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      A Christmas Gift From the Bond Market

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      It’s been a strange few days on the Donald Trump front: He said something about himself that I actually believe and something about the economy that’s mostly true.On the personal side, Trump has been sounding a lot like Adolf Hitler lately — I don’t mean his general tone, I mean his specific statement last week at a New Hampshire rally that immigrants are “poisoning the blood of our country,” echoing what Hitler wrote in “Mein Kampf” almost word for word. (And if you think it was just a one-off, he said the same thing in a September interview.) But Trump claims never to have read “Mein Kampf,” and I believe him, just as I believe that he’s barely skimmed the Bible or any of the great books or, I would guess, “The Art of the Deal.” Pretty clearly, reading isn’t his thing.What’s happening, presumably, is that Trump talks to people who have read Hitler, approvingly, and that’s how Nazi language gets into his speeches. Are you reassured?On the economic side, the stock market has recently been close to record highs, but Trump has dismissed these gains as just making “rich people richer.”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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      The Stock and Bond Markets Are Getting Ahead of the Fed.

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      Stock and bond markets have been rallying in anticipation of Federal Reserve rate cuts. But don’t get swept away just yet, our columnist says.It’s too early to start celebrating. That’s the Federal Reserve’s sober message — though given half a chance, the markets won’t heed it.In a news conference on Wednesday, and in written statements after its latest policymaking meeting, the Fed did what it could to restrain Wall Street’s enthusiasm.“It’s far too early to declare victory and there are certainly risks” still facing the economy, Jerome H. Powell, the Fed chair, said. But stocks shot higher anyway, with the S&P 500 on the verge of a record.The Fed indicated that it was too early to count on a “soft landing” for the economy — a reduction in inflation without a recession — though that is increasingly the Wall Street consensus. An early decline in the federal funds rate, the benchmark short-term rate that the Fed controls directly, isn’t a sure thing, either, though Mr. Powell said the Fed has begun discussing rate cuts, and the markets are, increasingly, counting on them.The markets have been climbing since July — and have been positively buoyant since late October — on the assumption that truly good times are in the offing. That may turn out to be a correct assumption — one that could be helpful to President Biden and the rest of the Democratic Party in the 2024 elections.But if you were looking for certainty about a joyful 2024, the Fed didn’t provide it in this week’s meeting. Instead, it went out of its way to say that it is positioning itself for maximum flexibility. Prudent investors may want to do the same.Reasons for OptimismOn Wednesday, the Fed said it would leave the federal funds rate where it stands now, at about 5.3 percent. That’s roughly 5 full percentage points higher than it was in early in 2022. Inflation, the glaring economic problem at the start of the year, has dropped sharply thanks, in part, to those steep interest rate increases. The Consumer Price Index rose 3.1 percent in the year through November. That was still substantially above the Fed’s target of 2 percent, but way below the inflation peak of 9.1 percent in June 2022. And because inflation has been dropping, a virtuous cycle has developed, from the Fed’s standpoint. With the federal funds rate substantially above the inflation rate, the real interest rate has been rising since July, without the Fed needing to take direct action.But Mr. Powell says rates need to be “sufficiently restrictive” to ensure that inflation doesn’t surge again. And, he cautioned, “We will need to see further evidence to have confidence that inflation is moving toward our goal.”The wonderful thing about the Fed’s interest rate tightening so far is that it has not set off a sharp increase in unemployment. The latest figures show the unemployment rate was a mere 3.7 percent in November. On a historical basis, that’s an extraordinarily low rate, and one that has been associated with a robust economy, not a weak one. Economic growth accelerated in the three months through September (the third quarter), with gross domestic product climbing at a 4.9 percent annual rate. That doesn’t look at all like the recession that had been widely anticipated a year ago.To the contrary, with indicators of robust economic growth like these, it’s no wonder that longer-term interest rates in the bond market have been dropping in anticipation of Fed rate cuts. The federal funds futures market on Wednesday forecast federal funds cuts beginning in March. By the end of 2024, the futures market expected the federal funds rate to fall to below 4 percent.But on Wednesday, the Fed forecast a slower and more modest decline, bringing the rate to about 4.6 percent.Too Soon to RelaxSeveral other indicators are less positive than the markets have been. The pattern of Treasury rates known as the yield curve has been predicting a recession since Nov. 8, 2022. Short-term rates — specifically, for three-month Treasuries — are higher than those of longer duration — particularly, for 10-year Treasuries. In financial jargon, this is an “inverted yield curve,” and it often forecasts a recession.Another well-tested economic indicator has been flashing recession warnings, too. The Leading Economic Indicators, an index formulated by the Conference Board, an independent business think tank, is “signaling recession in the near term,” Justyna Zabinska-La Monica, a senior manager at the Conference Board, said in a statement.The consensus of economists measured in independent surveys by Bloomberg and Blue Chip Economic Indicators no longer forecasts a recession in the next 12 months — reversing the view that prevailed earlier this year. But more than 30 percent of economists in the Bloomberg survey and fully 47 percent of those in the Blue Chip Economic Indicators disagree, and take the view that a recession in the next year will, in fact, happen.While economic growth, as measured by gross domestic product, has been surging, early data show that it is slowing markedly, as the bite of high interest rates gradually does its damage to consumers, small businesses, the housing market and more.Over the last two years, fiscal stimulus from residual pandemic aid and from deficit spending has countered the restrictive efforts of monetary policy. Consumers have been spending resolutely at stores and restaurants, helping to stave off an economic slowdown.Even so, a parallel measurement of economic growth — gross domestic income — has been running at a much lower rate than G.D.P. over the last year. Gross domestic income has sometimes been more reliable over the short term in measuring slowdowns. Ultimately, the two measures will be reconciled, but in which direction won’t be known for months.The MarketsThe stock and bond markets are more than eager for an end to monetary belt-tightening.Already, the U.S. stock market has fought its way upward this year and is nearly back to its peak of January 2022. And after the worst year in modern times for bonds in 2022, market returns for the year are now positive for the investment-grade bond funds — tracking the benchmark Bloomberg U.S. Aggregate Bond Index — that are part of core investment portfolios.But based on corporate profits and revenues, prices are stretched for U.S. stocks, and bond market yields reflect a consensus view that a soft landing for the economy is a near-certain thing.Those market movements may be fully justified. But they imply a near-perfect, Goldilocks economy: Inflation will keep declining, enabling the Fed to cut interest rates early enough to prevent an economic calamity.But excessive market exuberance itself could upend this outcome. Mr. Powell has spoken frequently of the tightening and loosening of financial conditions in the economy, which are partly determined by the level and direction of the stock and bond markets. Too big a rally, taking place too early, could induce the Fed to delay rate cuts.All of this will have a bearing on the elections of 2024. Prosperity tends to favor incumbents. Recessions tend to favor challengers. It’s too early to make a sure bet.Without certain knowledge, the best most investors can do is to be positioned for all eventualities. That means staying diversified, with broad holdings of stocks and bonds. Hang in, and hope for the best. More

