Inflation (Economics)

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      Stocks Sink as Stubborn Inflation Resets Fed Rate Forecasts

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      Stock markets tumbled on Tuesday as investors slashed their bets on the Federal Reserve taking the brakes off the economy in the coming months, after hotter-than-expected inflation data led traders to expect interest rates will remain higher for longer.The benchmark S&P 500 stock index fell over 1 percent in early trading. The index has only suffered such a large loss on one other day this year, with bullishness about the resilience of the economy and corporate profits continually pushing stocks to new highs.Investors still expect the Fed to pull inflation back to manageable levels without inflicting too much pain on the broader economy. But that forecast was put under pressure on Tuesday by a consumer inflation report that showed prices rising more quickly than had been forecast.The consumer data “came in stronger than either the Fed or the market wanted or expected,” said Greg Wilensky, head of U.S. fixed income at Janus Henderson Investors.The longer inflation remains elevated, the longer the Fed is likely to push off rate cuts, turning the screws on an economy that is already starting to show some signs of weakness, and tempering enthusiasm on Wall Street.Stuart Keiser, an equity analyst at Citi, said the inflation data was “not a game-changer” but that it was likely to drive a short-term retrenchment in the stock market as investors dial back hopes for rate cuts. “Today’s print was clearly not a good one,” he said.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      Latest CPI Report Is a Crucial Inflation Report Card

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      Investors and the White House will pore over the latest Consumer Price Index report for clues on prices — and potential interest rate cuts.Wall Street and the White House will be looking for inflation clues as they tune in to today’s Consumer Price Index report.Spencer Platt/Getty ImagesInflation back in the spotlight An S&P 500 on a five-week winning streak. A growing economy. Solid wage gains. And growing consumer and business optimism. These are the ingredients for an emerging Goldilocks scenario for the U.S. economy.What would help complete that recipe? Cooling inflation, which would stoke investor hopes that the Fed would soon lower borrowing costs. (That said, Fed officials continue to warn that it’s still too early to talk rate cuts.)The prospects of that economic ideal will be tested on Tuesday with the release of fresh Consumer Price Index data.Here’s what to expect: Economists have forecast a headline C.P.I. reading of 2.9 percent for January on an annualized basis, its smallest gain since April 2021. Core C.P.I., which strips out food and fuel prices, is expected to come in at 3.7 percent on an annualized basis, down from 5.6 percent in January 2023 — strong progress, but well above the Fed’s 2 percent target.There are reasons for caution, however. The slowdown has been driven by goods disinflation and lower energy prices. But economists are closely monitoring how attacks by Houthi rebels on ship traffic in the Red Sea could affect commerce costs and push up oil prices.The cost of crude oil has climbed since the start of the year, though it remains well below the levels hit in the aftermath of the Hamas-led attacks Oct. 7.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      Fed Chair Powell Says Officials Need More ‘Good’ Data Before Cutting Rates

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      Federal Reserve officials are debating when to lower rates. An interview with Jerome H. Powell confirms a move is coming, but not immediately.Jerome H. Powell, the chair of the Federal Reserve, made clear during a “60 Minutes” interview aired on Sunday night that the central bank is moving toward cutting interest rates as inflation recedes, but that policymakers need to see continued progress toward cooler price increases to make the first move.Mr. Powell was interviewed on Thursday, after the Fed’s meeting last week but before Friday’s blockbuster jobs report. He reiterated his message that lower borrowing costs are coming. But he also said that the Fed’s next meeting in March is probably too early for policymakers to feel sure enough that inflation is coming under control to reduce rates.“We think we can be careful in approaching this decision just because of the strength that we’re seeing in the economy,” Mr. Powell said during the interview, based on a transcript released ahead of its airing. He added that officials would want to see a continued moderation in price increases, even after several months of milder readings.The progress on inflation “doesn’t need to be better than what we’ve seen, or even as good. It just needs to be good,” Mr. Powell said.His remarks reaffirm that lower borrowing costs are likely coming this year — a change that could make mortgages, car loans and credit card debt cheaper for Americans. They also underscore how much better today’s economic situation is proving to be than what economists and Fed officials expected just a year ago.Many forecasters had predicted that the Fed’s rapid campaign of interest rate increases, which pushed borrowing costs from near zero to a range of 5.25 to 5.5 percent from March 2022 to July 2023, would slow the economy so much that it might even spur a recession. Central bankers themselves — including Mr. Powell — believed that some economic pain would probably be needed to cool consumer and business demand enough to prod businesses to stop raising prices so quickly.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      Blockbuster Jobs Report Backs Up Fed’s Patience as It Waits to Cut Rates

