Well, the job market has seen a dramatic shift
over the past two years and that now includes rising
wages as companies compete to fill their workforces Verizon his
latest company to raise its hourly wages and workers will
now receive$20 an hour. The pharmacy giant joining
Walgreens Chipotle and a number of other companies paying more
per hour. While that's good news for workers and
many families struggling to get by these days, rising
wages may not actually be a plus when it comes
to taming inflation, economists have been expecting americans to
shift their spending patterns away from goods to focus on
services, but so far that hasn't happened. So
how can the economy strike the right balance? Well
, joining me now is Mark Hamrick, senior economist
, economic analyst at Bankrate dot com. It's good
to see you. That's a consumer financial services company
. So Mark broadly here, how to wage increases
contribute to inflation. Good to see you chris and
I need to say happy anniversary. I need to
just chime in and join that chorus there. I'm
a little skeptical whether wages are going to keep that
pace that some are fearful about. We don't have
a historical record that makes that case and we think
about how Through the last economic recovery that we had
before the pandemic really began to take hold in March
and April of 2020 wage growth was really sort of
the last part of that chapter. I've never really
kept pace as we had the unemployment rate get down
to 3.5% and even now, as we know with
inflation screaming and weighing on consumer sentiment, we're talking
about average hourly earnings rising about 5.5% over the past
year? 5.6% to be exact, as of the
last employment report, and we know the consumer price
index as one measure of inflation is up much more
than that at 8.5% and the producer price index more
than 11%. So I'm skeptical because you know,
this isn't, let's say your grandfather's about with inflation
that we saw in the 1970s when we had a
much more confined economy that didn't have the opportunity to
globalize or rely on technology to the extent we do
today. And yes there are some threats to globalization
, china and Russia being at the front of that
parade? But that doesn't exclude the opportunity to outsource
either around our own country to outsource remotely or to
other countries that we still want to do business with
around the world? And so Mark, here's a
question. Um we actually heard from Chicago Fed president
, charlie Evans earlier today, after an economic club
meeting here in new york saying that to 50 basis
points rate rises may be necessary, but maybe that's
it. So that would be half of a percentage
point at two separate meetings collectively for a full 1%
point rate rise. Can the Fed in this environment
with many cross currents and unknowns as you just laid
out there, notably Russia's ongoing invasion of Ukraine,
Can the Fed effectively rein in inflation knowing that wages
do continue to increase? Well, the Fed has
to do its job and as we know, it
has two main mandates and that is stable prices and
maximum employment and were fearful that in now being more
attentive to the former, that the latter employment may
suffer, but they also just need to normalize.
And we, you know, monetary policy is far
from normal with still a$9 trillion balance sheet and
interest rates just a notch above record low levels.
So we're still providing a tremendous let's say the Feds
foot is still on the gas pedal in this economy
and we have this raging inflation, its credibility is
on the line. And so if we're talking about
2 50 basis point rate increases on top of the
quarter point when we've already had, well, that
probably only gets us about halfway to where the long
term federal funds rate is seen. And some people
think that we need to get above neutral in this
environment. So if we can't get there, we
have big problems. Let's put it that way.
Because I think the Fed really does need to get
all that to normal. Okay, well, for
Americans who are making an hourly wage, who are
seeing their wages rise based on some of these numbers
that we just shared? Verizon at$20 an hour
. Companies like chipotle Walgreens also raising their minimum hourly
wage mark, given the current scenario the current environment
from an economic standpoint, does that put them in
a better or a worse position? Well, are
you talking about the company or the workers? I
mean, I think, I think the company needs
, Yeah. Yeah. Well workers need to be
paid a fair wage, right? But at the
same time, these businesses need to accomplish their business
objectives by retaining and attracting the right kind of worker
and over the years, whether it's a few years
ago when Walmart and target raised their wages to begin
at something like$15 an hour. I think there
was sometimes a take that along the lines of,
Hey, that's corporate social responsibility. And my answer
to that is no, that's them doing what they
think they need to do to get the job done
. So, you know, if you're living,
I don't need to tell you this. If you're
living and working in Manhattan, that is hardly a
wage that you're going to brag to your parents about
right. But, but it's better than the wage
that you were paid before. And many of these
workers still need to be saving for retirement, saving
for emergencies and doing all the things that functional human
beings have to do in the course of their everyday
lives with their personal finances. So what's the solution
, if you are a consumer and you're trying to
navigate your own way in this economy. Hopefully you
are making a living wage, Maybe you're a Verizon
employee in a storefront, truly a frontline worker during
this pandemic, who did just see your hourly rate
increase. What's the best way to be cautious to
take care of yourself from a financial and economic standpoint
. In the current environment? I would say probably
four things. I'll try to go through them very
quickly and one is to have a budget. No
, the money you're spending and the money that's coming
in pay down debt. The cost of debt is
getting more expensive than this environment. Make your emergency
savings a priority and go ahead and save for retirement
at the same time. And in this strong job
market, there's tremendous opportunity for workers right now,
including the opportunity to work remote. You might be
able to work for a company that's all the way
across the country now. Whereas in the past,
you might have had to move thousands of miles to
get that job. Another question is someone who does
closely follow the economy. Mark buying a home that
has long been, I think a goal for many
consumers out there, but we've seen with mortgage rates
soar this year as the Fed does try to rein
in inflation, it's become less and less affordable,
really. Unaffordable actually for many american families to actually
outright buy a home when it comes to the priorities
. I I noticed that buying a home was not
one that you listed there in terms of paying down
debt, setting a budget saving for retirement. How
should americans be thinking about that? The dream of
owning a home in the current economic environment? Well
, I would say that if you feel like buying
a home is going to be a stretch or reach
at this point, go with that gut instinct and
don't overreach because some of these home prices may not
be sustainable. We have seen some cases where people
are cutting some of their asking prices here of late
, whether that actually occurs on on a more dramatic
basis, we can only wait and see, but
I think that inventories are so low in this environment
, many sellers are going to continue to have the
upper hand and you know, all those other goals
that he has talked about, including emergency savings saving
for retirement very often, particularly younger buyers forget about
the fact that they do need to accomplish those goals
as well. I can tell you obviously, I'm
speaking from my home here, uh you know,
homes are costs waiting to happen and so you need
to have those emergency savings ready to go for the
plumbing repair or the roof because those things do demand
, they demand attention and dollars. Alright. Mark
Hamrick, senior economic analyst at Bankrate dot com.
Mark, thank you so much for joining