In a significant economic development, labour productivity in the United States accelerated sharply during the third quarter of 2025, reaching its highest growth rate in two years. This surge offers a promising sign that efficiency gains are helping to mitigate inflationary pressures stemming from wages, according to a Bloomberg report.
Productivity Surge and Falling Labour Costs
The latest data from the US Bureau of Labour Statistics, released on Thursday, 8 January, revealed a robust increase in productivity. The measure, defined as non-farm output per hour worked, rose at an annualised pace of 4.9% in the July-September quarter. This follows a revised growth of 4.1% in the second quarter, indicating a strengthening trend.
This productivity boom coincided with a notable decline in business costs. Unit labour costs, which reflect what companies pay workers to produce one unit of output, fell by 1.9% in Q3. This decrease followed a drop in the previous quarter, marking the first instance of back-to-back declines since 2019. The data underscores how enhanced efficiency is helping to cool wage-driven inflation even as the US economy expanded at its fastest rate in two years.
Fed's Miran Advocates for Aggressive Rate Cuts
The positive productivity data feeds into the ongoing debate at the Federal Reserve on monetary policy. On Thursday, Federal Reserve Governor Stephen Miran stated his objective of achieving 150 basis points of interest-rate reductions throughout this year to bolster the labour market.
Miran characterised the current monetary policy as restrictive, pointing out that underlying inflation is likely around 2.3%. This figure, close to the Fed's target, suggests there is room for further rate reductions without overheating the economy. "I’m looking for about a point and a half of cuts. A lot of that is driven by my view of inflation," Miran said in a Bloomberg Television interview. He added that underlying inflation is near the target, indicating a positive medium-term trajectory for overall price rises.
Policy Divisions and Future Outlook
Despite Miran's stance, Federal Reserve officials remain divided on the extent of rate cuts required this year. After lowering rates by a total of three-quarters of a percentage point over their last three meetings, a growing number of policymakers now prefer to hold rates steady until more data on inflation and employment becomes available.
The divergence in views extends to future projections. While the median forecast among Fed policymakers for 2026 anticipates just one quarter-point reduction, investors are pricing in at least two cuts. Miran, who took leave from his role as chair of the White House Council of Economic Advisers to serve a term ending this month, has been a consistent proponent of aggressive easing since September.
He emphasised the potential for job market improvement, stating, "There’s about a million Americans who don’t have jobs, who could have jobs without causing unwanted inflation." This perspective highlights the Fed's dual mandate of maximising employment while maintaining price stability, a balance that the recent productivity gains appear to be facilitating.
