Rising Wages Scare the Fed: “We Need to Get on with This”

QE-Unwind may start in September.

“We need to get on with this,” said Philadelphia Fed President Patrick Harker, a voting member of the policy-setting Federal Open Market Committee. He was talking about the Fed’s plan, detailed at the last meeting, to unwind QE. A possible moment to begin the process, he said, is the meeting in September.

His reasons: Complaints by his business contacts about rising wages.

Rising wages – regardless of what Fed Chair Yellen says publicly to soothe the nerves of the many underpaid workers – set off alarm bells at the Fed and push it into action. Not that all wages are rising. But average wages are rising faster than inflation, and in a number of sectors there are significant wage pressures. Businesses gripe. The Fed listens.

Harker told the Financial Times there was “very little slack” left in the labor market. “There is a rate [of unemployment] below which you are going to start to see a significant acceleration of wages.”

“You look at this labor market and you do have to question when we are going to start to see some increases in inflation,” he said. “We know from history that when that happens it happens pretty quickly.”

Hence, unwinding QE is on the table.

Bernanke explained in 2010 that QE was designed to create the “wealth effect,” where asset holders get wealthier (Part A) as asset prices are inflating, and thus they’d spend more and crank up the economy (Part B). Part A worked. Asset bubbles are now everywhere. Part B failed.

Now the question is when to reverse this wealth effect. There has apparently been unanimous agreement at the last meeting about the nuts and bolts of this plan. Initially, the Fed’s $4.5 trillion balance sheet will shed about $10 billion a month, which will rise over the next 12 months to $50 billion a month, and then continue at that level. This will amount to trimming the balance sheet by $600 billion a year.

The unwind could be launched “this year,” the FOMC statement said. Based on the FOMC meeting schedule, I mentioned at the time that this might happen “as soon as September.” Now Harker said it out loud.

The logic behind it? There will be four more FOMC meetings this year:

  • July 25-26 (no presser)
  • September 19-20 followed by Yellen’s press conference.
  • October/November 31-1 (no presser)
  • December 12-13 followed by Yellen’s press conference.

The Fed has been taking a policy action (raising rates) at every other meeting, starting in December, and only at meetings that were followed by press conferences. This is likely to continue. So no policy action at the July and October/November meetings.

Leaves the September and December meetings. The Fed penciled in one more rate hike this year and indicated that it would kick off the QE-unwind this year – two policy actions. And they’re not going to happen at the same meeting. So one likely in September, the other in December.

This assumes nothing untoward is happening before then, such as a sharp downdraft in the markets or a refusal by Congress to raise the debt ceiling. Harker warned about the latter and that it might impact the Fed’s decision because: “What we know from previous episodes of debt ceiling crises is they are not helpful to the economy.”

Harker laid out his idea of the schedule for policy action: Kick off the QE-unwind in September. “We need to get on with this,” he said. His business contacts were being “really pressured” by demands for higher wages, and he expected inflation to assert itself eventually.

“We have been talking about it for a long time; it has been part of our plan,” he told the Financial Times. “The economy is strong enough now where we can start to do what we have said we are going to do.”

He added, “if in fact inflation is softening then I would revise my stance of policy.” Yellen had taken pains after the last meeting to explain that this “softening” inflation – a godsend for consumers – has been due to “one-off” factors and would be temporary.

So, according to Harker’s ideas, QE-unwind might start in September followed “possibly” a rate hike in December. Despite four rate hikes in this cycle so far, monetary policy is still supporting the economy, he said.

He wants “to continue on this gradual path of removing accommodation,” he said. “Creating a soft landing is hard, but it is not impossible.”

But once asset bubbles have become so magnificent as our current set, a “soft landing” might be a pipe dream. The last two times when the Fed tightened its monetary policy after big asset bubbles had formed, it caused a dizzying stock market crash starting in 2000, which was practically benign compared to what came after the subsequent tightening cycle: the Financial Crisis. So the Fed will try to make sure that this time – to use the dreadful words – it’ll be different.

Oh my, how things have changed since late last year. Read…  The Fed is on a Mission, Doesn’t Worry about Markets: New York Fed’s Dudley

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  99 comments for “Rising Wages Scare the Fed: “We Need to Get on with This”

  1. Jim C says:

    Nobody looked at Gini co-efficient but rather propping up stock market is their main concern helping out their bankers buddies. Man-made crisis never go to waste.

    • Spanky Bernanke says:

      No, no, no–this time is different. No really, IT’S REALLY DIFFERENT. This time, there are no earnings to actually fall, because they were already related to financial engineering. This time, rates are so friggin’ low, nobody could afford to consume because they are already deep in the hock. This time, Blackrock and Fink won’t have any cash to buy cheap homes because they can rollover what they have. This time, the retail investor can’t pay that margin call and the Fed won’t be allowed to bail out over-leveraged commercials. This time, the Boomers won’t be holding, they will be selling and who will buy Facebook at 80X P/E??? Yes, this time is very, VERY different.

  2. Steve B. says:

    September? Really? Mmmm? What year? Uh huh.

    • Brett says:

      I thought the entire idea behind QE was that it was NOT going to cause inflation? Now they have to unwind it because of Inflation?

      • nick kelly says:

        The entire idea behind QE was to CAUSE inflation.
        It was a result of a deflationary collapse in housing which looked like spreading to the rest of the economy.

