call - moving it ahead a full year to July 2022.

By then, Goldman economist Jan Hatzius and others wrote that they expect inflation as measured by the closely monitored core personal consumption expenditures price index, still to be above 3% - a run of inflation not seen since the early 1990s and one well above the Fed's 2% target.

Aspects of the job market, particularly the labor force participation rate, are unlikely to have recovered to pre-pandemic levels, and would seemingly still be short of the "maximum employment" the Fed has promised to restore before raising interest rates. But at that point, the Goldman team wrote, Fed officials would "conclude that most if not all of the remaining weakness in labor force participation is structural or voluntary," and proceed with rate hikes to be sure inflation remains controlled.