How The Fed Can Bring About Higher Wages

These most recent historical patterns should give us confidence that, as the economy continues to improve, more sizable wage gains will begin to accrue, bringing renewed prosperity to all Americans. These same patterns underscore that the best thing that the Fed can do right now is to stick to its current strategy of gradually but decisively bringing its monetary policy back to normal—a strategy that, most economists inside and outside the Fed agree, has to involve moving interest rates higher towards the middle of 2015. This will insure that inflation returns to its two percent long-run target without overshooting, maintaining the necessary backdrop of price stability that is required for a prolonged period of robust but sustainable growth. Experience shows that to bring about higher wages, monetary policymakers should focus on stabilizing inflation first.