        As in Japan and euro zone, the Fed has been lamenting the failure to get to 2 percent inflation for the last 5 years.

        The latest concern about inflation returning is real switch. There is also a contradiction between some Fed members who are concerned about continued deflationary pressures and the Fed hawks described above.

        • interesting says:

          “the Fed has been lamenting the failure to get to 2 percent inflation”

          meanwhile I’ve been lamenting the actual inflation of 5%-7% and i’m probably understating that rate.

        • nick kelly says:

          Yes yes I know. EVERYONE agrees that that inflation is nuts when they look at the price of say, beef.

          Flat screen TV’s etc. etc. not so much.
          Used cars dropping 1 percent a month ( See WS Carmaggedon)
          Oil tanking again.

          But WHATEVER we think it is, we don’t decide what numbers to use, the FED does.

          So in trying to predict FED action, we have to look at what they think, not what we think.
          And whatever the rate of inflation, there is no doubt that the FED used QE to increase it.

          In anything like a normal economy the injection of 4.5 trillion by the FED should have caused OFFICIAL inflation to be double digits.

          The fact that it isn’t is as close to a mathematical proof you’re going to get that powerful deflationary forces have countered the FED’s efforts.

          So if you and (sometimes) I and some members of the FED think inflation is too HIGH, the raising of rates and the unwinding of QE will put that hypothesis to the test.

          It will all be OK or or it will be 2007 all over again, but with a much more indebted government, and a FED with less dry powder.

  3. Meme Imfurst says:

    Wolf, you are the best…period. You show it for what it worth, and in this case…well.

    The FED wans to be the hero “again” ( sarc.). The blind man at the corner newsstand, says we are in a recession now. Asked me for a dollar since no one had bought a paper in three hours. Now there must be a reason for that. So, Billy, the newspaper stand guy, says “folks’ ain’t got spendin mony”. They is sad, “folks don’t spend whend day is sday. So I said to Billy, “son, go on home, I’ll gather up the stand, close it up, and meet you at home and we will have a nice supper.”.

    You see, Billy has this silly notion that either Amazon will by the government or the government will buy Amazon and there after he, Billy, won’t need to work the newsstand anymore “cuz stuff will be free and they bring it to me’.

    May be my son is right. May be the FED has this planned right after all. So far, all the folks who say the FED has been wrong can’t get a seat at the table, even when they are right. So let the FED buy up the socks, bonds , and dirty socks of the corporations that have no loyalty to the people, but only to their frat bros.

    What was that the other day about feeling like the ‘BORG”?

    • TJ Martin says:

      ” What was that the other day about feeling like the ‘BORG”? “.. ( is here )

      ” You will be assimilated ; Resistance is futile ”

      Or alternatively ;

      ” Two by Two Hands are Blue ” * ; “Firefly ”

      * describing ‘ Alliance ‘ ( SinoAmerican Alliance of Planets ) operatives and assassins …

    • kam says:

      Since money is 100% fungible, you can buy a stock, a bond, or an asset in the real economy.

      Give the middle class worker a job and he/she will buy goods that grow the real economy. Give our new royalty a billion bucks and they will spend it in the financial/paper markets or invest it overseas.

      The old school economic textbooks missed the financialization of the US economy and especially the speed at sending money offshore.

      Ergo the Fed has been pouring money into a leaky barrel.

    • intosh says:

      Brick and mortar stores are closing, McD is using touch-enabled order booths. Where will all the Billy’s gonna work? Video-blogging?

      Teens and tweens are a major driving force behind disposable consumption. Where do students work nowadays?

  4. Justme says:

    As I have said a few times before in my life: The Fed (FRB) hates inflation. Wage inflation, that is. But there is a type of inflation that the Fed loves: ASSET inflation. Is everyone finally catching on now what is the real mandate and intent of the Fed?

  5. John says:

    When it all boils out, some people can’t have too much unless others have too little. And its not necessarily bad to have too much, what’s bad is how they generally get it.

    • walter map says:

      Workers are in no way entitled to the wealth they create. That they get anything is due solely to the beneficence of their employers, without whom they would get nothing at all.

      The economy is operated for the benefit of the wealthy. They own it, after all.

      • Paulo says:

        Forgot the /sarc

        Almost time for pitchforks, and big bonfires.

      • robert sills says:

        can’t let the slaves get anything!

      • RangerOne says:

        The employee is and always has been only able to get what they can negotiate and what the competitive landscape allows them.

        Companies equally wouldn’t exist without labor and as such your share of their prosperity is defined by the prevailing value of your skills to companies or the market.

        No one is entitled to anything. The company is not entitled to your skills or its customers. Nor is any person entitle to a job, a particular pay, position or equity.

        In reality if one side has too much of an upper hand options get squeezed and the free market system can become rigged in favor of the employee or employer. Usually it’s the later.

        • Smingles says:

          “In reality if one side has too much of an upper hand options get squeezed and the free market system can become rigged in favor of the employee or employer. Usually it’s the later.”

          It’s not an “if,” it’s patently a design of the system. Free markets lead directly to monopolies, oligarchies, etc., ALWAYS, in every iteration. They are the direct, natural result. It’s human nature.

          Anyways… I came across this depression-era quote which I thought was more timely than ever in 2017. Shame the deplorables would probably call this guy a Marxist.

