What do tightening labour markets mean for monetary policy?

Labour markets in all the major advanced economies have been tightening for several years, and in many cases they are now close to full employment. At face value this suggests that the world may be on the verge of a broad-based pickup in wage inflation. However, we expect average earnings growth to rise significantly only in the US and, to a lesser extent, the UK. This is a key reason for our forecast that the Fed will raise rates faster than most anticipate, including by 25bp in June, while most other central banks either leave policy unchanged or, in the euro-zone and Japan for example, loosen policy further.