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      Fed Rate Cuts Are Expected Soon, as Inflation Cools. But Will They Be Early Enough to Avoid a Recession?

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      The Federal Reserve was about to cut interest rates, turning the corner after a long fight with inflation. But now, its soft landing is in question.The Federal Reserve’s fight against inflation was going almost unbelievably well. Price increases were coming down. Growth was holding up. Consumers continued to spend. The labor market was chugging along.Policymakers appeared poised to lower interest rates — just a little — at their meeting on Sept. 18. Officials did not need to keep hitting the brakes on growth so much, as the economy settled into a comfortable balance. It seemed like central bankers were about to pull off a rare economic soft landing, cooling inflation without tanking the economy.But just as that sunny outcome came into view, clouds gathered on the horizon.The unemployment rate has moved up meaningfully over the past year, and a weak employment report released last week has stoked concern that the job market may be on the brink of a serious cool-down. That’s concerning, because a weakening labor market is usually the first sign that the economy is careening toward a recession.The Fed could still get the soft landing it has been hoping for — weekly jobless claims fell more than expected in fresh data released on Thursday, a minor but positive development. Given the possibility that everything will turn out fine, central bank officials are not yet ready to panic. During an event on Monday, Mary C. Daly, the president of the Federal Reserve Bank of San Francisco, suggested that officials were closely watching the job market to try to figure out whether it was cooling too much or simply returning to normal after a few roller-coaster years.“We’re at the point of — is the labor market slowing a lot, or slowing a little?” Ms. Daly said, as she pointed to one-off factors that could have muddled the latest report, like Hurricane Beryl and a recent inflow of new immigrant workers that left more people searching for jobs.“It’s clear inflation is coming down closer to our target, it’s clear that the labor market is slowing, and it’s to a point where we have to balance those goals,” she 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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      Stocks Drop as Jobs Report Shakes Market

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      Stocks skidded on Friday, capping off a turbulent week for Wall Street, as investors were jolted by data showing that hiring slowed and unemployment rose in July.The spiking uncertainty about the economic outlook, and the question of whether the Federal Reserve has been too slow to raise interest rates, was evident across financial markets.The S&P 500 fell 2.4 percent within the hour after the jobs report was released, while the tech-heavy Nasdaq dropped 3 percent. Yields on government bonds, which are sensitive to expectations for the economy, dropped sharply, and oil prices were lower too.The U.S. economy added 114,000 jobs on a seasonally adjusted basis, much fewer than economists had expected and a significant drop from the average of 215,000 jobs added over the previous 12 months. The unemployment rate rose to 4.3 percent, the highest level since October 2021.“That all-important macro data we have been hammering for months is finally starting to turn in an ominous direction,” said Alex McGrath, chief investment officer at NorthEnd Private Wealth.Markets are now predicting a half a percent cut in interest rates at the Fed’s next meeting in September, up from the quarter-point cut investors had been anticipating as of Thursday, according to CME FedWatch. The two-year Treasury yield, which is also reflective of short-term interest rate expectations, fell 20 basis points, to 3.96 percent.This week had already been a rocky one for Wall Street. The Federal Reserve’s indication on Wednesday that it was moving closer to cutting interest rates in September prompted an accelerated market rally, and the S&P 500 rose 2 percent on comments by Jerome H. Powell, the Fed chair.But the market sold off on Thursday, with the S&P 500 falling 1.4 percent, led lower by a drop in chip stocks and economic data suggesting the economy is cooling. The 10-year U.S. Treasury yield — which underpins many other borrowing costs — also dropped below 4 percent on Thursday.All this comes as investors started reconsidering their appetite for big technology stocks last month and bought up shares of smaller companies, which are particularly sensitive to borrowing costs and stand to benefit from interest rate cuts. Also driving this shift is a rethink among investors about the potential for artificial intelligence to continue to drive gains at big companies like Microsoft, Nvidia and Alphabet, after shares of those businesses surged in the past year. More

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      Why You Should Be Taking a Hard Look at Your Investments Right Now