          “We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.” – Justice Louis Brandeis (SC justice from 1916 – 1939)

  6. IdahoPotato says:

    $350 bn of balance sheet roll off will approximately equal a quarter point rate increase.


    “According to the Institute of International Finance (IIF), debt held by households, governments, financials and non-financial corporations in developed markets jumped from $128 trillion to $160 trillion in the last decade alone. Putting that in context? Developed economies increased their leverage from 348% debt-to-GDP to 390%.

    The picture may be even murkier for emerging markets. Due in large part to record-setting credit expansion in China, ’emergers’ have levered up from 146% debt-to-GDP in 2006 to 215% by the end of 2016. When you combine emerging economies with mature ones, credit inflation/debt expansion is proceeding at twice the pace of economic growth.”


    How these obligations will be serviced amidst rising rates, is the question.

    • Steve says:

      Interesting data point. As the Feds have raised rates in 2017, the yield on 10Yr Notes has fallen from 2.44% to 2.16%. (Source: http://www.cnbc.com/quotes/?symbol=US10Y)

      So who exactly is benefiting from the increase if the Fed Rate? Me thinks the banks only. Certainly not Main Street.

  7. walter map says:

    ‘His business contacts were being “really pressured” by demands for higher wages’

    Probably phony propaganda, but it’s more likely their minions are starving and getting restless. It contradicts the evidence in any case:

    June 14th, 2017
    • First-Quarter Real Average Weekly Earnings Held in Annual Decline, Along with Back-to-Back Quarterly Contractions
    • Recession Signal Intensified Sharply


    If ‘rising wages’ ever become an actual problem they can always cure it by getting rid of the minimum wage, repealing child labor laws, and trading out wage slavery for the other kind. You know they want to.

    • Wolf Richter says:

      The Fed doesn’t look at Shadow Stats. So for the Fed, it doesn’t matter what Shadow Stats says. Here are some of the data points on wages that the Fed looks at. Note that the first one, “Compensation of Employees, Received: Wage and Salary Disbursements,” is up 3.7% year-over-year (not adjusted for inflation):



      • walter map says:

        “The Fed doesn’t look at Shadow Stats. So for the Fed, it doesn’t matter what Shadow Stats says.”

        Hence the recurring financial catastrophes, rising inequality, increasing poverty, destruction of the middle class, and so forth.

        The avarice of their FIC constituency is far more adequately served by mark-to-fantasy accounting, birth/death model distortions, and carefully curated pants-on-fire statistics.

        • Wolf Richter says:

          Look, I’m trying to figure out what the Fed is going to do next. I’m trying to prepare my readers for what the Fed might do next. So I try to read the Fed. I try to understand their thinking. I look at what they look at, and I try to listen when they talk, and try to read between the lines.

          The simple fact is the tightening cycle has started. Flip-flop Fed is no more. And folks have been denying it, and at each rate hike they’re surprised.

          Back in January, I wrote that wage inflation is what really worries the Fed, not consumer price inflation, and certainly not asset price inflation…


          This has been consistent.

      • Wizzard says:

        Average weekly hours and hourly earnings have been flat for years. They don’t have to read shadowstats.



        I’ve been reading stories of labor shortages from the FED for years. The FED serves Wallstreet, not some complaining business owner who can’t keep his employees because he won’t pay them more than minimum wage. Expect the FED to cut soon as the markets tank.


        • Wolf Richter says:

          The first chart you linked shows clear wage increases. So check the chart again. The second charts shows the average number of hours worked (so time, not money). And this number of hours worked is roughly flat. What do you expect? People working more and more hours until they die from overwork?

          I said this a minute ago, and I’m saying it again here.

          I’m trying to figure out what the Fed is going to do next. I’m trying to prepare my readers for what the Fed might do next. So I try to read the Fed. I try to understand their thinking. I look at what they look at, and I try to listen when they talk, and try to read between the lines.

          The simple fact is the tightening cycle has started. Flip-flop Fed is no more. And folks have been denying it, and at each rate hike they’re surprised.

          Back in January, I wrote that wage inflation is what really worries the Fed, not consumer price inflation, and certainly not asset price inflation…


          This has been consistent. And now Harker made it official.

  8. Petunia says:

    The fed has been buying bad loans at full face value since the financial crisis began. That’s how they recapitalized the banks. Now that they are letting these loans roll off with whatever money was paid on them, will they recognize those losses. Or are they going to print up the difference, a perpetual short and over account. I sure don’t know.

    • Petunia says:

      P.S. Wages rising? I wish!

      • John says:

        Yeah, wages at all, I wish.

      • polecat says:

        Do these .. uh .. big ‘bidness’ folk believe they’re untouchable ?? .. how clueless can they be ?!! .. same questions apply to the walkers at the Fed …

        As Geraldine Celente has opined on numerous occasions: “when people have nothing to lose, THEY LOSE IT !”
        Our ‘betters’ are playing with a roaring fire !

  9. Scott says:

    So let’s see, many people have gone years without a real wage increases but faced rising costs for housing, healthcare, childcare and education, which is ok according to the Fed, However, as soon as people’s wages start to go up, we have crushing inflation that must be crushed.

