On some fronts, the economy is steadily healing from the Great Recession. The unemployment rate is down, and the pace of monthly job growth is reversing some of the damage inflicted by the downturn. But the economy remains far from fully recovered.

A crucial measure of how far from full recovery the economy remains is the growth of nominal wages (wages unadjusted for inflation). Nominal wage growth since the recovery officially began in mid-2009 has been low and flat. This isn’t surprising—the weak labor market of the last seven years has put enormous downward pressure on wages. Employers don’t have to offer big wage increases to get and keep the workers they need. And this remains true even as a jobs recovery has consistently forged ahead in recent years.

Despite the incomplete nature of the recovery, influential voices are already calling for the Federal Reserve to guard against inflation by raising interest rates to slow the economy. The stakes in this debate are high. Macroeconomic policy (including monetary policy) that prioritized very low rates of inflation over low rates of unemployment is a key reason why real wages have stagnated for the vast majority of American workers in recent decades (as we have shown through our Raising America’s Pay initiative). Widespread wage growth will not occur over the coming years if the Federal Reserve prematurely slows the recovery in the name of fighting prospective inflation.

The following charts—which will be updated regularly when new data are released—help explain why the Fed should hold off on raising interest rates until nominal wages are growing at a much faster pace. Until nominal wages are rising by 3.5 to 4 percent, there is no threat that price inflation will begin to significantly exceed the Fed’s 2 percent inflation target. And it will take wage growth of at least 3.5 to 4 percent for workers to begin to reap the benefits of economic growth—and to achieve a genuine recovery from the Great Recession.

Updated February 7, 2020