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MNI: Fed Seen Taking Bumpy Road to Avoid Wage-Price Spiral

(MNI) Washington

Lifting interest rates quickly to relieve wage pressures isn't without risks, but a wage-price spiral would be worse, former Fed economists say.

The Fed is determined to head off a potential wage-price spiral with aggressive monetary tightening, even at the cost of larger-than-desired losses to growth and jobs, former Federal Reserve economists told MNI.

Persistently elevated inflation has renewed fears of a wage-price spiral as employers compete for a limited labor pool and workers look for pay increases to keep up with inflation. Surging prices, initially caused by broken supply chains, could become everlasting if they start feeding into wage demands.

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The Fed is determined to head off a potential wage-price spiral with aggressive monetary tightening, even at the cost of larger-than-desired losses to growth and jobs, former Federal Reserve economists told MNI.

Persistently elevated inflation has renewed fears of a wage-price spiral as employers compete for a limited labor pool and workers look for pay increases to keep up with inflation. Surging prices, initially caused by broken supply chains, could become everlasting if they start feeding into wage demands.

Keep reading...Show less