  10. Patrick says:

    The Fed will never start selling off ‘assets’ (if you can call them that) from their balance sheet – not in our lifetime. Yellen was lying thru her crooked teeth when she proposed it. Since the Dollar started selling off both ahead and after each Fed meeting she realized that the Fed needed to say something (anything) to prop it up. So that something was that they intend to start unloading their toxic assets. And of course it had the desired effect – but maybe not as permanent as Yellen hoped.

    So here’s their backroom liar’s poker game…

    -Everytime selling in the Dollar accelerates, march a Fed critter out to reiterate that they really, really, really for sure plan on starting to sell off those toxic MBS and UST’s any day now. Bam – Instant dollar rally.

    -And everytime stocks sell-off, march another Fed critter out to mumble something about the ‘economy’ or ‘jobs’ not looking so healthy and that maybe they’ll put off unloading their balance sheet until another day. Bam – Instant stock rally.

    See how that works? No need to ever actually sell off anything. And judging by the fact that the rate hike rhetoric worked for years on end, there’s always an easy excuse like ‘data dependence’ to kick this can down the road forever.

    • MC says:

      The so called QE unwind is not a selloff: to put it in layman’s terms, ever since the US Federal Reserve stopped their QE programs they have been maintaining their assets at a stable level. This is achieved by buying assets such as treasuries and REIT’s exclusively to replace those coming to maturity: there are no more purchases to increase the balance sheet.

      Under the envisioned unwind assets coming to maturity will not be replaced with new ones, at least not in full like it has been done so far.
      To give an example if QE unwind is declared to be US $60 billion/month and in a given month the Fed has $100 billion of maturing assets, they’ll buy merely $40 billion. If the next month they have $60 billion coming to maturity they won’t buy anything, and so on. That’s QE unwind for you.

      The European Central Bank recently reduced its QE program but more than compensated for it through yet another round of TLTRO: TLTRO is a fancy name for 0% financing of European banks. Once official inflation is factored in, banks are effecively paid to borrow money.
      Namely this money should go to finance “productive activities”, but it has long been effectively used for mass purchases of assets. Italian banks have used TLTRO since its inception to buy enormous amounts of Italian treasuries, effectively extending the reach of the ECB QE program. Most likely it was all planned from the start.

      But the Fed is not going to launch a TLTRO to compensate the unwind. They are staying on course with their regular and predictable rate hikes.
      They are happy to leave monetary lunacy to the ECB, the BOJ and their colleagues still locked in the ongoing currency war*.
      As usual the dollar will be back at being the one-eyed-king in the land of the blind.

      *Given each time I use this phrase people get confused, the present currency war has nothing to do with exchange rates but everything to do with obtaining advantages by whacking one’s own currency on the head with a mallet.

      • Dan Romig says:

        I agree MC, and I recently posted (German Politicians Hammer The ECB, …) that the ECB’s TLTRO program is the definition of corruption.

        It probably was all planned from the start, and the ECB has been up to other dirty tricks such as buying European companies’ bonds at near zero interest. This transfers cash directly to corporations from the ECB. Sweet deal for the CEOs in Europe, eh? Not so sweet for the citizens in Europe though.

        I am self-employed, but I would hope my fellow Americans have an increase in wages; despite this scaring the Fed. After all, this is the way to grow the economy, and improve the quality of life for the masses who go to work every day.

    • walter map says:

      “The Fed will never start selling off ‘assets’”

      I don’t see how they can. Asset purchases are the only reason the markets recovered, the only reason the markets have soared – and the only thing maintaining the illusion of an ‘economic recovery’.

      “there’s always an easy excuse like ‘data dependence’ to kick this can down the road forever.”

      Not possible. The Fed’s approach comes with costs: it bleeds the real economy, which has only been able to manage a weak recovery at best. Signs that the real economy is faltering are showing up and the gamed statistics can’t hide it. The parasitic FIC is killing the host, and the Fed cannot be unaware of that. These people aren’t stupid.

      At the beginning of the Great Recession the Fed was panicked into restoring the financial markets ASAP without restoring the real economy, as that would empower workers and contradict policy. Hence the QE, the stock buybacks, and the export of the U.S. economy: these support the financial economy without supporting the real economy. But the true value of financial assets must degrade as the quality of the underlying economy degrades, regardless of face value. Sooner or later the financial markets must crash. It is inevitable. And the Fed can’t stop it.

  11. jb says:

    The conditions under which the feds have begun their tightening cycle is unprecedented(e.g. low inflation and low gdp growth). The first year of reverse QE under the proposed schedule will amount to 285 billion of treasury/agency bond sales. The feds should have started this gradual tightening process when we had reasonable growth in late 2014 early 2015. The feds are now under the gun to accumulate enough “dry powder” for the next recession.

    • jb says:

      correction: 285 billion of bonds will roll off (i.e principal is paid to feds but not reinvested) the balance sheet.

  12. Mad Max says:

    God forbid that the wealth effect spread to average Americans. Financial bubbles leading to record wealth divide – that’s fine. Real wages rising? Hit the brakes.

    Stock ownership has plunged among average households since 2007. Those who benefit from rising asset prices are those who have large wealth saved in financial assets. How was that suppose to trickle down to everyone else? Average people with modest savings at the bank, who spend nearly all their income have seen their interest income on saving at the bank go from 5% to zero.


