Tax Cut Will Brighten Wages News Even More
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What is the main topic discussed in this episode?
This is Your Money Matters from The Wall Street Journal.
Welcome to Your Money Matters. I'm J.R. Whalen in New York.
What did the January jobs report reveal about wage growth and why does it matter?
The upbeat January jobs report included a jump of three-tenths of a percent by wages over December, which was more than what economists were expecting. Wall Street Journal Heard on the Street columnist Justin Lahart joins us to discuss what that might mean for interest rates, but also why there's cause for concern. So, Justin, we all have had our eyes on how increased wages paid by employers and how that could give the Federal Reserve reason to increase rates. But the headline on your column says, you ain't seen nothing yet. There's more to it than just paychecks.
Yeah, one of the things that we have to think about is, you know, right now what we're seeing with the increase in wages is, you know, this reflects the strength of the economy and job market that's gotten to the point where, you know, we think it's pretty tight. You know, what's going to happen next is we're going to have the effect of the tax plan, which really hasn't hit yet. And the question now is, well, what happens when that tax plan hits an already tight labor market?
Right.
And, you know, the wages numbers indicate a tight labor market, as you said, and that could make companies be in a position to pay more. And it could also cause the Fed to be a little less gun shy when it comes to raising rates.
Yeah. I mean, they're they don't want to be in a position to pay more. Let's just, you know, when it comes down to it, you know, but they're in a position where they have to pay more. Right. Right. Unemployment is low where there's lots of competition for workers and you have to pay up to get the workers that you need to get what you need done. When the Fed sees that, it sees it as a sign of inflationary pressures building. Not just because, you know, when your wages go up, you can spend more money. But also it's just sort of seen as an indication that there's not a lot of capacity in the economy, if you will, and that just makes prices go up. So this is the point where the Fed starts to think, yeah, we're going to see inflation go up, we're going to hit our 2% target, and we need to be ready for that.
But there may also be reason to worry, even with more money in consumers' pockets. We'll tackle that in just a moment. We're speaking with Heard on the Street columnist Justin Lehart, and you're listening to your Money Matters from The Wall Street Journal. Welcome back, everybody. So, Justin, you say in your column that the positive wage figures we saw in the January jobs report understate the boost to consumer spending power.
Why could rising wages make the Federal Reserve more likely to raise interest rates?
What did you mean by that?
Well, first thing to think about is, you know, all these thousand dollar bonuses that we've been hearing about. Those aren't included in the wage numbers. Those are one-time things that the Labor Department doesn't pay attention to. The other thing that's happening right now, starting in February, is that people are seeing a fatter paycheck as a result of the tax cut. This isn't going to be in the – it's not in the wage figures yet. And it's not going to be in the wage figures, but it's going to be in people's pockets, and they're going to be able to spend more money.
So that's the withholding figures that people will see. They'll see a change in that, and that sort of changes the whole complexion of their spending power.
Right. They have a little bit more spending power. Some of it will be saved and some of it will be spent. And if they spend more, then we have a little bit more demand in the economy. If we have more demand in the economy, then companies and businesses have to hire more people to meet that demand. Sort of as simple as that.
And those bonuses you mentioned are, in most cases, one-time only. And so I guess the consumers kind of, they don't want to get comfortable and get used to having that extra burst of cash, though it is nice to have on that one-time occasion.
Yeah, a lot of times when people get sort of a one-time thing like that, they do tend to save it a little bit more than if it's spread out.
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:02–0:13
2
What did the January jobs report reveal about wage growth and why does it matter?
0:13–2:36
3
Why could rising wages make the Federal Reserve more likely to raise interest rates?
2:36–4:40
4
How might the new tax cuts amplify consumer spending beyond reported wage gains?
4:40–5:05
Speakers
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