Fed’s Dual Mandate In Crosshairs With Wages Lagging Inflation
(Bloomberg) -- Rising inflation is eating away at what the average American is taking home, putting the twin pillars of the Federal Reserve’s mandate -- inflation and employment -- in direct conflict with each other.
So how are workers reacting to this? With strikes across various industries. Deere & Co. recently resolved a work stoppage that was the largest since 1986. Kellogg Co. employees picketed in October. And unionization is coming back into vogue, with a New York Starbucks Corp. restaurant voting to unionize, which could spark similar movements at additional stores.
For companies, costs remain an issue as prices for raw materials and freight keep rising. But it’s the labor situation that’s getting even trickier. At McDonald’s Corp., commodity costs were up 4% in the company’s third quarter earnings report, while wages rose 10%. Automation may be a solution, as the fast-food chain has created more digital kiosks in many locations. Even Nestle SA has automated its logistics site in the U.K. as part of an effort to offset supply chain issues.
At its core, this all comes down to the Fed’s dual mandate. Monetary stimulus has continued to support the economy, but at the same time accelerating inflation has also made it harder on the average worker. The question from corporate America is if the Fed addresses rising prices by tapering bond purchases and eventually hiking interest rates rate, will an eventual rise in real wages that discourage hiring? The answer could be a key to economic growth in 2022.
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