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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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      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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      Economists Expected a Hiring Slowdown. So Much for That.

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      Job gains remain rapid, unemployment is near a historic low and wage gains are robust nearly two years into the Federal Reserve’s campaign to cool the economy with higher interest rates — an outcome that has surprised policymakers and economic forecasters alike.At this time last year, Fed officials were predicting that unemployment would have spiked to 4.6 percent by now. Instead, it stands at 3.7 percent.Central bankers have for months said that they were hearing anecdotal evidence that the job market had begun to slow down: The Fed’s recent Beige Book summaries of anecdotal reports from around the country have suggested that hiring was slight or even flat in parts of the country. But while hiring cooled somewhat last year, no big fissures have shown through to the actual data.In fact, there are signs that the labor market is still very solid — something Jerome H. Powell, the Fed chair, acknowledged this week.“We’ve had a very strong labor market, and we’ve had inflation coming down,” Mr. Powell said. “So I think whereas a year ago, we were thinking that we needed to see some softening in the economy, that hasn’t been the case. We look at stronger growth — we don’t look at it as a problem.”Mr. Powell and his colleagues have suggested that the labor market has come back into balance as the supply of workers has recovered, something that has been helped along by a rebound in immigration and a recent jump in labor force participation. The number of job openings in the economy has slowly nudged down.But few if any economists expected job gains to remain this robust at a time when higher interest rates were expected to meaningfully weigh down the economy. In fact, many forecasters were predicting an outright recession early last year.The question for the Fed is what it means if the job market not only fails to slow down as anticipated, but actually accelerates again. While one month of data does not make a trend, officials are likely to keep an eye on strong hiring and wage growth.Mr. Powell said this week that robust growth in and of itself would not worry the Fed — or necessarily prevent them from lowering interest rates this year — so long as inflation continued to come down. But central bankers could become more wary if solid wage gains and a booming economy help to keep consumers spending so much that it gives companies the wherewithal to keep raising prices.“If there was a real concern that we were getting a re-acceleration, it might get them to pause a little bit,” said Kathy Bostjancic, the chief economist at Nationwide. But for now, “they’re more apt now to respond to a weakening in the labor market than to continued strength.” 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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      The Squeeze on British Businesses Is Not Letting Up Soon

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      Company insolvencies hit a three-decade high, with businesses under pressure from high debts, prices and interest rates. The Bank of England held rates steady on Thursday.Britain’s economy faces a bracing fact: The number of companies that folded last year was the highest in three decades.More than 25,000 companies registered as insolvent in 2023, the most since 1993, according to government data published this week. As pandemic-related support measures for businesses ended, the wreckage from years of high debt and interest rates, soaring prices and a cost-of-living crisis become clearer. Insolvencies have spread from small to larger businesses, analysts said.Businesses still dealing with relatively high costs, demands for higher wages, supply chain uncertainties and wavering consumer confidence are hoping for brighter economic times. Slower inflation, stronger growth and cuts to interest rates are expected to come this year, but not soon.On Thursday, the Bank of England held interest rates at 5.25 percent, the highest since 2008, and where they have remained since August, after rising from just above zero in a series of increases over a year and a half.Policymakers said inflation had declined, including wage growth and services inflation, but some measures of persistence remained “elevated.” Two members of the nine-person rate-setting committee voted for a quarter-point rate increase, while one voted for the first time to cut rates.There has been good news on inflation, “but we have to be more confident that inflation will fall all the way back to the 2 percent target and stay there,” Andrew Bailey, the governor of the bank, said on Thursday. “We are not yet at a point where we can lower interest rates.”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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      New Home Sales Continue to Grow

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      As owners remain reluctant to put their properties on the market, developers are rushing to build new homes to meet demand.When Joel Adler decided it was time to downsize from his six-bedroom house in Parkland, Fla., where he had lived for more than 20 years, he was disappointed with the lack options.“There weren’t a lot of homes to look at,” said Mr. Adler, a 76-year-old retired teacher, who had been searching for a year and a half.Eventually, he turned to Valencia Sound, a gated community in Boynton Beach, Fla., that opened in 2019, joining the growing ranks of home buyers who opted for a newly built house instead of an existing one, a rare bright spot in an otherwise gloomy market.The housing market has been mired for much of the past year, bogged down by high prices, soaring mortgage rates and a dearth of inventory, pushing many would-be buyers to the sidelines.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