The Fed is setting out to kill inflation. Brace for collateral damage.

American wages are surging at the fastest clip since 1983, driven by a booming economy and intense competition for workers. Now, that momentum is in danger of being crushed as the Federal Reserve faces mounting pressure to fight an all-out war against inflation.

The spike in consumer prices has fueled market expectations in recent days that the Fed will accelerate its plans to hike interest rates to slow down the economy. That has increased concern among labor advocates and other Democratic Party allies that the central bank might undercut the...