Growth in employment and compensation could influence the Federal Reserve’s next move, according to a Merrill Lynch research report.
A report released Wednesday by Merrill Lynch says the latest federal withholding tax figures suggest wages and salaries “have increased substantially” over the past few months, and these numbers “could influence” the Federal Reserve’s short-term policies.
“The surge in wage income should bring comfort to the Fed in removing accommodation and helps our short-duration bias,” rates strategists Marcus Huie and Priya Misra of Bank of America-Merrill Lynch explained. “If the data is primarily driven by employment increases, then the unemployment rate could see further substantial declines ahead. If instead it is due at least in part to wage inflation, there could be a concern over the approach of NAIRU.”
(NAIRU, the non-accelerating inflation rate of unemployment, refers to a level of unemployment below which inflation rises.)
The Merrill experts say that wage and salary increases can indicate either a jump in in the numbers of employed persons or a rise in cash compensation. “So far, the evidence from the February employment report appears to suggest more of the former,” the report said.