US Labor Costs and Productivity Trends Defy Expectations and Historical Precedent

Average hourly earnings in the US increased by 4.4% in the year through April, higher than the 4.2% expected by economists, and the fastest increase since March 2022. The Federal Reserve has been hoping for a steady moderation in pay gains to cool inflation, but the recent increase in wages could lead to companies charging more to cover labor costs, making it difficult to return inflation to normal. The Fed has raised interest rates at the fastest pace since the 1980s and signaled that they might pause their rate moves as soon as their June meeting, depending on incoming economic data.