  13. no_free_lunch says:


    “Okay, Ben, so they’re trading portfolios. So what? The so what is that there’s one thing that central bankers are even more committed to than propping up financial asset prices, and that’s preventing wage inflation from getting a full head of steam. That’s because central bankers are, in fact, bankers, and bankers gotta serve somebody, too. Or as Zora Neale Hurston would say, their eyes are watching God. It’s just — and I don’t mean to get all Marxist here or anything subversive like that — but their eyes are watching Capital, not Labor. Central bankers think they’re on the side of the angels with this one, the big struggle between the Old God Capital and the Old God Labor. I mean, it’s their “mandate”, after all. Their Mandate of Heaven, so to speak. Who can argue with that?”

    When wage suppression (now) takes precidence over asset inflation, don’t expect perpetually asset prices (anymore…).

  14. curious cat says:

    “Complaints by his business contacts about rising wages.”

    What an incredibly asinine statement! How does this small sample extend to the entire US economy? This guy was just recently named to the Philly Fed and came from being president of the University of Delaware. I found myself at the time wondering what qualified him to be a member of the FOMC. Connections I guess. Anyway: I don’t believe a word of it.

    • Wolf Richter says:

      If you want to know what the Fed might do next, you need to listen to what the Fed heads say. They talk on purpose. They want to prepare the markets for policy changes. It’s called forward guidance.

      • d says:

        And they all basically read their Paragraph, from the agreed Play Book page.

        As stated, Congress is the only spanner currently seen lying on the bench that could jam up the work’s.

        No matter if you consider them clowns. Or geniuses. You better pay attention to what they say or you will get “green-spanned” Any body who dosent Know what that means, should do some research.

      • Cash is Still King says:

        Don’t fight the FED.

        So with an unwind of QE and another .25 rate increase by the end of the year, would the likely effect be a strong dollar and a rotation out of stocks and into bonds? Although some housing markets are less strong, another rate increase would seem to be unlikely to really hurt residential real estate.

        Maybe I am wrong again, but cash seems very valuable right now and its optionality only grows the longer this hiking continues.

      • ERG says:

        Bernanke (no longer chairman, but clearly still in the loop) was interviewed on Bloomberg and said they are going to unwind.
        He said it many times. Many, many times.

        In a fashion similar to Dorothy in The Wizard of OZ saying ‘there’s no place like home’.

        Its very clear that’s the plan.

      • Smingles says:

        “If you want to know what the Fed might do next, you need to listen to what the Fed heads say. They talk on purpose. They want to prepare the markets for policy changes. It’s called forward guidance.”

        For years the Fed said one thing, and did another.

        Why should we listen now?

        Futures market pricing in a ~15% chance of a hike in September. 40% chance in December (assuming they skip in September).

        Watch inflation continue to creep in low, growth to continue to stall, and what will be Chair Yellen’s excuse then? That it’s STILL transitory? Just like the past seven or eight years, I suppose.

        Right now the excuse is that oil is the reason for the decrease in inflation being transitory. I feel like I’m taking crazy pills… because the only reason inflation started spiking in the first place (if you could call it a spike) was because of oil.

        So as long as oil increases and inflation increases, it’s not transitory… but oil decreasing, and inflation decreasing is transitory.

        Got it.

        And you wonder why the market doesn’t really give two squats what Janet says?

        • Niko says:

          “For years the Fed said one thing, and did another.”

          Smingles you forgot one thing in the above statement:

          For 8 years the Fed said one thing, and did another.

        • Wolf Richter says:

          I agree, after years of being “flip-flop Fed” in my words, it has lost its credibility with the markets. And it knows it. So it’s trying to regain some of it. Which for now is not working.

    • Camerons says:

      “His reasons: Complaints by his business contacts about rising wages”. LOL. Unwind trillions simply because his business contacts complained. Fed’s decision making methodology for dummies: call your business contacts to decide what to do next. The problem is that many believe him and he’s smart enough to know that. These people are demagogues. Their job is to make the wealthy class wealthier hence the “wealth effect”. We have been seeing what’s been trickling down.

  15. shah8 says:

    Can’t square the circle, man…

    Wage pressures are rising because participation is stagnant/falling. Participation is that way because of asset inflation in land, effectively. If you increase rates, then you risk asset deflation, or business slowdown, or both.

    Best way to deal with it is an organized bit of wage inflation. A national $15/hr policy will even out inflation across the country, bring people back into the labor force, and cool assets without risk of catastrophe.

    • RD Blakeslee says:

      Unfortunately, that kind of wage policy is not likely to inflate wages. It will inflate job losses.

      • TheDona says:

        I agree about job losses but it will get rid of the lazy or druggie slackers and folk who have no common sense, social skills, or ability to learn….which are many. After completing many long distance road trips I have seen too many people that would probably test 75 on the IQ scale. They could fire 3 of these people and hire one good worker for $20 and hour and come out ahead for the company. It is a major conundrum.

        • Petunia says:

          Unfortunately, the butt kissers are kept by the person who hired them in the first place, and the productive workers get sacked, for making them look bad. Then comes bankruptcy.

    • Dan Romig says:

      My city of Minneapolis was set to do this $15/hour, but the Minnesota House and Senate blocked cities from raising the minimum wage.


      While Wolf advocates a non-political forum here, the fact is that in the MN Senate, the measure passed 35 to 31. Of the 35 votes, 1 was a Democrat and 34 were Republican. There are 34 Republicans in the MN Senate.

