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U.S. labor costs rose less than expected in the fourth quarter and the annual increase was the smallest in two years, signs of moderating wage inflation that could give the Federal Reserve room to start cutting interest rates by June.
Compensation costs growth is slowing as labor market conditions ease in response to the U.S. central bank’s tight monetary policy stance. Government data on Tuesday showed Americans were becoming less enthusiastic about job-hopping, with the number of people quitting their jobs near a three-year low in December, a trend that could further slow wage inflation.
The Fed kept rates unchanged on Wednesday against the backdrop of a resilient economy, which is being anchored by the labor market through consumer spending. Its policy statement gave no hint that a rate cut was imminent.
“Not great news for our pay checks, but good news for inflation and the prospect of meaningful Fed policy easing,” said James Knightley, chief international economist at ING in New York.