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      Federal Reserve officials left interest rates unchanged this week and signaled that their next move is likely to be a cut — but they also signaled that they are in no hurry to make that change. Friday’s jobs data is likely to support their cautious stance.Employers hired much more rapidly than expected in January, and average hourly earnings climbed 4.5 percent over the year, the fastest pace since September and a reversal after months of cooling.While Jerome H. Powell, the Fed chair, made it clear during his news conference on Wednesday that the central bank is not bent on keeping interest rates high just to slow down the labor market, the report suggested that the economy may not be cooling quite as much as policymakers had expected.And given that continued strength, the Fed is unlikely to feel pressure to cut interest rates at its next meeting in March. While policymakers do not want to hold borrowing costs too high for too long and risk a painful recession, the data suggest that a possible downturn remains very much at bay. Instead of faltering, the job market is booming.The central bank’s policy rate is now set to 5.25 to 5.5 percent, a level high enough that economists think it will cool the economy as it trickles through financial markets and weighs on mortgage, credit card and business borrowing.The Fed’s goal in trying to cool the economy is to rein in inflation, and price increases have been receding: Over the past six months, inflation data have been close to normal.But that has come without much of a broader economic slowdown. While job openings have come down and the housing market slowed in reaction to higher rates, both hiring and consumer spending have remained surprisingly resilient.Mr. Powell suggested this week that the Fed would like to see more evidence that inflation is coming under control before it begins to cut interest rates, and that it was unlikely to have enough data to feel confident in that before March.Markets sharply dialed back the chances of a rate cut at that gathering following Friday’s jobs data.But notably, Mr. Powell said that the Fed is willing to be patient — rather than wary and reactive — as it waits for wage growth to slow to normal levels. Some economists think that today’s relatively quick pace of wage gains could prevent inflation from stabilizing at 2 percent over time, were they to prevail.“I think the labor market by many measures is at or near normal, but not totally back to normal,” Mr. Powell said. “Job openings are not quite back to where they were,” and wage increases “are not quite back to where they were.”He added that wage increases “probably will take a couple of years to get all the way back, and that’s OK.” More

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      Our Economy Isn’t ‘Goldilocks.’ It’s Better.

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      “Let’s be honest, this is a good economy.”So declared Jerome Powell, the chair of the Federal Reserve, in his news conference on Wednesday after the Fed’s latest policy meeting. He’s right, even if the public isn’t fully convinced (although the gap between economic perceptions and reality seems to be narrowing). In fact, Powell is clearly wrestling with a dilemma many countries wish they had: What’s the right monetary policy when the news is good on just about all fronts?Contrary to what you may have heard, this is not a “Goldilocks economy” — get your children’s stories right, folks! Goldilocks found a bowl of porridge that was neither too hot nor too cold. We have an economy that is both piping hot (in terms of growth and job creation) and refreshingly cool (in terms of inflation).Hence the Fed’s dilemma. It increased interest rates in an attempt to reduce inflation, even though this risked causing a recession. Now that inflation has plunged, should it quickly reverse those rate hikes, or should rates remain high because we have not, in fact, had a recession (yet)?I believe that the risk of an economic slowdown is much higher than that of resurgent inflation and that rate cuts should come sooner rather than later. But that’s not the kind of argument that’s going to be settled on the opinion pages. What I want to talk about, instead, is what the good economic news says about policy and politics.Before I get there, a quick summary of the good news that has come in just in the past few weeks.First, inflation. For both historical and technical reasons, the Fed aims for 2 percent inflation; over the past six months, its preferred price measure has risen at an annual rate of … 2 percent. “Core” inflation, which excludes volatile food and energy prices, has been running slightly below target.The Fed also looks at wage growth, not because workers have caused inflation, but because wages are usually the stickiest part of inflation and therefore an indicator of whether disinflation is sustainable. Well, on Wednesday, the Employment Cost Index came in below expectations and is now more or less consistent with the Fed’s target. On Thursday we learned that productivity has been rising rapidly, so unit labor costs are easily consistent with low inflation.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      MAGA Is Based on Fear, Not Grounded in Reality