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      The Fed’s Decisions Now Could Alter the 2024 Elections

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      The state of the economy will affect voting next November, and the Federal Reserve may find itself in a delicate position, our columnist says.What’s happening in the economy now will have a big effect — perhaps, a decisive one — on the presidential election and control of Congress in 2024.To a remarkable extent, the economy is what matters to voters, so much so that one long-running election model relies on economic data to produce accurate predictions without even considering the identities, personalities, popularity or policies of candidates, or the strategies, messaging or dirty tricks of their campaigns.Right now, that model, created and run by Ray Fair, a Yale economist, shows that the 2024 national elections are very much up for grabs.The economy is strong enough for the incumbent Democrats to win the popular vote for the presidency and Congress next year, Professor Fair’s projections find. But it’s not a slam dunk. Persistent — though declining — inflation also gives the Republicans a reasonable chance of victory, the model shows. Both outcomes are within the model’s margin for error.It means small shifts in the economy could have an outsize influence on the next elections. That could put the Federal Reserve in a hot spot, even if the central bank tries to avoid it.The Fed strives to be independent. But policymakers’ decisions over the next 12 months could conceivably decide the elections.The Fair ModelProfessor Fair’s pioneering U.S. elections model does something that was fairly radical when he created it in the 1970s.It analyzes politics without really considering politics.Instead, Professor Fair focuses on economic growth, inflation and unemployment. With a few tweaks through the years, he has used economics to analyze elections since 1978, based on data for elections going back to 1916.What he’s found is that the economy sets the climate for national elections. The candidates and the political parties must live within it.Professor Fair makes his econometric models available on his website as teaching tools.“I encourage people to plug in their own assumptions and see how that will change the outcome,” he said.Professor Fair doesn’t even try to predict final election results. Just for a start, he doesn’t do state-by-state tallies or electoral college projections, or examine the potential impact of third-or fourth-party candidacies.But what his model does extremely well is provide a standard, historically based framework for understanding economic effects on the popular vote for the two main American political parties.What the model is showing is that the economy’s surprisingly strong growth and low unemployment since the start of the Biden presidency have already helped the incumbents considerably, while the uncomfortably high inflation levels during the period have helped the Republicans. Based on the history embedded in the model, if these critical economic factors shift, there’s room for a decisive change in the popular vote. But probably not much room.The Inflation EffectThere was jubilation on Wall Street over the past week over the positive news about inflation. The overall Consumer Price Index for October dropped to 3.2 percent annually from 3.7 percent the previous month — and from a peak, in this business cycle, of 9.1 percent in June 2022. At the same time, core inflation, which excludes fuel and food prices, fell to 4 percent in October, the smallest increase since September 2021.Inflation is still running well above the Fed’s target of 2 percent, but it’s declining, and traders are assuming that, at the very least, Fed officials won’t need to raise interest rates at their next meeting, in December. And there’s more.The Wall Street consensus, which is captured by the futures market, is that further encouraging inflation news will be coming, and that the Fed will start lowering rates by the spring. The sooner the Fed acts, this thinking goes, the more likely it is that a significant increase in unemployment — and a full-blown recession — can be avoided.There are political implications.Because interest rate cuts have lagged effects on the economy, the sooner such cuts occurred, the more likely it would be that the economy surged before next year’s election. An increase in economic growth in the first nine months of an election year — without a spike in unemployment — would help the presidential incumbent’s party, Professor Fair’s model shows. (If Republicans controlled the White House now, strong economic growth would help them more than it does the Democrats, history and the