Former Treasury Secretary Lawrence H. Summers is keeping his eyes peeled for the "most important number for the week" ahead of the Federal Reserve's inaugural Federal Open Market Committee meeting this year.
What Happened: In a very full economic calendar this week, Summers told Bloomberg TV: "The thing I'm going to focus most on is the Employment Cost Index release on Tuesday."
The ECI represents the most comprehensive measure of labor costs. It rose 1.2% in the third quarter of 2022 after increasing 1.3% in the April-June period, as per Labor Department data.
"That is the gold standard of numbers on wage inflation and what's happening to labor costs," Summers said.
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Why It Matters: "Wages are a kind of super-core inflation. So I think that will be a very revealing number that will come out just as the Fed is beginning its deliberations," the economist said.
The market expects a 25 bps hike from the Federal Reserve to take the Fed funds rate window to 4.5%-4.75% and pricing suggests two more hikes of a similar quantum before cuts later this year, as per Reuters.
Some noted economists, however, have argued that the central bank should stick to higher hikes, even as inflation seems to be cooling down.
"If that number [ECI] shows substantial softness, that will I think be an important sign that disinflation is taking place despite the tightness in the labor market. If those numbers show robust wage inflation, that will give grounds for concern about the importance for the Fed of staying the course and providing the whole course of treatment for inflation," Summers said.
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