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      After big gains in stocks and mediocre returns for bonds, investors are taking on undue risk if they don’t rebalance their holdings, our columnist says.All eyes were on the Federal Reserve this past week, or so several market analysts solemnly said. This was true even though the Fed essentially did nothing in its latest meeting but hold interest rates high to fight inflation, just as it has done for many months.To be fair, there was a little news: The Fed did appear to affirm the likelihood of rate cuts starting in September, and that’s important. But so are the big performance shifts in the market, away from highflying tech stocks like Nvidia and toward a broad range of less-heralded, smaller-company stocks. In fact, there’s a great deal to think about once you start focusing on the behavior of the markets and the health of the economy in an election year.But what is perhaps the most important issue for investors rarely gets attention.In a word, it is rebalancing.I’m not talking about a yoga pose, but rather about another discipline entirely: the need to periodically tweak your portfolio to make sure you’re maintaining an appropriate mix of stocks and bonds, also known as asset allocation. If you haven’t considered this for a while — and if nobody has been doing it for you — it’s important to pay attention now because without rebalancing, there’s a good chance you are taking on risks that you may not want to bear.The rise in the stock market over the last couple of years, and the mediocre performance of bonds, has twisted many investment plans and left portfolios seriously out of whack. I found, for example, that if you had 60 percent of your investments in a diversified U.S. stock index fund and 40 percent in a broad investment-grade bond fund five years ago, almost 75 percent of your investments would now be in stock. That could make you more vulnerable than you realize the next time the stock market has a big fall.Asset AllocationThe Securities and Exchange Commission defines asset allocation as “dividing an investment portfolio among different asset categories, such as stocks, bonds and cash.” It’s an important subject, but it’s not as straightforward as that description seems.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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      China Unexpectedly Cuts Interest Rate as World Markets Sag

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      The central bank lowered a key rate in its latest effort to steady China’s economy, as Asian stock markets followed Wall Street down.China’s central bank on Thursday cut a key interest rate, in Beijing’s second move this week to try to offset a weakening economy and a housing market crisis.The unexpected action came as stock markets fell sharply across most of Asia in early trading, in an echo of Wall Street’s sharp drop the day before. Market indexes were down 1 to 3 percent in Australia, Japan, South Korea and Hong Kong.But share prices were down by less in Shanghai and Shenzhen. That could reflect a favorable response by investors to the central bank’s rate move, or a sign of intervention by the Chinese government, which plays an extensive role in the country’s stock markets.As markets opened in China on Thursday, the People’s Bank of China, the central bank, reduced its interest rate for one-year loans to commercial banks to 2.3 percent, from 2.5 percent. It was the biggest cut to that rate since a similar reduction in April 2020, when the Chinese economy was struggling because of a nearly national lockdown in the early days of the coronavirus pandemic.The one-year rate is important as a guide to commercial banks on the interest rates that they use for loans to corporate customers and also to the financing units of local governments. Beijing blocks local governments from borrowing directly from banks, but has allowed them to set up financial units that do so.Many of these financial units are now deep in debt, and the local governments that control them have been cutting the salaries of teachers and other civil servants to conserve cash.The reduction in the one-year interest rate followed moves by the central bank on Monday to lower other rates that it controls. The actions came after a conclave of the Communist Party’s leadership on economic policy last week that did not produce the broad course correction that many economists have recommended.The party reaffirmed its commitment to pursuing economic self-reliance through further investment in high-tech industries, instead of making a shift to greater consumer spending.Reducing rates now, instead of waiting for a possible cut by the U.S. Federal Reserve this autumn, runs the risk of prompting more Chinese companies and households to move money out of the country as they seek to earn more interest elsewhere. That could cause China’s currency, the renminbi, to weaken further against the dollar.Lower rates might also prompt a revival of speculative borrowing schemes that were a problem for Beijing several years ago.But Eswar Prasad, a Cornell University economist who specializes in China’s monetary policy, said that such concerns appeared to be secondary right now. “Supporting growth is taking precedence over other objectives, such as limiting financial risks or preventing currency depreciation,” he said. More

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      Auto Sales Grew Slightly in Second Quarter