      • Smingles says:

        Wait, you mean “small government” Republicans blocked cities and towns from controlling their own labor ordinances…

        My, how quaint and hypocritical.

        “As you can imagine, a patchwork of inconsistent labor standards from city to city and county to county, or both cities and counties, would be extremely confusing and a significant burden on Minnesota businesses, and especially small businesses,” said Sen. Jeremy Miller, R-Winona, the bill’s chief author.”

        Funny… how is this any different from arguing about a patchwork of… say… inconsistent healthcare standards from state to state?


    • Petunia says:

      Rep. Khanna, from Silicon Valley, has a bill to increase the wages of H1Bs. No, I am not kidding. This will guarantee that foreign workers get well paid so they can send more money back home. Mean while, he and the rest of them, won’t raise the minimum wage for American workers.

      • Tim says:

        Or….if a company has to hire an H1B at a competitive rate, they might hire someone here instead if they cant get their cheap labor fix.

        Which would prevent the aforementioned capital flight.

        • Petunia says:

          I believe the current law gives H1Bs a prevailing wage, based on education and experience, which is widely abused. A large portion of those tech workers come from foreign employment contractors who charge the wage and pay the workers less. So any way you look at it, the money goes overseas.

          Rep. Khanna’s bill represses the wages of American tech workers, especially older ones, who cost the employer more through healthcare. They are setting a median wage standard which the foreign worker will always be able to meet. This alone would favor the foreign workers over the domestic labor force.

      • TJ Martin says:

        Petunia – A correction on your 8:53am H1B comment ;

        What the H1B visa is supposed to do … is to allow skilled and semi skilled educated foreign workers to fill jobs … at a ‘ competitive ‘ wage [ thats a key word so hold on ) ONLY ( another key word ) when there is a void in the US workforce available to fill those positions . Also the job must by law pay no less than $60k presently and for a limited duration

        1) Competitive is according to the law [ created by the congress / senate ] to be equal to that of an American holding the same job to include any benefits etc even though H1B’s are not granted benefits . e.e.g If you as a US citizen’s salary at a specific job is say $80,000 with $9,500 in benefits [ retirement health and medical etc ] … then the company .. by law .. should be paying an H1B worker $85,000

        2) The reality though which is overlooked by the Dept of Labor , senate and congress etc is that more often than not regardless of whether American workers are available to fill the position H1B’s are hired [ frequently to replace current American held positions ] at less than competitive wages verging on much lower than competitive wages .e.g. Many a $100k a year plus position has been filled with an H1B at the minimum $60k no benefits

        As far as the ‘ so called ‘ why Khana is leading the charge along with Cruz etc to raise the minimum wage is supposedly to keep companies from filling low lot mid level positions with H1B’s . All bets are though reviewing their recommendations it will not function as advertised

        Sigh …. thats the very abbreviated ‘ CliffsNotes ‘ answer to what is an extremely convoluted , overtly abused and remarkably unregulated program that WAS created initially to keep US businesses competitive as well as bringing the best of the best to the US … but has become nothing more than a source of Cheap Labor for those corporations while eliminating US workers from mid to high paying jobs . The worst of the worst when it comes to H1B abuses ? Tech , Pharma and Health Care .

        Suffice it to say Petunia if the Chaos in Chief and the RNC were genuinely concerned about immigration abuses and the plight of the American worker… they’d be putting all else aside focusing solely on and tackling H1B abuse head on . Cause thats where the good jobs are being lost. Thanks in no small part to the Congress / Senate and especially the Dept of Labor

        Nuff said ..

  16. David Calder says:

    Rising profits are no problem.. Using cheap Fed money to do stock buybacks that benefit CEO’s are no problem. Monopoly capitalism is no problem. Crony capitalism is no problem. Running deficits for 9 years that benefitted the 1% were no problem but when the working class finally might be seeing a tiny uptick in wages that exceed inflation that might be 2% the Fed is will put on the brakes. When this crappy economy tanks again will the Fed bail out the same thieves as before? Will the people stand for it?

  17. raxadian says:

    So that’s all what they gonna do? Raise interest rates? That’s their whole plan?

    And of course they are saying it well beyond in advance so their friends know of course.

  18. Si says:

    Wolf (or anyone really!) – who are Fed going to sell to?

    Applying my limited understanding – if they sell then selling will drive the price down because they are big holders, so will they have to take a hit on the difference between their purchase price and the selling price?


    • MC says:

      See my reply to Patrick above.
      To cut a long story short, since the end of the QE expansions the US Federal Reserve has maintained asset levels.
      In short new assets are bought to replace those coming to maturity on a 1 on 1 basis. Example: in a month $10 billion of treasuries come to maturity, hence the Fed buys another $10 billion in treasuries to replace them.
      Under what I call “QE unwind”, the Fed will reduce asset levels by not replacing those assets on a 1 on 1 basis when they mature. The Fed will most likely continue to purchase assets, but in dwindling quantities. The exact numbers and modality will most likely be debated over the Summer.

      It may not seem like much but this thing will really rock security and REIT markets.

    • Wolf Richter says:

      Their plan is to not replace maturing securities. So they’re not actually “selling” the securities. They’re collecting the money when securities they hold mature and are redeemed at face value by the issuer (the US Treasury Dept, Fannie Mae, Freddie Mac). So the Fed will not lose money on those securities (assuming they paid face value for them).

