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Thursday, May 11, 2006

Gloom at a time of growth

ht Ridder and Associated Press
WASHINGTON - The U.S. economy is strong these days when measured by macro-statistics, but sluggish wage growth, along with rising gasoline prices and interest rates are overshadowing the good economic news in the minds of most Americans.
Against that background, the Federal Reserve meets today to decide whether to raise short-term interest rates even further in an effort to keep rising energy prices from causing inflation to spiral out of control.
Economists agree that the Fed, led by Chairman Ben Bernanke, will push up its federal funds rate by a quarter-percentage point to 5 percent today. That would be the 16th increase of that size since the Fed began to tighten credit in June 2004.
In response, commercial banks are expected to raise their prime lending rate -- for certain credit cards, home equity lines of credit and other loans -- to 8 percent.
...The same week that the robust GDP numbers came out, the government also reported that worker compensation -- pay and benefits -- rose in the year's first quarter at an annual rate of only 2.4 percent, the slowest rate in seven years. That figure, Bernstein said, suggests that workers' wages aren't keeping pace with wage gains during past economic expansions, or even with inflation, which rose by 3.4 percent over the year ending in March as measured by the consumer price index.
``The problem is you have faster-growing prices colliding with nominal wage growth that has been pretty unimpressive,'' he said.


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