Overview
- The Bureau of Labor Statistics reported the Employment Cost Index rose 0.9% in the second quarter, lifting total compensation 3.4% year over year with wages up 3.2% and benefits up 3.8%.
- The ECI measures the same jobs over time so it filters out shifts in the workforce and is a key gauge the Fed uses to judge underlying wage pressure.
- The report bolsters concerns that pay gains could keep inflation elevated without matching productivity increases, a dynamic that complicates the Fed’s goal of returning inflation to 2%.
- The Fed left its policy rate at 3.50%–3.75% earlier this week while three policymakers preferred a 25 basis point hike, and the stronger ECI print increases the chance officials keep rates higher for longer.
- Markets showed little immediate move after the release, but sustained compensation growth would raise borrowing costs for households and act as a headwind for non-yielding assets such as cryptocurrencies.