Reasoning
The Atlanta Fed wage growth tracker has not printed above 4.0 percent since late 2024 and the current 3.50 to 3.75 percent policy rate plus the June 2026 SEP median projection of 3.8 percent for year end 2026 signal that the labor market has cooled to a pace consistent with sub 5 percent wage growth. Historical patterns show that wage growth above 5 percent occurred only when the funds rate was below 2 percent and unemployment was below 4 percent, neither of which is true today. Recent FOMC rhetoric under Chair Warsh has shifted to a neutral stance with nine of eighteen participants seeing higher rates by year end, further reducing the probability of a wage growth surge.Key uncertainty
Whether the labor market reaccelerates sharply in the next two quarters due to an unexpected fiscal impulse or immigration surge.