Fair model suggest.)On the other hand, a decline in inflation won’t help the Democrats much at this stage, Professor Fair said, because high inflation has already been baked into the vote prediction — and, presumably, into voters’ consciousness. The model averages the first 15 quarters — or 45 months — of a presidential administration, and we are already in the 11th quarter of the Biden presidency.For the overall inflation effect to diminish considerably, the basic math requires actual sustained deflation — a continuing fall in prices — in the months ahead. Historically, that has only happened during major economic declines, accompanied by soaring unemployment, as was the case in the Great Depression. A major recession would probably mean a Democratic debacle next year.A Looming NightmareBut a major recession in the next 12 months is not the consensus view among economists or in financial markets.Instead, a more benign prospect beckons. The probability of a “soft landing” — a decline in inflation without a recession — has grown in most forecasters’ estimations.But for the political outlook and for the Fed, the timing is tricky.A growth surge that is not accompanied by a big increase in unemployment would help the incumbent party, and large rate cuts by the Fed might well set off more economic growth. But the Fed will be reluctant to start reducing interest rates while inflation is still above 3 percent. Instead, as long as inflation is high, the Fed has vowed to keep interest rates “higher for longer,” and, in effect, it already has.Since July, short-term rates have stayed above 5.25 percent, mortgage rates are still above 7.5 percent and consumer borrowing is straitened. The longer this goes on, the greater the chances of a calamity in the financial system. Yet if the Fed eases interest rates too soon, and sets off another wave of inflation, the damage to its already tarnished reputation as an effective inflation-fighter would be severe.So the Fed is in a difficult spot. If the central bank doesn’t start to lower interest rates by the summer, it could be reluctant to do so at all in the autumn, because it would inevitably be seen as taking a partisan stance.As Ian Shepherdson, chief economist of the research firm Pantheon Macroeconomics, said in an online discussion, “there’s a lot hanging on the timing” of the inflation data in the weeks ahead. If the inflation issue isn’t resolved soon, he said, we will have to deal with “the nightmare of whether the Fed wants to be starting a shift in the policy cycle as the election approaches.”Incumbent presidents always want the economy to look great on Election Day. The one case in which it is well documented that a president put pressure on a Federal Reserve chairman to cut rates — and the central bank did so — involved President Richard M. Nixon and Arthur F. Burns in late 1971 and 1972. Mr. Nixon didn’t limit his improper actions to browbeating the Fed. There was also the Watergate break-in at the Democratic National Committee headquarters, and the subsequent cover up. An investigation revealed the secret White House taping system — which recorded Mr. Nixon’s rough treatment of Mr. Burns.But there is substantial evidence of other instances of presidents and their emissaries trying to influence the Fed, without success. President Donald J. Trump repeatedly berated the current Fed chair, Jerome H. Powell, for not lowering rates sufficiently. President Lyndon B. Johnson bullied William McChesney Martin to the point of physically manhandling him. And Paul Volcker revealed that, in President Ronald Reagan’s presence, James Baker, the chief of staff, told Mr. Volcker that the president “wants to give you an order”: Don’t raise rates as the 1984 election approaches. Mr. Volcker said Mr. Reagan looked on silently.In an oral history, Mr. Volcker said the meeting occurred in the White House library, not the Oval Office, probably to protect the president. “Whatever taping machines they had were probably not in the library,” Mr. Volcker said. “I didn’t want to say that we were going to raise rates,” Mr. Volcker recalled, “because we weren’t so as near as I can recall, I said nothing.”Mr. Powell has said he considers Mr. Volcker to be a role model. Generous and forthcoming in private conversations, Mr. Volcker was sometimes taciturn in public. It will be wise to emulate that reticence at critical moments in the months ahead.The Fed needs to be seen as independent and tough, and to squelch inflation, as Mr. Volcker did. Then, quite likely, it will need to cut rates aggressively to help the economy.The calendar may not cooperate. The tougher the Fed is now, the more delicate its position will become as the election approaches. More