      There might be some securities that they paid a premium for, such as 10-year Treasuries that might have had a coupon of 2.5% and the Fed bought them when the 10-year yield in the market was 2%. So these Treasuries were trading above face value at the time, and the Fed would have had to pay that premium to buy them from the market. But since then, the combined coupon payments would have compensated for that. So over the term, there would be a gain, even if they paid a premium for them.

      The reverse is also true. The Fed might have bought 10-year Treasuries with a coupon of 2% when the 10-year yield in the market was 2.5%. At that point, the Fed would have bought the securities at a discount, and when they’re redeemed at face value, it would make a small profit.

      In other words, there will not be a profit-loss problem for the Fed.

      The toxic mortgage-backed securities it bought during the Financial Crisis from Bear Stearns and other banks were segregated into its “Maiden Lane” accounts on the balance sheet that have now been sold off or written off. So this part has already been cleaned up and there won’t be any further losses in that regard.

      • Petunia says:


        While the Maiden Lane junk was sold off years ago, they claim at a profit. There has been continual buying of MBS throughout the QE program. They don’t buy the best securities, they buy the worst at full face value, in order to stabilize the mortgage market.

        But, foreclosures weren’t just limited to the beginning of the crisis, they have continued since then to some degree. At some point those losses have to be recognized at the fed. The loss actually occurs when they overspend to buy the junk, which they carry at full face value. So, who is left holding the bag, the fed who bought, the banks who sold, or some third insurance party.

        • Wolf Richter says:


          My understanding is that after the bailouts were finished, the Fed has been buying only “Agency” securities, so MBS whose underlying mortgages are guaranteed by the GSEs (Fannie Mae, Freddie Mac, etc.) which have become part of the government. So I think those MBS are essentially guaranteed by the government and should be good. The losses that occur (as you mentioned) would be borne by the GSEs. They too got bailed out by the taxpayer for that very reason and might face another bailout.

  19. Mike R. says:

    I’ll say it again. The Fed is running scared and saying whatever they have to to make it appear that all of this is under control and the economy is healthy enough for rate hikes and money destruction.

    It’s all nonsense of course, to those that know what is really going on.
    Wage inflation? Sure in some sectors, but overall the economy handles wage inflation and higher costs by reduced demand. Thus stagflation.

    And one reader above is absolutely correct in that debt has been maxed out again at very low interest rates, so not much ability there until all rates go to zero…..which will happen in time.

    The Fed is simply lying to protect their image that they are in control and have been all along. We are headed into a deep recession and they know it. Particularly with Trump in office and the federal government fully paralyzed (at least with Obama there was a player with some sense, as it were).

    So make it look like things are so good that they can unwind this mess.
    NEVER going to happen. They will be lucky to get started before the economy sinks.

  20. rj says:

    Thank you Mr. Richter. I’m wondering which assets will be “unwound” first. That is, will the Fed’s decision be purely maturity based, because apparently there’s quite a bit to choose from.


    • Wolf Richter says:

      Yes, it’s maturity based, as you say. The Fed collects the money from the issuer (Treasury Dept, Fanny Mae, Freddie Mac) when securities mature. So now it has that money but doesn’t reinvest it. And the money disappears – the reverse of what happened when the Fed created this money out of nothing to buy the securities.

      • Dan Romig says:

        Wolf, if the Fed collects the money and doesn’t reinvest it, does it go out as dividends to the member banks that are shareholders of the 12 Regional Federal Reserve Banks?

        Please forgive my naiveté, but since I studied physics and not economics, how does the money disappear?

        • Petunia says:

          Instead of money sitting in a member bank’s account at the fed, it transfers to a fed “treasury” account. No bank has access to it. It’s an accounting entry. The money supply has then shrunk.

        • Dan Romig says:

          Thank you Petunia.

        • Wolf Richter says:

          No. It just disappears to where it came from. The Fed created the money out of nothing to buy the assets, and it destroys the money by not reinvesting it… the same process in reverse.

        • Dan Romig says:

          Upon further reflection, that makes sense. After all, the Fed created money out of nothing to make TRILLIONS of dollars in secret loans to Citigroup et al as the 2008 meltdown occurred.

          What a concept? A non-elected and virtually unaccountable entity can create or destroy money.

          ‘Lately it occurs to me
          What a long strange trip it’s been.’

        • Justme says:

          Answer to Dan:

          When FRB bought the bonds from member bank, FRB “paid” for it by crediting the reserve account of the bank. This mechanism really is an act of creating new money , money which in effect is backed by the collateral that is the backing of the bonds (for example: a house or a collection of houses in the case of a mortgage backed bond).

          Now, at certain times, payments are due on the bond. That payment may be monthly principal and interest, or a full payoff at the expiration/maturity date of the bond, or some combination thereof. Either way, whoever issued the bond has to pay the bond debt off to the bondholder, which in this case is FRB. This involves payment through one or more FRB member banks to FRB. The payment is subtracted from the reserves of the(se) member bank(s).

          Notice the important difference: When member banks pay each other, the total amount of reserves (money) stays the same. One bank may get a net increase and another may get a net decrease on any given day. But when member banks pay the FRB itself, reserves (money) is reduced.

