We are now witnessing a long-overdue asset repricing to reflect rising inflation expectations in an economy driven by excessive fiscal and monetary stimulation.
Wage increases may be a more vivid event, but the last month's 2.9 percent annual increase in hourly compensations that sunk the markets was nothing new. Wages and salaries rose 2.8 percent in the year to the fourth quarter, and, for all of 2017, they marked a steady annual growth of 2.6 to 2.8 percent.
Those of you who still look at wages may wish to think of this: Wages don't cause inflation, unit labor costs do. If a wage increase is substantially offset by rising labor productivity, costs per unit of output could remain stable, or of no particular consequence for corporate profit margins.
However, if the productivity growth falls short and production costs shoot up, businesses will raise prices to protect profits and investment returns. Such price hikes will stick under conditions of a growing economy, and will lead to rising levels of the general price inflation. Increasing wage claims will follow, triggering a wage-price spiral you probably heard about in your economics lectures.
What comes next is a nightmare: Only the Fed can break up that spiral by throwing the economy into a prolonged slowdown, recession or worse.