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      Global Markets Cheer on Better Than Expected Inflation Data

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      A better-than-expected Consumer Price Index report triggered a big surge in stocks and bonds, as investors bet that interest rates will begin to fall.Upbeat investors see Tuesday’s inflation data as a possible turning point in the Fed’s battle against soaring prices.Michael M. Santiago/Getty ImagesGood news for global markets Yesterday’s impressive rally in U.S. stocks and bonds has gone worldwide this morning, as investors see central banks making gains in their fight against inflation. Adding to the good news was a breakthrough in the House last night that could avert a government shutdown.S&P 500 futures signal further gains at the opening bell. The question now is whether this represents a false dawn on inflation, or the start of a durable decline in rising costs — and interest rates.Here’s what’s exciting investors: Yesterday’s cooler-than-expected Consumer Price Index data has shifted discussion in the markets from potential interest rate hikes to cuts, and what that might mean for stocks. President Biden, whose poll ratings have been hurt by inflation, also cheered the numbers.Other promising data points came out this morning. Inflation in Britain fell to its lowest level in two years. And consumer spending and industrial output in China rebounded last month, a hopeful sign for the world’s No. 2 economy.Market optimists have moved up their bets on rate cuts. Futures markets this morning pointed to the Fed starting to lower borrowing costs by May, sooner than previous estimates of closer to the end of 2024.Less aggressive is Mohit Kumar, the chief financial economist at Jefferies, who wrote today that big rate cuts would begin after the presidential election next year. Jefferies predicts the Fed’s prime lending rate going to 3 percent by the end of 2025 from its current level of 5.25 to 5.5 percent.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.We are confirming your access to this article, this will take just a moment. However, if you are using Reader mode please log in, subscribe, or exit Reader mode since we are unable to verify access in that state.Confirming article access.If you are a subscriber, please  More

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      For Turkey, Erdogan Victory Brings More Risky Economic Policy

