WASHINGTON (MarketWatch) — This is the good news we’ve all been waiting for: Wages are finally rising. And that means the economy is getting strong enough for the Federal Reserve to at least consider raising short-term interest rates to a normal level.

The Bureau of Labor Statistics reported Thursday that the employment cost index rose 0.7% in the second quarter, the fastest growth since 2008. Wages and salaries increased 0.6% (the most in nearly six years), while benefit costs increased 1% (the most in three years).

The cost of providing health insurance has risen 2.7% in the past year, a much slower pace than a few years ago. MarketWatch

The rise in benefit costs was largely due to the costs of funding pensions and not providing health insurance. Health-insurance costs are up a modest 2.7% in the past year despite the new requirements of the Affordable Care Act.

The acceleration in compensation suggests that slack in the labor market is fading as nearly 2.5 million jobs have been created in the past year, driving the unemployment rate down to 6.1%.

The July employment report, to be released Friday, should show further progress, with the jobless rate falling to 6%, according to forecasts of economists surveyed by MarketWatch. Special attention will be paid to the growth in average hourly earnings, which have also accelerated slightly this year.

Just yesterday, the Fed acknowledged the strengthening labor market, but insisted that there’s still a lot of slack, with millions of people ready to take a job if one became available.

The rise in compensation in the second quarter is a sign that the Fed may be wrong: The labor market may be closer to maximum employment than Janet Yellen believes. And that means inflationary pressures may be building up in labor costs.

Higher wages could push inflation higher. If that happens, the Fed would have to tighten up by raising rates.

Today’s data don’t prove the case. Employment costs are rising only slowly on a year-over-year basis — just 2% in the past year, less than the inflation rate. But if the acceleration in labor costs continues in the third and fourth quarters, then the Fed will have to revise its thinking.

The bond market certainly got the message: The yield on the 10-year note TMUBMUSD10Y, 0.701% rose another four basis points to 2.59% after a nine basis-point increase on Wednesday. The market is shifting its views. Is Janet Yellen doing the same?

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