Following continual interest rate hikes over the past 15 months—the most aggressive monetary policy since the 1980s—inflation fell for the 11th straight month to just 4% in May, the Bureau of Labor Statistics reported on Tuesday. Economists expect Federal Reserve Chairman Jerome Powell to announce a pause in rate hikes during the Federal Open Market Committee (FOMC) meeting today.

There’s a “decent case for a pause,” but “not a definitive stop,” says Brett House, professor of professional practice in the Economics Division at Columbia Business School. “Core inflation is slowing, growth is cooling, labor markets are becoming more balanced, and inflation expectations are back in line with the Fed’s 2% year over year target,” House says. “Yet consumer spending growth remains robust on the back of solid gains in disposable incomes.”

The Fed remains concerned that wages and consumer spending are still growing more quickly than is consistent with the desired inflation target, according to House. “That said, growth in incomes is slowing toward pre-pandemic rates and this gives the FOMC some justification to consider a pause to wait and see what further data say,” he says. 

When the economy began to reopen in mid-2021, and inflation began to increase, wages were on the rise as well. Some economists, including some at the Fed, were concerned that in a tight labor market, labor costs would play a big role in persistently high inflation. The spending category of “core services other than housing,” may be “the most important category for understanding the future evolution of core inflation,” Powell said in November 2022 speech. “Because wages make up the largest cost in delivering these services, the labor market holds the key to understanding inflation in this category.” The Fed subsequently sought to curb inflation with slower wage growth. 

“The narrative up until recently has been that the Fed would focus on core services, excluding shelter, because that was the component that was subject to the most pressure from wages,” says EY Parthenon chief economist Gregory Daco. But if you look at some of the recent research that’s been produced, and the developments in terms of wages, “we have not really seen that much of a passthrough from wages to inflation,” he says.

An analysis released in May by the Federal Reserve Bank of San Francisco finds that higher labor costs are passed along to customers in the form of higher non-housing services prices, but the effect on overall inflation is small. “Labor-cost growth has no meaningful effect on goods or housing services inflation,” according to the report. “Overall, labor-cost growth is responsible for only about 0.1 percentage point of recent core PCE inflation.”

“The Fed may gradually be reconsidering the way it frames its more hawkish discourse,” Daco says. “And I wouldn’t be surprised to see the Fed focus more and more on the momentum in terms of core inflation and distance itself, to some extent, from wage growth dynamics.”

The value of talent has greatly increased post-pandemic, Daco says. “So, employers are very cautious when it comes to getting rid of their talent that they spent so long training, hiring, and retaining,” he says.

But if wage growth continues to crawl, some top talent may begin to walk.

Sheryl Estrada
sheryl.estrada@fortune.com

Upcoming event: Fortune’s Emerging CFO virtual event, “Maintaining a Growth Mindset in Turbulent Economic Waters,” in partnership with Workday (a CFO Daily sponsor), will take place on Wednesday, June 21, from 11 a.m.-12 p.m. ET. Leading the discussion will be four top finance leaders: Adobe CFO Dan Durn, e.l.f. Beauty CFO Mandy Fields, TD Bank CFO Xihao Hu, and McKinsey & Company New York Senior Partner Ishaan Seth. The discussion will include topics such as how to think differently and take bold moves, using data to tell an effective story about past performance and the opportunities ahead, and how to plan for fluctuations in the market and react by innovating to drive profitable growth. You can register here.

Big deal

A new poll released by Yahoo Finance in partnership with Ipsos gauges Americans' opinions on the trustworthiness of artificial intelligence (A.I.) when it comes to finances. Although A.I. chatbots are already being used in the financial services sector, almost half of Americans surveyed said they don’t trust A.I. to advise them on their finances. The top concerns involving A.I. financial advisors include the lack of "human element" (46%), they don’t know enough about it (45%), the technology is too new (44%), and inaccurate information (39%), according to an announcement with results from the poll.

However, 20% of Gen Z adults surveyed said they were somewhat or very likely to use an A.I.-powered financial advisor, in comparison to baby boomers (9%), the survey found. Investors are also more likely to think A.I. may have some advantages over human advisors in areas such as predicting market changes, helping new investors get started, and providing recommendations for personal finances, according to the findings. However, just 20% of investors said they're likely to use an A.I. financial advisor, and 13% of investors said they would trust A.I. to advise them on their financials. The findings are based on a survey of 1,276 Americans conducted June 2-4. 

Going deeper

The Fortune 50 Best Places to Live for Families list, launched this morning, is based on an analysis of 1,900 cities across the country. The best places scored high on assets like health care, education, and resources for seniors—all of which can help fight isolation and build social ties. The top place to live on the list? Cambridge, Mass. You can find out more here.

Leaderboard

Philip P. Boudreau was promoted to SVP of finance and CFO at Abbott Laboratories (NYSE: ABT), effective Sept. 1, according to a Securities and Exchange Commission filing. Boudreau will continue to report to Robert Funck, who served as EVP of finance and CFO since March 2020. With Boudreau as CFO, Funck will continue to serve as EVP of finance. Boudreau has served as Abbott’s VP and controller since 2020. He previously served as divisional VP and controller of medical devices and as divisional VP and controller and commercial support for point-of-care diagnostics. Boudreau also worked in various finance positions in Abbott’s Diagnostics, Diabetes, and Nutrition businesses during his career. He joined Abbott in 1997.

Ellen Snow was named SVP, CFO, and treasurer at Akebia Therapeutics, Inc. (Nasdaq: AKBA), a biopharmaceutical company, effective July 17. Snow will succeed David A. Spellman who was in the role since 2020. Snow will join Akebia from Pear Therapeutics, Inc., where she has served as chief accounting officer since 2021. Before that, she served as the VP of finance and corporate controller of Anika Therapeutics, Inc., a global joint preservation company. Snow has also served in various positions at Benchmark Senior Living, Bain Willard Companies, L.P., PricewaterhouseCoopers LLP, Ernst & Young LLP, and as a financial consultant.

Overheard

"There is undoubtedly a need for caution and vigilance when it comes to something this transformative. All revolutionary inventions need guardrails to ensure they help rather than hurt us—like the literal guardrails with high voltage warnings on train tracks. But contrary to those painting the bleakest picture of how A.I. might harm rather than help, there’s little evidence right now that the machine apocalypse is nigh. And its benefits will be increasingly obvious as this technology becomes universal in business and daily life."

—Vijay Pande, a general partner at Andreessen Horowitz, writes in a Fortune opinion piece.