  21. philbq says:

    Wolf echoes what I have been saying: the Fed is against the American workers getting a raise. Any time wages seem like they may improve, the Fed views that as a problem, and tightens the screws on the economy. It is obvious that the Fed serves the interests of corporations, Wall St., and the upper classes who own most stock. Asset bubbles do not bother the Fed – workers getting better wages is what sets off alarm bells at the Fed.

  22. philbq says:

    Regarding the wage inflation that the Fed is so frightened of, I can’t see much Here in the prosperous middle class city of Olympia ,WA, the only wage increase is the rise of the minimum wage through a law passed by voters. Nobody else is getting any raises. So is the Fed striking back at the increases of the minimum wage???

  23. walter map says:

    “Rising Wages Scare the Fed”

    Naturally. These are Cheap-Labor Conservatives we’re talking about.

    It’s not just that rising wages reduce their profits by increasing their costs. Rising wages empower workers and reduce the control employers have over them, making them harder to exploit. Empowered workers are more able to demand a fairer share of the wealth they create. The last thing Cheap Labor Conservatives want are rising wages.

    That rising wages would enable workers to increase their spending and in turn increase corporate profits is not even a consideration. Given a choice between exploiting consumer and exploiting workers, they would always prefer to exploit workers.

    • Kent says:

      Society decides how wealth is distributed. Government is the platform for mediating that discussion. People who know this, know that it is a bare-knuckled fight over who gets what. People who don’t know this complain a lot, but aren’t really sure why things are going the way they are. If you can teach them to blame themselves for their failure, all the better.

  24. DK says:

    Not rolling over their debt investments and raising rates as well. This may put the brakes on pretty hard.

    • IdahoPotato says:

      But BOJ and ECB keep pumping hundreds of billions ($300bn a month?) into world markets. How does the Fed’s tightening affect markets substantively? It will only affect consumers and entities with loans.

  25. Bobber says:

    If the Fed is targeting short term rates at a certain level, say 1%, how can their balance sheet reduction plan co-exist with that target? The balance sheet reduction would seem to increase interest rates above target levels because the Fed won’t be in the market buying treasuries anymore.

    Perhaps the Fed plans to test the markets by reducing the balance sheet. If it leads to interest rate increases that conflict with the targets they’ve set, they’ll back off the reduction plan and maybe begin QE again. In that sense, the balance sheet reduction plan is highly contingent.

    • Kent says:

      Suppose there is a large market for fed assets at 1% and the Fed knows that?

    • Wolf Richter says:

      The Fed’s rate target is for the federal funds rate, which is the shortest end. The balance sheet “normalization” will impact longer-term yields. They don’t often move together … so you get the “yield curve” that shows the yields of different maturities on that specific day. It is normally an upward curved line. But it can flatten out or invert (head down), which are potential signs of trouble.

      By raising short term yields and trying to push up long-term yields via QE-unwind, the Fed is trying to keep the yield curve from flattening out or inverting.

  26. mvojy says:

    Guess they can’t H1-B us all

    • TruthTycoon says:

      Actually they are. H1B went after STEM jobs (think, innovative capacity of a country). Other programs are also in motion that go after other jobs, like accounting, business administration, office work and so on. Those are picking up steam in terms of domestic laborers being replaced by foreigners. Heck, there are even legal practices that instruct businesses how to avoid hiring domestic workers as shown below. It is important to note that I say “domestic” instead of “American” as the process is repeated country after country. Here’s the vid on how to avoid hiring domestic workers (keep in mind this was recorded over a DECADE ago and still few people realize what is going on) – https://www.youtube.com/watch?v=TCbFEgFajGU

  27. stan says:

    I realize this topic is fed policy, but most comments are concerned with the wages of working Americans. Any plan to increase the value of workers must include ending the federal income tax on wages, salaries, and tips, which is collected on line 7 of the IRS 1040 form. We must delete this line so American jobs are not penalized with this tax. A tax on jobs kills jobs.

  28. Lune says:

    This may be a contrarian opinion, but could all this tightening amount to nothing? Reason is excess reserves. Since the fed starting paying interest on reserves, banks have parked about $1.8tril with the fed. So even if the fed shrinks it’s balance sheet, there is still plenty of “dry powder” that banks can use to lend. While there may be a slight rise in interest rates, the overall money supply is currently not constrained by the Fed’s balance sheet since there are more reserves ou there that aren’t being used to lend.

    In essence whatever debt the Fed let’s expire, can be replaced by banks’ fractional reserve lending, at least until the feds qe unwind exceeds the amount of excess reserves.

    • Justme says:


      >>at least until the feds qe unwind exceeds the amount of excess reserves.

      I get what you’re trying to say here, but keep in mind that reserve reduction moves in dollar-for-dollar lockstep with the non-reinvestment (a.k.a the “unwind”). The non-reinvestment/unwind removes reserves in real time. The reserves become less and less excessive as they drop with each step of non-reinvestment/unwind.

  29. Sporkfed says:

    This unwind sounds deflationary which should make the dollar stronger.
    A stronger dollar of course will kill exports and hurt asset prices so I don’t
    expect the Fed to tighten past the next hike. Whatever transfers wealth from Main Street
    to Wall Street seems to be the path taken.

  30. Gershon says:

    How long will the 99% put up with the Fed’s swindles against them?

  31. mean chicken says:

    Rising wages? If money is the root of all evil, the FED must be the Devil.

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