Thread by @BobEUnlimited

Until wage growth normalizes inflation will not durably return to the Fed's mandate.

So far scanning through the data wage growth still looks too high, particularly for those income segments with a higher propensity to spend. Let's start with Atlanta Fed Wage Tracker at 5-6%.

It is particularly useful because it a) uses matched person wages and b) covers income cohorts *below* 150k spend with much higher propensity to spend.

The monthly figures suggest a stabilization at that 5-6% annual pace the last few months.

Another similar tracker that is even more skewed to lower-income workers is the new Square income growth tracker which uses a similar methodology.

Suggests AHE roughly in the 5-6% as well, but no signs of stabilizing yet.

ADP pay insights is another good measure highlighting that pay increases for the youngest employees (typically earning less) is growing at a relatively rapid pace. Will be notable to see if that 16-24 figure continues to stabilize at these levels ahead.

Of course today all eyes will be on average hourly earnings, which is generally a worse measure than the ones above.

Thats because it is more comprehensive in terms of the income covered, which means changes in things like options and bonuses can make an impact here.

There was a lot of rejoicing last month that inflation was dead as AHE ticked down to 3% after several months closer to 5% annualized.

Whether this trend continues will probably be the most important data in the report today for the markets.

Most wage growth measures remain too high for the Fed to gain comfort that inflation durably beat.

Wages for the lowest income cohorts are growing at 5-6% for high propensity spenders and annualized productivity growth remains close to zero (even with an implausible 2Q print).

Before you believe the 2q productivity numbers as truth, note that such strength implies an implausible collapse in hours worked. It is most likely to be revised, eventually.

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Inflation has to be on a clear path to durably get back to 2% for the Fed to even start to consider easing measures for the economy. This elevated wage growth in context will continue to give the Fed pause that inflation is really beat even if the measured numbers are improving.

It is important reason why we may see an 'air pocket' in policy over the next 6-9m where growth may slow but the Fed isnt immediately responsive to the weakness. And that delay makes the risk of a harder landing much more likely than is currently priced in.