Growth in US wages and salaries slowed to 1% in the fourth quarter of 2022, down from 1.3% in the previous quarter.
However, wages and salaries actually declined by 1.2% for the whole of 2022, due to high inflation.
As inflation remains high, the Fed may continue hiking interest rates — meaning wage growth could continue to trend slower.

US wages rose slightly in the fourth quarter of 2022 — but that still meant a pay cut, as the pay bump did not keep pace with rising inflation.

Wages and salaries for civilians rose 1% in the fourth quarter from a quarter ago, the Bureau of Labor Statistics said in a Tuesday report. The wage increase slowed from the pace of 1.3% in the third quarter of 2022 — but overall pay was still up by 5.1% for the entire year.

In real terms though, wages and salaries actually declined by 1.2% for the whole of 2022, thanks to high inflation rates.

US consumer inflation rose 6.5% in December from a year ago — and though it was 0.1% lower between November and December on a seasonally adjusted basis, it’s still far higher than the Fed’s 2% target rate — which means, it is hurting purchasing power and personal finances.

The US Federal Reserve will be keenly watching this data ahead of its first meeting of 2023 on Tuesday and Wednesday.

The central bank is scheduled to release its latest rate decision at 2 p.m. ET on Wednesday, and analysts polled by Reuters expect the Fed to hike interest rates by 25 basis points this time. The federal funds rate is in the 4.25% to 4.50% range currently.

Higher interest rates make borrowing for anything from mortgages to credit cards more expensive. And it encourages people to save rather than spend, which in theory, helps bring down prices — and in turn, keeps wages lower.

Worker compensation is key to the Fed’s monetary tightening cycle, as rising wages contribute to inflation. Some economists are concerned that current market conditions may lead to a wage-price spiral, a vicious cycle of broad price gains leading to pay hikes, in turn fueling consumption and actually worsening inflation.

Moderating wages and salaries in the fourth quarter points to validation for the Fed to dial back its aggressive rate hikes to 25 basis points from 50 basis points in December, Vishnu Varathan, the head of economics and strategy at Mizuho Bank’s Asia and Oceania treasury department, said in a Wednesday note.

But it doesn’t mean the Fed’s going to walk away from hiking rates because inflation remains elevated.

“To be clear, evidence of subsiding inflation and wage pressures in recent months merely increase confidence to slow the pace of hikes, not catalyze an end to the tightening cycle,” Varathan added.