By Eric Peters CIO of One River Asset Management

“Right now, people’s wages are being eaten up by inflation,” said Jay Powell. “So what you want to do is you want to have inflation stable and then have a very strong labor market where the biggest wage gains are going to the people at the bottom end of the spectrum,” continued the Fed Chairman.

No doubt that’s right. With the pendulum now retreating from peak inequality, there are two ways to narrow the divide. The fastest, of course, is through making the wealthy poor, or at least less rich in real terms, which started this year in earnest and has a very long way to go. The preferable way is to raise the poor.

To sustainably lift low earners requires our economy to become more productive, so laborers receive a higher share of the nation’s economic pie. An economy that is deglobalizing will become less productive, at least for some years. So the rebalance must come through a shift in the distribution of America’s economic pie from capital owners to laborers, which lifts inflation, shrinks corporate profit margins, and lowers multiples.

This week’s intervention by Democrats in Congress to limit our rail worker’s negotiation ability demonstrates that even our labor-friendly party does not have the stomach for the resurgence of union power.

“And we had that at the end of the very long expansion that ended with the pandemic. That’s not what we have now. Now, for most workers, wages are being eaten up by inflation,” explained Powell, nervous, without the tools to mediate this rising conflict.

“That’s not true at the bottom end, where wage increases are higher than inflation, a good thing. But if you want to have a sustainable, strong labor market where real wages are going up right across the wage spectrum, especially for people at the lower end, you’ve got to have price stability,” he explained, unsure how to achieve it given the arc of this pendulum. “And until we restore that, we can’t, we can’t get back to that place where we, where we kind of were for the two years before the pandemic hit.”