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      A few days ago, Kristi Noem, the Republican governor of South Dakota — a MAGA hard-liner sometimes mentioned as a potential running mate for Donald Trump — warned that President Biden is “remaking” America, turning us into Europe. My first thought was: So he’s going to raise our life expectancy by five or six years? In context, however, it was clear that Noem believes, or expects her audience to believe, that Europe is a scene of havoc wrought by hordes of immigrants.As it happens, I spent a fair bit of time walking around various European cities last year, and none of them was a hellscape. Yes, broadly speaking, Europe has been having problems dealing with migrants, and immigration has become a hot political issue. And yes, Europe’s economic recovery has lagged that of the United States. But visions of a continent devastated by immigration are a fantasy.Yet such fantasies are now the common currency of politics on the American right. Remember the days when pundits solemnly declared that Trumpism was caused by “economic anxiety”? Well, despite a booming economy, there’s still plenty of justified anxiety out there, reflecting many people’s real struggles: America is still a nation riddled with inequality, insecurity and injustice. But the anxiety driving MAGA isn’t driven by reality. It is, instead, driven by dystopian visions unrelated to real experience.That is, at this point, Republican political strategy depends largely on frightening voters who are personally doing relatively well, not just according to official statistics but also by their own accounts, by telling them that terrible things are happening to other people.This is most obvious when it comes to the U.S. economy, which had a very good — indeed, almost miraculously good — 2023. Economic growth not only defied widespread predictions of an imminent recession, it also hugely exceeded expectations; inflation has plunged and is more or less where the Federal Reserve wants it to be. And people are feeling it in their own lives: 63 percent of Americans say that their financial situation is good or very good.Yet out on the stump a few days ago, Nikki Haley declared that “we’ve got an economy in shambles and inflation that’s out of control.” And it’s likely that the Republicans who heard her believed her. According to YouGov, almost 72 percent of Republicans say that our 3-2 economy — roughly 3 percent growth and 2 percent inflation — is getting worse, while only a little over 6 percent say that it’s getting better.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More

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      Economists Predicted a Recession. So Far They’ve Been Wrong.

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      A widely predicted recession never showed up. Now, economists are assessing what the unexpected resilience tells us about the future.The recession America was expecting never showed up.Many economists spent early 2023 predicting a painful downturn, a view so widely held that some commentators started to treat it as a given. Inflation had spiked to the highest level in decades, and a range of forecasters thought that it would take a drop in demand and a prolonged jump in unemployment to wrestle it down.Instead, the economy grew 3.1 percent last year, up from less than 1 percent in 2022 and faster than the average for the five years leading up to the pandemic. Inflation has retreated substantially. Unemployment remains at historic lows and consumers continue to spend even with Federal Reserve interest rates at a 22-year high.The divide between doomsday predictions and the heyday reality is forcing a reckoning on Wall Street and in academia. Why did economists get so much wrong, and what can policymakers learn from those mistakes as they try to anticipate what might come next?It’s early days to draw firm conclusions. The economy could still slow down as two years of Fed rate increases start to add up. But what is clear is that old models of how growth and inflation relate did not serve as accurate guides. Bad luck drove more of the initial burst of inflation than some economists appreciated. Good luck helped to lower it again, and other surprises have hit along the way.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More

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      U.S. Economy Grew at 3.3% Rate in Latest Quarter

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      The increase in gross domestic product, while slower than in the previous period, showed the resilience of the recovery from the pandemic’s upheaval.The U.S. economy continued to grow at a healthy pace at the end of 2023, capping a year in which unemployment remained low, inflation cooled and a widely predicted recession never materialized.Gross domestic product, adjusted for inflation, grew at a 3.3 percent annual rate in the fourth quarter, the Commerce Department said on Thursday. That was down from the 4.9 percent rate in the third quarter but easily topped forecasters’ expectations and showed the resilience of the recovery from the pandemic’s economic upheaval.The latest reading is preliminary and may be revised in the months ahead.Forecasters entered 2023 expecting the Federal Reserve’s aggressive campaign of interest-rate increases to push the economy into reverse. Instead, growth accelerated: For the full year, measured from the end of 2022 to the end of 2023, G.D.P. grew 3.1 percent, up from less than 1 percent the year before and faster than in any of the five years preceding the pandemic. (A different measure, based on average output over the full year, showed annual growth of 2.5 percent in 2023.)There is little sign that a recession is imminent this year, either. Early forecasts point to continued — albeit slower — growth in the first three months of 2024. Layoffs remain low, and job growth has held steady. Cooling inflation has meant that wages are again rising faster than prices. And consumer sentiment is at last showing signs of rebounding after years in the doldrums.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More