Sign up for our daily briefing

Make your busy days simpler with Axios AM/PM. Catch up on what's new and why it matters in just 5 minutes.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Stay on top of the latest market trends

Subscribe to Axios Markets for the latest market trends and economic insights. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Sports news worthy of your time

Binge on the stats and stories that drive the sports world with Axios Sports. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Tech news worthy of your time

Get our smart take on technology from the Valley and D.C. with Axios Login. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Get the inside stories

Get an insider's guide to the new White House with Axios Sneak Peek. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Catch up on coronavirus stories and special reports, curated by Mike Allen everyday

Catch up on coronavirus stories and special reports, curated by Mike Allen everyday

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Denver news?

Get a daily digest of the most important stories affecting your hometown with Axios Denver

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Des Moines news?

Get a daily digest of the most important stories affecting your hometown with Axios Des Moines

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Twin Cities news?

Get a daily digest of the most important stories affecting your hometown with Axios Twin Cities

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Tampa Bay news?

Get a daily digest of the most important stories affecting your hometown with Axios Tampa Bay

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Charlotte news?

Get a daily digest of the most important stories affecting your hometown with Axios Charlotte

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!
Expand chart
Data: Household income from U.S. Census Bureau; GDP from Bureau of Economic Analysis. Note: Income is inflation adjusted to 2018 dollars and GDP is adjusted to 2012 dollars. Chart: Kerrie Vila/Axios

With roaring GDP growth and rising wages, the Fed has signaled that it will increase interests rates next month to tap the brakes and prevent uncontrolled inflation. But some economists say it should hold off to create a better chance for people's wages to go up.

Why it matters: For the last five decades, real U.S. household income for the bottom four quintiles has been flat or almost flat, as the graphic shows. The top group, however, has had sharply ascending real income growth. The flat wages are a bigger problem at the moment than the threat of inflation, these economists suggest.

The big picture: This view is grounded in the thought that the Fed's current approach — shaped by the era of "stagflation" in the late 1970s and early '80s — may be outdated.

  • The Fed "should go slowly on closing the locks because wages are barely rising at this point," David Autor, an influential economist at MIT, tells Axios.
  • "There's further room for the tides to rise so that all boats will be lifted (including but not limited to the vessel of middle-wage earners, though an even greater concern is for low-wage earners)."

The Fed has already raised rates twice this year, and most mainstream economists think it will do so again in September and December. They also expect three interest rate hikes next year, pushing it over 3%.

  • This should have the impact of slowing wage growth by making it more expensive for businesses to borrow money.
  • But the question is whether the Fed should hold off on a rate increase and first give the opportunity for wages to rise more.

Not everyone is convinced of the Fed's power to impact real wages even if it wants to. "It is difficult if not impossible for the Fed to control what workers earn above and beyond inflation," said Benn Steil, an economist with the Council on Foreign Relations.

But economic orthodoxy presumes the Fed influences both wages and prices, and there appears to be much support among mainstream economists for the bank's current policy track of steadily raising interest rates.

  • Economists tell Axios that wages will probably rise despite the rate hikes.
  • Jared Bernstein, a fellow at the Center on Budget and Policy Priorities and former chief economist to Vice President Joe Biden, said real wage growth could come if inflation slows — for instance, if surging oil prices flatten and come down.

But Joe Brusuelas, chief economist at RSM, a consulting firm, tells Axios that while he expects real wage growth along with higher interest rates, "The Fed should consider dropping the Carter era discourse and policy rules of thumb."

  • "The term 'wage inflation' is an archaic notion left over from the 'great inflation' period of the 1970s," he said in an email. "While it’s important to learn from and know history, it’s equally important not to become its prisoner. 
  • "We have experienced a great structural change in our economy and the arrival of digital economics requires a different discourse, policy judgement and quantitative rigor."

Go deeper

Rep. Rice demands Cuomo resign after 3rd woman accuses him of misconduct

New York Gov. Andrew Cuomo during a February news conference in New York City. Photo: Seth Wenig/POOL/AFP via Getty Images

Rep. Kathleen Rice (D-N.Y.) on Monday evening called for New York Gov. Andrew Cuomo (D) to resign, after a third woman accused him of inappropriate behavior.

Driving the news: Anna Ruch, a former member of the Obama administration and the 2020 Biden campaign, told the New York Times Monday that Cuomo asked to kiss her at a New York City wedding reception in September 2019.

Scoop: Inside the GOP's plan to retake the House

House Minority Leader Kevin McCarthy. Photo: Elijah Nouvelage/Bloomberg via Getty Images

House Republicans will reclaim their majority in 2022 by offering candidates who are women, minorities or veterans, a memo obtained by Axios says.

Why it matters: The document, drafted by a super PAC blessed by House Minority Leader Kevin McCarthy, names top Democrats to target — Jared Golden of Maine, Matt Cartwright of Pennsylvania and Ron Kind of Wisconsin — and the type of Republican candidates to beat them.

3 hours ago - Politics & Policy

Scoop: Trump talked out of early Ohio endorsement

Jane Timken at a 2017 Trump rally. Photo: Kyle Mazza/NurPhoto via Getty Images

Donald Trump had to be talked out of making an early endorsement in Ohio's 2022 U.S. Senate race, a sign of his eagerness to reengage politically, people familiar with the conversations tell Axios.

What we're hearing: The former president discussed endorsing former state GOP chair Jane Timken last week during a meeting at Mar-a-Lago with RNC Chairwoman Ronna McDaniel, but top advisers — including Donald Trump Jr. — urged him to wait.