Transcript:
Easan Arulanantham:
On average, or average hourly pay is up strong 5.6% Over the last 12 months, and what’s its effect on the market? And just the Feds decision process on, you know, raising rates?
Tom Vaughan:
Yeah, so think about that. Wages are up 5.6%. So, year over year over the last 12 months, lots of reasons for that, right? I mean, we’ve got 11 million open jobs. And so you know, people are jumping from job to job to get the higher pay. And then the people that are trying to keep their employees are paying higher. And the weird thing that happened in the 70s really was this kind of wage, spiral inflation, they call it so you know, you get higher wages, create higher costs for products, right. And then somebody will come back and say, Okay, I need more money to buy. So wages go up some more, which creates higher cost of products and wages go up some more to buy those, right. That’s the spiral that you get into. And so, you know, we’re pretty aware of this and how this works. As far as that goes. Altogether, I think, you know, that’s what the Federal Reserve is really working on right now, is trying to bring down inflation on the demand side, they don’t control the supply side, they don’t control that supply chains, and what have you, too, but they can try to slow demand down enough. So supply can kind of catch up. And then maybe those goods don’t ratchet up. So that’s the way out of that cycle, bring down supply demand a little bit, let supply catch up, and then maybe inflation evens out. And then people aren’t needing as much money on a constant raise basis. And we get back to kind of these normal scenarios. And so the way it affects the market is that the Federal Reserve is going to have to be probably fairly aggressive here to kind of knock down the demand. Because the demand just keeps accelerating, it’s been amazing.
And we are seeing some slowing in some areas. And I’ll bet you anything, we start to see slowing and housing, now the mortgages have really jumped and those types of things, those are actually good things in a way, because things are just too hot, slow it down a little bit. So the Federal Reserve can do less. But that’s how it affects the market. And we saw that I mean, November, is when the Federal Reserve started getting really aggressive and their commentary about fighting inflation. And, you know, the market dropped in all the way through until the invasion of Ukraine were dropped further. But you can see what happens. And then there’s talk about a half a point rate increase. At the next meeting is in May, right, I wouldn’t be surprised to see that the market has already kind of factored that in, that’s fairly aggressive for the Fed Reserve, they normally do quarter point rate increases. So that could have some impact on the market. Although I will say that’s already kind of cooked in there. I mean, there’s an expectation for seven quarter point increases in the market right now. So I think actually, to a certain degree, the market is liking this, because they’re afraid of this inflationary cycle running away, right, that that cycle, that spiral cycle is a really nasty thing, as the Federal Reserve doesn’t get in front of that. So it’s kind of like, oh, the Fed isn’t doing enough, or the Feds doing too much, right. And what we really want is that kind of Goldilocks zone right in the middle, where the Fed is dealing as much as the market wants. And I think that’s the seven increases, because the market took off based on that commentary, originally, in this particular write up that we’ve got now. So anyway, I think that’s the overall impact of increasing wages is just that potential for that spiral. And that the Federal Reserve is going to come in and try to stop that spiral. And then higher rates, if they really have to get aggressive. You know, the market has factored in seven increases, but what if we have 10? So the market will have to factor that in. So we’ll see how this plays out.