The Federal Reserve plans, perhaps as early as its May 4 policy announcement, to start releasing back into the market some of the more than $4 trillion in U.S. government securities it has added to its balance sheet since the start of the pandemic.
The Fed will use this tool, known as quantitative tightening, alongside anticipated interest rate hikes throughout 2022 to rein in inflation, which is at a 40-year high. Vanguard expects the Fed to keep an especially watchful eye on wages during this period. Higher pay takes longer to establish itself in an economy than broader price increases, but when it does, it can precipitate further inflation, which can lead to even higher pay in a cycle that threatens to repeat itself.
A new analysis by Adam Schickling, a U.S.-based Vanguard economist, underscores the significance of compensation metrics today. Using a Vanguard model, Schickling forecasts that the U.S. “quits rate”—the Bureau of Labor Statistics’ measure of employee-initiated job separations—is likely to remain elevated for the rest of the year, as is highly correlated wage growth.
