After being dislocated over the past decade, suppliers of labor, or households, are now on the same footing as employers, St. Louis Fed President James Bullard said Friday.
“This is an appropriate situation that the Fed should not disturb,” Bullard said in a speech to the Chamber of Commerce in Springfield, Mo.
To the extent that wages and benefits rise going forward, firms will have to decide whether to hire more labor or to substitute with capital, Bullard said.
“This is an equilibrium process, not an inflationary one,” he said. Labor market outcomes are not tightly associated with inflation, he said.
Bullard, who is not a voting member on the Fed policy committee this year, has for most of this year been urging his colleagues to be cautious about further rate hikes.
In his speech, Bullard listed several reasons for caution.
For one, if the Fed continues increasing the federal funds rate and longer-term yields do not move higher, an inversion of the yield curve is possible, he said. An inverted yield curve is when short-dated yields move above long-dated yields.
This is “a reliable bearish signal” for the U.S. economy, he said.