Fed leaders worry U.S. economy is too good

Workers still feel left behind

WASHINGTON — Ann Jacks quit her job as a restaurant chef in North Carolina, started her own business and worked 80 hours a week for two years before exhausting herself and her patience. She shut down the company and, in November, returned to her old job. It paid a dollar an hour more than it did when she left it.

Jacks, who now earns $22,000 a year and said she couldn’t afford her health insurance deductible, is one of many Americans still waiting to feel the effects of an improving economy nearly a decade after the Great Recession.

“I don’t see evidence of the wages getting higher, except for specific types of jobs, like management, banking,” she said. “My attorney friends aren’t hurting.”

Yet Federal Reserve officials are beginning to worry about a possibility that seems remote to workers who still feel left behind: the danger of the economy running too hot, destabilizing financial markets and setting off a rapid escalation in wages and prices that could force the central bank to slam the brakes on growth.

Officials at the Fed have in the past few weeks escalated a public and private debate over how close the economy is to “overheating,” a condition when abnormally low unemployment can trigger spikes in inflation and destabilize financial markets.

The Commerce Department will report its first estimate of first-quarter growth on Friday, and economists expect it will register around 2 percent, short of the 3 percent that President Donald Trump has promised will deliver large wage increases to workers across the board.

Forecasters expect growth to accelerate later this year, though. Those predictions, along with a recent uptick in the inflation rate, are prompting some Fed officials to push the bank to raise interest rates at a faster pace than it has been, to reduce the risk of overheating.

Fed officials have raised their benchmark rate to a range of 1.5 percent to 1.75 percent in a series of carefully orchestrated increases. Their most recent economic projections suggest they expect to raise rates two more times this year and three times next year.

While officials worried about overheating are pushing a faster pace of increases, other officials say it’s way too early to turn down the heat on the economy — and on workers who are still waiting for big wage increases to show up.

Both camps say they are concerned for workers like Jacks.

“When we think about the economy from the aspect of monetary policy, we can’t get it right for everybody,” Eric Rosengren, president of the Federal Reserve Bank of Boston, said in an interview last week. “We can get it right for the overall economy.”

Rosengren is among those pushing for the Fed to raise interest rates more quickly than some of his colleagues would prefer, in part because he fears a situation in which rapid inflation forces the bank to raise rates drastically, tipping the economy back into recession.

In that case, he said, “the people who feel already like they’re not keeping up with the rest of the economy would probably be the first ones laid off in an economic slowdown.”