U.S. labor costs increased slightly in Q4, offering some relief to the Federal Reserve amid stalled inflation progress. The employment cost index (ECI), a key labor market measure, rose 0.9% after a 0.8% gain in Q3, aligning with economists’ forecasts. Labor costs climbed 3.8% annually, down from 3.9% in September.
Data on Thursday showed inflation picked up in Q4 due to strong consumer spending. The Fed maintained its interest rate at 4.25%-4.50% on Wednesday, having cut it by 100 basis points since September. The policy statement omitted prior references to inflation progress, reflecting economic uncertainty tied to President Trump’s tax cuts, tariffs, and immigration policies.
Wages and salaries, the largest labor cost component, rose 0.9% in Q4 and 3.8% annually, slowing from Q3’s 3.9% gain. Inflation-adjusted wages grew 0.9% over the year, down from 1.4% in Q3, supporting consumer spending.
Private-sector wages increased 0.9% in Q4, rising 3.7% annually, while state and local government wages grew 1.0%, maintaining a 4.5% yearly increase. Benefits climbed 0.8%, mirroring Q3’s gain, and rose 3.6% annually.
With only two Fed rate cuts forecasted for 2025, down from four, policymakers remain cautious about inflation risks amid shifting economic policies.
Also read: U.S. Economy Slows in Q4 Amid Trade Deficit and Boeing Strike