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      The Turkish lira has hit a new low, and analysts see few improvements ahead as re-elected President Erdogan pursues unconventional economic policies.Since winning re-election, President Recep Tayyip Erdogan of Turkey has publicly doubled down on his idiosyncratic economic policies.“If anyone can do this, I can do it,” he declared in a victory speech last Sunday, referring to his ability to solve the country’s calamitous economic problems.His brash confidence is not widely shared by most analysts and economists.The Turkish lira dropped to a record low against the dollar this week, and foreign investors have been disheartened by the president’s refusal to stray from what is widely considered to be an eccentric economic course.Instead of combating dizzying inflation by raising interest rates and making borrowing more expensive — as most economists recommend — Mr. Erdogan has repeatedly lowered rates. He argues that cheap credit will boost manufacturing and exports.But his strategy is also fueling inflation, now running at an annual rate of 44 percent, and eroding the value of the Turkish lira. Attempts by the government to prop up the faltering currency have drained the dwindling pool of foreign reserves.As the lira’s value drops, the price of imported goods — like medicine, energy, fertilizer and automobile parts — rises, making it more expensive for consumers to afford daily costs. And it raises the size of debt payments for businesses and households that have borrowed money from foreign lenders.The national budget is also coming under increasing strains. The destructive earthquakes in February that ripped up swaths of southern Turkey are estimated to have caused more than a billion dollars in damage, roughly 9 percent of the country’s annual economic output.At the same time, Mr. Erdogan went on a pre-election spending spree to attract voters, increasing salaries for public sector workers and payouts for retirees and offering households a month of free natural gas. The expenditures pushed up growth, but economists fear that such outlays will feed inflation.President Erdogan in Istanbul last month. Foreign investors have been disheartened by his refusal to stray from what is widely considered to be an eccentric economic course.Sergey Ponomarev for The New York TimesAn effort to encourage Turks to keep their savings in lira by guaranteeing their balances against currency depreciations further adds to the government’s potential liabilities.Critics of the president’s economic approach were somewhat heartened by reports that Mr. Erdogan is expected this weekend to appoint Mehmet Simsek, a former finance minister and deputy prime minister, to the cabinet. Mr. Simsek is well thought of in financial circles and has previously supported a tighter monetary policy.“What Turkey really needs now is more exports and more foreign direct investment, and for that you have to send a signal,” said Henri Barkey, an international relations professor at Lehigh University. One signal could be Mr. Simsek’s appointment, he said.Mr. Barkey argues that Mr. Erdogan will have no choice but to make a U-turn on policy by winter, when energy import costs rise and some debt payments are due.Others are more skeptical that Mr. Erdogan will back down from his insistence that high interest rates fuel inflation. Kadri Tastan, a senior fellow at the German Marshall Fund, a public policy think tank based in Brussels, said that regardless of the cabinet’s makeup, he didn’t believe a policy turnaround was imminent.“I’m quite pessimistic about an enormous change, of course,” he said.To deal with the large external deficit and depleted central bank reserves, Mr. Erdogan has been relying on allies like Russia, Qatar and Saudi Arabia to help bolster its reserves by depositing dollars with the central bank or extending payment deadlines and discounts for imported goods like natural gas.In a note to investors this week, Capital Economics wrote that any optimism about a policy shift is likely to be short-lived: “While policymakers like Simsek would probably pursue more restrained fiscal policy than we had envisaged, we doubt Erdogan would give the central bank license to hike policy rates to restore balance to the economy.”Turkey’s more than $900 billion economy makes it the eighth largest in Europe. And Mr. Erdogan’s efforts to position himself as a power broker between Russia and the European allies since the war in Ukraine began has further underscored Turkey’s geopolitical influence.Mr. Erdogan, who has been in power for two decades, built his electoral success on growth-oriented policies that lifted millions of Turks into the middle class. But the pumped-up expansion wasn’t sustainable.As the lira’s value drops, the price of imported goods rises.Sergey Ponomarev for The New York TimesThe borrowing frenzy drove up prices, spurring a cost-of-living crisis. Still, Mr. Erdogan persisted in lowering interest rates and fired central bank chiefs who disagreed with him. The pandemic exacerbated problems by reducing demand for Turkish exports and limiting tourism, a large source of income.Mr. Erdogan is likely to keep up his expansionary policies until the next local elections take place next year. Until then, Hakan Kara, the former chief economist of the Central Bank of Turkey, said the country would probably just “muddle through.”“Turkish authorities will have to make tough decisions after the local elections, as something has to give in eventually,” Mr. Kara said. “Turkey has to either switch back to conventional policies, or further deviate from the free market economy where the central authority manages the economy through micro-control measures.”“In either case,” he added, “the adjustment is likely to be painful.” More

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      Jobs Report Bolsters Biden’s Economic Pitch, but Inflation Still Nags

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      WASHINGTON — Gradually slowing job gains and a growing labor force in March delivered welcome news to President Biden, nearly a year after he declared that the job market needed to cool significantly to tame high prices.The details of the report are encouraging for a president whose economic goal is to move from rapid job gains — and high inflation — to what Mr. Biden has called “stable, steady growth.” Job creation slowed to 236,000 for the month, closing in on the level Mr. Biden said last year would be necessary to stabilize the economy and prices. More Americans joined the labor force, and wage gains fell slightly. Those developments should help to further cool inflation.But the report also underscored the political and economic tensions for the president as he seeks to sell Americans on his economic stewardship ahead of an expected announcement this spring that he will seek re-election.Republicans criticized Mr. Biden for the deceleration in hiring and wage growth. