A closely tracked wage growth metric hit its highest level in a year during the first quarter, fueling concerns that sticky inflation may be pervasive and prompt the Federal Reserve to hold interest rates steady for longer than initially hoped.

New data out Tuesday from the Bureau of Labor Statistics showed that compensation costs increased 1.2% in the first quarter, above the prior quarter's 1% increase and higher than the 0.9% economists had expected, per Bloomberg data.

Capital Economics chief North America economist Paul Ashworth said Tuesday's data shows that wage growth is "sticky too," and not just recent inflation data that has shown price increases aren't declining at the rate many hoped.

"The persistence of wage growth is another reason for the Fed to take its time on rate cuts," Ashworth wrote in a note following the release.

Markets moved following the print, with the 10-year Treasury yield (^TNX) adding about six basis points to hit 4.67% immediately following the Employment Cost Index (ECI) release, while all futures tied to the three major averages turned lower.

Wells Fargo senior economist Sarah House reasoned that all else equal, Tuesday's pickup in wage costs isn't "the end of the world" for the Fed. But it is another drop in the bucket weighing on the market's hopes for interest rate cuts ahead of Federal Reserve Chair Jerome Powell's next update on monetary policy slated for Wednesday afternoon.

"It is yet another data point that suggests the inflation slowdown that began this time last year stalled out in the first quarter of 2024," House wrote in a research note following the release.

Tuesday's data from the Employment Cost Index added to the ongoing conversation about whether sticky wage growth is contributing to persistently high inflation. Recent data from ADP has shown wage growth for job changers in the private market has picked up in recent months while growth for job stayers has been little changed, a trend which ADP chief economist Nela Richardson said on Wednesday proposes a "challenge" for the Fed.

Meanwhile, data from the Bureau of Labor Statistics has revealed year-over-year wage growth has shown some signs of cooling but is still viewed as far too high for comfort for inflation to return to the Fed's 2% target, according to economists.

New data on Friday showed the core Personal Consumption Expenditures (PCE) index, which strips out the cost of food and energy and is closely watched by the Federal Reserve, rose 2.8% over the prior year in March, above estimates for 2.7% and unchanged from the annual increase seen in February.