Economists, business leaders, and politicians are embarking on a hotly contested armchair debate. They’re privately yelling at each other about the best ways to make the major American cost of living affordable again. With inflation still taking its toll on everyday costs, policymakers, advocates, and researchers have their eyes peeled for new solutions that can save households money.
To address changing conditions, Federal Reserve Chair Jerome Powell called for a big lift in worker pay as the main answer. In his view, these bigger paychecks are the solution for hard-working Americans dealing with increased costs. These prices have not been completely digested, ever since inflation hit a four-decade high. “We are going to need to have some years where real compensation is higher … for people to start feeling good about the affordability issue,” Powell stated.
Signs that the job market is beginning to thaw came in October, when job openings hit a five-month high. According to the National Federation of Independent Business (NFIB), 19% of small businesses are looking to hire this November. This is the most optimistic small businesses have been in three years! Despite this encouraging data, the U.S. economy created only 3,000 new jobs a month in 2025. This negative trend is particularly concerning given stagnation in overall job growth.
Recent trends reveal a troubling pattern: hiring fell in both June and August, contributing to a sense of uncertainty in the labor market. In October, the share of workers voluntarily leaving their jobs dropped to a five-year low. This decrease is an early indicator that workers are too fearful to pursue a new job as the economy falters.
As companies wrestle with these new realities, many have taken on about 80% of the tariffs Donald Trump slapped on. Yet JPMorgan has only recently sounded alarm. They’re concerned that tightening profit margins could push companies to pass higher costs on to consumers in 2024.
Powell went on to suggest that a tighter labor market, i.e., higher unemployment would provide more job opportunities for Americans. Wages will go up as companies compete for talent. “We are trying to keep inflation under control, but support the labor market and strong wages, so that people are earning enough money and feeling economically healthy again,” he noted.
Even including these efforts, the annual growth in hourly pay for American workers has fallen to 3.8%. This is a notable drop from the cyclical high of 5.9% attained in March 2022. Indeed, there has been a three-plus-year downward trajectory in paycheck growth. Not only does this decline drive up perceptions of economic uncertainty on consumers’ part.
With inflation still putting a squeeze on household budgets, millions of Americans are still worried about their financial futures. Economists from across the political spectrum agree that increasing worker compensation is the key to restoring affordability. Whether this strategy will lead to near-term results remains an open question.