One of the more worrying potential inflation developments would be wages and prices spiraling upward in a self-reinforcing manner, causing price pressures to become deeply embedded in the economy.

• Indeed, those fears were a big part of the reason the Fed moved so aggressively in the last few months to tighten policy, with all the collateral damage that causes. Good news, though: It sure doesn't appear to be happening.

Driving the news: The Employment Cost Index, which tracks what employers pay in wages and benefits, cooled slightly in the third quarter, with total compensation for all civilian workers rising 1.2%, versus 1.3% in the second quarter.

• Compensation costs for private sector workers saw a bigger slowdown and are up 5.2% from last year, 0.3 percentage points less than the prior period.
• Also out today, the Personal Consumption Expenditures Price Index (the inflation measure favored by the Fed) was up 6.2% over the past year, or 5.1% excluding food and energy.

Between the lines: If a 1970s-style wage price spiral were taking place, you would expect the rate of compensation gains to rise over time (rather than fall, like it did in Q3) and for worker pay to be rising faster than inflation (rather than lagging, like it is at present).

• And, in what may be a relief for policymakers but certainly not American workers, overall wages are growing at a slower pace than headline prices.

Flashback: In 1970, consumer prices rose by 5.6%. But many workers attained pay raises much higher than that, reflecting strong labor unions and a very low jobless rate at the start of the year.

• That year, the Teamsters Union secured a contract with 15% annual pay raises, railway workers got 13.5%, and construction workers averaged 17.5%.
• Companies passed higher labor costs on to customers, in turn making workers and their unions demand still higher pay increases. The vicious cycle did not end until the early 1980s, with a deep recession triggered by the Fed under chair Paul Volcker.

The details: The ECI is considered a better gauge of compensation trends than others, like average hourly earnings, because it includes the value of benefits. It isn't impacted by compositional shifts in the labor market.

• And it's closely watched in the halls of the Fed building: Last December, chair Jerome Powell cited a hot ECI as a reason for a more aggressive stance on inflation.
• The fact that that doesn't appear to be happening in 2022 is some good news that gives the Fed some latitude to avoid going full-on Volcker, wreaking early 1980s-style havoc on the economy.

The bad news: It means that while worker pay is rising rapidly relative to the norm in the 2010s, the typical worker is not seeing big enough pay bumps to account for rising prices.

Fed chair Powell is set to face a less friendly audience when he next appears on Capitol Hill — at least, if developments this week are any indication.

Driving the news: In separate letters to Powell, two Democratic lawmakers — Sens. Sherrod Brown of Ohio and John Hickenlooper of Colorado — called on the Fed to slow its aggressive pace of interest rate hikes.

• Notably, while Brown and pointed Powell critic Sen. Elizabeth Warren are from the left flank of the party, Hickenlooper is more of a centrist.

Why it matters: The Biden administration and many Congressional Democrats have generally supported the Fed's rate-hiking campaign, but now that appears to be changing as the policies bite. More Democrats are warning about potential damage to the labor market and other parts of the economy from the Fed's moves.

• Following the last policy meeting, when officials raised interest rates by a historically large 75-basis points, Warren tweeted: "Destroying jobs and crushing wages of millions of workers is reckless and dangerous."
• The tone from other Democrats this week was more measured, but the message was similar.

What they're saying: "High inflation necessitates a response. But the concern is the Fed is doing too much, too quickly," Hickenlooper wrote in a letter yesterday. "We should wait to see the effects on the economy and how those changes are absorbed."

• Brown, who chairs the powerful Senate Banking Committee, warned about the hit to the labor market: "For working Americans who already feel the crush of inflation, job losses will make it much worse."

Of note: Powell hasn't testified on Capitol Hill since June. At the next appearance, he could get an earful.