Dallas Fed Chief Says Higher Wages Does not Equal Faster Inflation

Higher wages in the United States will not necessarily lead to faster inflation, Dallas Fed President Robert Kaplan said in Frankfurt on Wednesday.

His comments countered widespread market speculation that the briskest wage growth in almost nine years in the United States would drive up inflation, paving the ground for further policy tightening by the Federal Reserve.

“Were facing wage pressures right now in the United States because of a tight labor market,” Kaplan, a dove and a non-voting member of the Fed’s policy committee, told an audience in Frankfurt.

“I am less convinced that this will necessarily translate into higher prices because businesses have much less pricing power,” he added.

Among the factors curbing pricing power, he cited technological advances such as cloud computing, which allowed smaller companies to break into concentrated markets.

Expectations of higher Fed rates have been credited for contributing to a market rout earlier this week, which saw U.S. stock indexes post some of their biggest daily drops since the financial crisis.

Kaplan said he did not expect the market gyrations to have repercussions on the economy and described them as a “healthy” corrections from high valuations.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza