Subdued wage growth is a better indicator of labor market slack than low inflation, but neither works well to gauge future inflation, according to Federal Reserve Bank of Cleveland researchers.
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"Wages and prices tend to move together, complicating efforts to disentangle cause and effect," Cleveland Fed researchers Edward S. Knotek II and Saeed Zaman note in their report.
"But given wages' limited forecasting power," the researchers say, "they are but one piece in a larger puzzle about where the economy and inflation are going."
The researchers say wages seem "to be useful" in assessing labor markets, but not to predict where the economy and inflation are going.