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      High interest rates, economic uncertainty and a cyberattack appear to have dampened sales in the three months between April and June.Most automakers on Tuesday, with the exception of Tesla, reported modest sales growth in the three months between April and June as high interest rates, persistently high vehicles prices, and uncertainty about the economy and the coming presidential election weighed on consumers.Sales in late June were also slowed by disruptions at car dealers stemming from a cyberattack on a company that supplies software and data services to dealerships.Cox Automotive, a market research firm, estimated that 4.1 million new cars and trucks were sold in the second quarter, up a little more from the same period in 2023. In the first six months of 2024, 7.9 million new vehicles were sold, an increase of 3 percent from the first half of last year, Cox said.Slow growth is likely to continue through the rest of the year, with consumers delaying big-ticket purchases until after the election, said Jonathan Smoke, Cox’s chief economist. “The market is roiled by uncertainty,” he said. “We probably can’t quite keep the pace of sales of the first half, but we aren’t expecting a collapse in sales, either.”Cox has forecast 15.9 million new cars and trucks will be sold this year. That would be an increase from the 15.5 million that were sold last year, but still well below the 17 million vehicles sold annually before the pandemic.General Motors said on Tuesday that it sold nearly 700,000 cars and light trucks in the United States in the second quarter, an increase of less than 1 percent from the same period last year. The company said it was its highest quarterly total since the fourth quarter of 2020.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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      Housing Costs Cool, but Remain a Source of Concern

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      Overall inflation cooled sharply last month, but one of the most important categories of consumer prices — housing — remained stubborn.Housing costs, as measured in the Consumer Price Index, were up 5.4 percent in May from a year earlier. That was the smallest increase in more than two years, down from a peak rate of more than 8 percent in 2023.But on a month-to-month basis, housing costs were up 0.4 percent in May for the second month in a row, defying forecasters’ hopes for a continued slowdown. Over the past three months, shelter costs have risen at an annual rate of 5.2 percent.Housing is by far the largest monthly expense for most families, and therefore also weighs heavily in inflation calculations, accounting for more than a third of the Consumer Price Index. That means it will be hard for the Federal Reserve to bring inflation fully under control as long as housing costs continue to rise at their recent rate. Before the pandemic, the shelter index rose at a rate of about 3.5 percent per year.Forecasters have been expecting housing inflation to cool because data from private companies like Zillow and Apartment List have shown rents rising more slowly or even falling outright in some parts of the country. (Inflation measures use rent data to calculate housing costs for both renters and homeowners.)The rent index used in the Consumer Price Index tends to move more slowly than the private-sector measures because of methodological and conceptual differences. The private measures, for example, include rents for homes only when they turn over to new tenants; the government’s measure tries to capture monthly expenses for all renters, including those who renew their leases.Still, economists have been surprised by how long the gap between the measures has persisted. Some of them have begun to worry that the pandemic, demographic shifts or other forces might have caused changes in the housing market that would keep housing inflation — at least as measured in the Consumer Price Index — elevated for an extended period.Adding to that concern: Private-sector rent measures have shown signs of picking up again recently as a boom in new apartment construction has faded.“I think that the multifamily market will see continued rents decelerate, but we won’t see rents declining nationally,” said Ivy Zelman, co-founder of Zelman and Associates, a housing research firm. More

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      Why Are People So Down About the Economy? Theories Abound.

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      Things look strong on paper, but many Americans remain unconvinced. We asked economic officials, the woman who coined “vibecession” and Charlamagne Tha God what they think is happening.The U.S. economy has been an enigma over the past few years. The job market is booming, and consumers are still spending, which is usually a sign of optimism. But if you ask Americans, many will tell you that they feel bad about the economy and are unhappy about President Biden’s economic record.Call it the vibecession. Call it a mystery. Blame TikTok, media headlines or the long shadow of the pandemic. The gloom prevails. The University of Michigan consumer confidence index, which looked a little bit sunnier this year after a substantial slowdown in inflation over 2023, has again soured. And while a measure of sentiment produced by the Conference Board improved in May, the survey showed that expectations remained shaky.The negativity could end up mattering in the 2024 presidential election. More than half of registered voters in six battleground states rated the economy as “poor” in a recent poll by The New York Times, The Philadelphia Inquirer and Siena College. And 14 percent said the political and economic system needed to be torn down entirely.What’s going on here? We asked government officials and prominent analysts from the Federal Reserve, the White House, academia and the internet commentariat about what they think is happening. Here’s a summary of what they said.Kyla Scanlon, coiner of the term ‘Vibecession’Price levels matter, and people are also getting some facts wrong.The most common explanation for why people feel bad about the economy — one that every person interviewed for this article brought up — is simple. Prices jumped a lot when inflation was really rapid in 2021 and 2022. Now they aren’t climbing as quickly, but people are left contending with the reality that rent, cheeseburgers, running shoes and day care all cost more.“Inflation is a pressure cooker,” said Kyla Scanlon, who this week is releasing a book titled “In This Economy?” that explains common economic concepts. “It hurts over time. You had a couple of years of pretty high inflation, and people are really dealing with the aftermath of that.”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