Average hourly earnings hit $24.96 in May, an increase of 2.3 percent over May 2014. We’ve been tracking nominal wage growth over the recovery and at best we can find reason for only a very modest celebration. 2.3 percent growth is a move in the right direction, but it’s nowhere near the 3.5 to 4.0 percent growth we expect in a healthy labor market.

As shown in the figure below, average hourly wage growth has been teetering around 2.0 percent for the last five years. There has been a slight increase in the annual twelve-month growth trend this past month to 2.3 percent from the trends observed in earlier months this year, which hovered between 2.0 and 2.2 percent. This may be a temporary increase, as we’ve seen 2.3 percent before. Even more important is that a 2.3 percent annual growth in wages is far below target, as the graph shows.

A word about the shaded wage region labeled ‘wage target:’ this is nominal wage growth consistent with the Fed’s 2.0 percent inflation target and a stable labor share of income (given a range of 1.5 to 2.0 percent trend productivity growth: 2.0 plus 1.5 equals the bottom of the range, 3.5 percent). That is, even at the low end of that productivity growth (1.5 percent), wage growth in the neighborhood of 3.5 percent is totally consistent with the Fed’s inflation target. We need to see consistent wage growth above this range before there is a hint of upward pressure on prices stemming from too-tight labor markets. Thus, the Fed should not even consider raising interest rates to forestall inflation until wage growth is at or above this target.

Those concerned about the lag between monetary policy and its impact should certainly be focused on when wage growth would exceed 3.5 percent growth. That is a long way away. Goldman Sachs economists have recently estimated that we will see wage growth stabilize at 3.5 percent in 2017 (sorry, paywall—no link). The Goldman Sachs estimate, however, does not anticipate any rise in labor’s share (which they show as having been sharply falling since the late 1990s) which is both startling and very disappointing if the economy unfolds in that way.

That’s why I can definitively say the Fed should not raise rates in their September meeting, based on data we have right now. We are still far below target. Even if we were at target, we’d have to be consistently hitting it and seeing wage growth lead to a rise in labor’s share and lesser profits before we would need to worry about incipient inflationary pressures.