From today’s Slate Magazine:
On Friday, the U.S. Department of Labor released a strong jobs report showing wages rising at their fastest rate since the Great Recession. Then, the stock market promptly began to plummet. The Dow Jones fell an amusingly on-the-nose 666 points—its worst day since the U.K.’s Brexit surprise. Global markets subsequently took a beating, and U.S. equities are still sliding as I write this today.
Why is good news for workers turning into bad news for shareholders? The answer is a useful illustration of why the stock market is often a poor guide to the overall health of the economy.
Right now, traders seem to be worried that if wages rise too fast, it will cause the Federal Reserve to hike interest rates in order to head off inflation down the road. When, earlier this year, the central bank suggested that it would raise rates, much of the market was skeptical, in part because inflation has been so subdued for so long. But faster pay gains for workers make it more likely the Fed will follow through, both because rising wages are a sign that the whole economy is heating up and because employers will eventually have to raise prices to keep up with the cost of labor.
Read the complete article here.