Blow for Fed on US wage growth

THE fastest rise in US wages since 2020 and resilient job creation have delivered a blow to the Federal Reserve’s efforts to tame inflation in the world’s biggest economy.

The pound slipped against the dollar and US stocks tumbled as accelerating wage growth and strongerthan-expected hiring in November boosted the odds of more aggressive action to cool prices.

Some 263,000 jobs were added to the US economy while wages rose 0.6pc in November compared to the previous month, the jointstrongest growth since December 2020. Pay rose 5.1pc year-on-year.

Fed chairman Jerome Powell signalled on Wednesday that it will slow the pace of interest rate rises this month with markets even betting on cuts to borrowing costs next year.

But strong wage pressures and continued hiring will complicate the Fed’s plan to control inflation, which has recently shown signs of cooling.

It was the joint-weakest job creation in almost two years but it comfortably beat expectations. Unemployment remained stable at 3.7pc, though largely because of Americans dropping out of the workforce.

The pound dropped 0.9pc versus the dollar to $1.2135 to reverse some of its recent rally, while the benchmark S&P 500 index in the US slipped 1.2pc before cutting its losses.

Economists said the strong pay pressures threaten to cause a resurgence in infla- tion if they persist.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said: “They will be worried about a rebound in the second half of 2023 and beyond if wage growth does not slow.”

Hussain Mehdi, strategist at HSBC Asset Management, said: “The pace of US hiring alongside other measures of labour market activity such as vacancies and wage growth remain too high for the Fed’s liking.

“With this in mind and amid broader US economic resilience and sticky core inflation, we think speculation of a Fed pause as soon as the January/february meeting is unjustified.”