Harvard University professor Kenneth Rogoff argued on Friday, shortly after the release of the April employment report, that "the fact that wages aren’t keeping up with inflation is quite problematic politically and quite concerning."
The former chief economist at the International Monetary Fund provided the insight during an interview with Fox News Digital after the Labor Department revealed that average hourly earnings rose by 5.5% year-over-year in March, down slightly from 5.6% the month before. The data comes amid surging inflation, which hit a fresh 40-year high in March.
"We have a white-hot labor market, why wouldn’t wage increases be bigger? One tends to guess that still lies ahead," Rogoff said, stressing that he expects that "there is significantly more wage growth to come."
"It was just one number and you have to suspect that overall the wage pressures are just going to be enormous given the shortage of workers and the cumulative price increases we’ve seen already with much more to come," he continued.
U.S. job openings reached a record 11.5 million in March, according to the Job Openings and Labor Turnover Survey (JOLTS) released Tuesday.
The data emphasizes how newly empowered workers are quitting their jobs in favor of better wages, working conditions and hours as businesses have been trying to attract new employees with higher salaries – a new trend dubbed the "Great Resignation." As a result, incomes have been rising across the board in recent months as employers have ramped up hiring to offset the losses.
The highest inflation in four decades, however, has eroded the pay gains for many workers.
Rogoff noted that the "most looked at part" of the April jobs report "was what wage growth was going to be because if you are concerned about interest rates going up even faster or even longer than they are, that would be a headline number to look at."
He noted that "as wages go up, eventually prices have to go up and then wages have to go up more."
Last month, the Labor Department said that the consumer price index (CPI) – which measures a bevy of goods including gasoline, health care, groceries and rents – rose 8.5% in March from a year ago, the fastest pace since December 1981, when inflation hit 8.9%. Prices jumped 1.2% in the one-month period from February, the largest month-to-month jump since 2005.
The inflation data for April will be released on Wednesday.
Rogoff said he expects there will be "some amelioration of the CPI increase."
He also argued that "unless the Fed is extremely aggressive, which I don’t think it will end up choosing, I think we will still have inflation as high as 3.5 or 4% in another year if the economy continues to weaken and if wages are still catching up. So I am quite concerned."
"I think the bottom line is, they [the Fed] would probably need to raise interest rates to 4% or possibly even 5% in order to really bring down inflation to target and that’s going to bring a recession," Rogoff warned.
The 50-basis point increase announced on Wednesday brought the federal funds rate to a targeted range of 0.75% to 1% as the committee tries to bring inflation back down to its goal of an average 2% over the long run.
FOX Business’ Megan Henney contributed to this report.