Sustained Labor Shortages Drive Wage Growth, Keep Fed in Bind
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Labor market demographics like declining birth rates and baby boomer retirements have led to a tight, undersupplied labor market that is causing sustained wage inflation.
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Wage inflation remains high at 4.1% year-over-year in December and is exceeding overall inflation, indicating the labor market is still tight.
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Multiple long-term demographic factors will continue to constrain labor supply for years, keeping the market tight. These include lower immigration and corporate growth outpacing workforce growth.
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The Fed is in a difficult position because the strong labor market is the main thing still propping up inflation. Cooling the market risks very low inflation.
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Investors may want to increase exposure to stocks and value stocks that tend to do better in high rate environments, while being cautious of expecting interest rate cuts this year.