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Kashkari: Fed trying to figure out 'conundrum' of weak wage growth

Federal Reserve Bank of Minneapolis President Neel Kashkari said May 17 that policymakers have been trying to understand the "big conundrum" behind why wage growth has remained low despite strong gains in the labor market.

Kashkari has repeatedly advocated for patience on interest rate hikes from the Fed, arguing that weak wage growth may be a sign that there is still room for the labor market to improve, even as the unemployment rate has slipped to 3.9%.

The jobless rate, he said, can be misleading because it only counts those who are actively looking for a job — and there are signs that many more people are just now returning to the labor market a decade after the recession.

"A lot of people that we thought were permanently lost from the job market because the Great Recession was so traumatic, they've been coming back in and taking jobs that we didn't realize that they still wanted to take," Kashkari said at a Minneapolis event.

Another possible factor behind subdued wage growth, he said, is that businesses' bargaining power over workers may have strengthened in recent years.

Kashkari, who dissented on the Fed's three rate hikes in 2017, does not vote on the Federal Open Market Committee this year.