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Since the disappointing CPI report from the US there has been a notable change in interest rate expectations in the US. The timing of the first cut has been pushed forward and the number of cuts has been reduced. However, it is not all bad news on the inflation front in the US.
This week’s chart looks at one of the measures of wage growth in the US, it is quite well behaved. It has been trending down and has taken a lurch down this year. This is not due to weak demand, as we saw in our last edition of Chart of the Week job creation is accelerating, which is very encouraging. Yes, average earnings are growing faster than pre-pandemic but not by much. Pre-pandemic average hourly earnings were growing in the range 2.0% – 3.5%. We are above that range at 4.1% but the margin is small, and the trend is bringing us back into that range. At the start of the year, we felt markets were overly optimistic about the number of interest rates that would occur this year in the US, now they may have become too pessimistic.
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