Fed Officials Worry the Economy Is Too Good. Workers Still Feel Left Behind.

A retail corner in Manhattan last week. With an uptick in inflation and forecasts that economic growth will accelerate later this year, some Federal Reserve officials are calling for faster increases in interest rates.

WASHINGTON — Ann Jacks quit her job as a restaurant chef in North Carolina, started her own business and worked 80 hours a week for two years, before exhausting herself and her patience. She shut down the company and, in November, returned to her old job. It paid a dollar an hour more than it did when she left it.

Ms. Jacks, who now earns $22,000 a year and said she couldn’t afford her health insurance deductible, is one of many Americans still waiting to feel the effects of an improving economy nearly a decade after the Great Recession.

“I don’t see evidence of the wages getting higher, except for specific types of jobs, like management, banking,” she said. “My attorney friends aren’t hurting.”

Yet Federal Reserve officials are beginning to worry about a possibility that seems remote to workers who still feel left behind: the danger of the economy’s running too hot, destabilizing financial markets and setting off a rapid escalation in wages and prices that could force the central bank to slam the brakes on growth.

Officials at the Fed have in the last few weeks escalated a public and private debate over how close the economy is to “overheating,” a condition when abnormally low unemployment can trigger spikes in inflation and destabilize financial markets.

The Commerce Department will report its first estimate of first-quarter growth on Friday, and economists expect it will register around 2 percent, short of the 3 percent that President Trump has promised will deliver large wage increases to workers across the board.

Forecasters expect growth to accelerate later this year, though. Those predictions, along with a recent uptick in the inflation rate, are prompting some Fed officials to push the bank to raise interest rates at a faster pace than it has been, in order to reduce the risk of overheating.

Fed officials have raised their benchmark rate to a range of 1.5 to 1.75 percent in a series of carefully orchestrated increases. Their most recent economic projections suggest they expect to raise rates two more times this year and three times next year.

While officials worried about overheating are pushing a faster pace of increases, other officials say it’s way too early to turn down the heat on the economy — and on workers who are still waiting for big wage increases to show up.

Both camps say they are concerned for workers like Ms. Jacks.

“When we think about the economy from the aspect of monetary policy, we can’t get it right for everybody,” Eric Rosengren, the president of the Federal Reserve Bank of Boston, said in an interview last week. “We can get it right for the overall economy.”

Mr. Rosengren is among those pushing for the Fed to raise interest rates more quickly than some of his colleagues would prefer, in part because he fears a situation in which rapid inflation forces the bank to raise rates drastically, tipping the economy back into recession.

In that case, he said, “the people who feel already like they’re not keeping up with the rest of the economy would probably be the first ones laid off in an economic slowdown.”

Other Fed officials want to let the economy run hotter, longer, contending that economic data suggests today’s low unemployment rates are not necessarily harbingers of high inflation.

Charles Evans, the president of the Federal Reserve Bank of Chicago, warned in a speech this month that Fed officials should not assume that just because low unemployment spurred double-digit inflation in the 1970s and ’80s the same situation would occur today. He suggested that structural changes in the economy, such as a disconnect between the areas where job openings are and where prospective employees live, and the reluctance of workers to move to chase those openings, could be distorting the labor market.

“While it is incumbent upon policymakers not to forget the painful lessons of the 1970s and 1980s, we are living under different circumstances today,” Mr. Evans said. “I think we have the opportunity to more patiently read — and react to — the incoming data. That is, I think we can undertake more moderate monetary policy adjustments today than often was the case in the past.”

White House officials side firmly with the “not overheating” camp, arguing that Mr. Trump’s mix of deregulation and tax cuts will increase investment and productivity in the economy, yielding faster growth while suppressing inflation.

“Our view is that most of our policies are going to create growth for the economy on the supply side, and that when the supply-side growth comes, then that’s actually good for inflation, because if you increase supply, it puts downward pressure on prices,” Kevin Hassett, the chairman of the White House Council of Economic Advisers, told reporters in February. “And so we think that we can get the 3 percent economic growth that we forecast without a big pickup in inflation.”

The group of Fed officials worried about overheating point to several economic data points. The unemployment rate is 4.1 percent, near the lowest level recorded in a half-century, and it is below what Fed officials judge to be the sustainable long-term unemployment rate. Forecasters expect the recent injection of fiscal stimulus, from tax cuts and increased federal spending, to drive that rate down even further.

Inflation expectations are rising in financial markets, as measured, in part, by how much the government must pay investors to borrow money. Stock values remain high by historical standards, even with the recent dips in the market.

In similar periods in American economic history, “there have been heightened risks either of inflation, in earlier decades, or of financial imbalances more recently,” Lael Brainard, a Fed governor, said in a speech last week.

Many Fed officials worry that by raising rates too slowly, they risk having to move quickly in the event of an inflation spike or financial turmoil. Such abrupt action, they fear, could snuff growth and plunge the economy into a recession. Other officials, such as James Bullard of the Federal Reserve Bank of St. Louis and Neel Kashkari of the Federal Reserve Bank of Minneapolis, say officials should keep to the current course of rate increases, particularly because inflation remains below the Fed’s target of 2 percent annual growth.

Polling and interviews suggest that American workers are worried about rising prices but far more concerned about job and wage growth. In polling in March for The New York Times by the research firm SurveyMonkey, 62 percent of respondents said consumer prices had risen faster than wages over the preceding year. Only 4 percent said inflation was the largest economic problem facing the country. Twenty-five percent named the cost of health care as the largest economic problem, 21 percent said the gap between the rich and everyone else, and 10 percent named stagnant wages and benefits.

Constance Bevitt, who does freelance work in Montgomery County, Md., said Fed officials were wrong to be worried about overheating.

“When they talk about full employment, that ignores almost all of the people who have dropped out of the economy entirely,” she said. “I think that they are examining the problem with assumptions from a different economic era. And they don’t know how to assess where we are now.”

Ms. Jacks said she was struggling with a low salary after closing her locally sourced food company and returning to restaurant work. She also said she had noticed vacancies in the industry going unfilled, because restaurants could not find workers. Their owners, she said, cannot afford to raise wages in order to attract talent.

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