POLICY PARADOX

Markets are now virtually certain the Fed will hike rates by year-end but doing so when inflation isn’t being transmitted into wages makes no sense. Average hourly earnings rose by +3.4% Y-o-Y in May, but inflation as measured by the CPI rose 4.2%. That leaves real wages contracting at a rate of 0.8% Y-o-Y and negative for each of the past two months for the first time since 4/23.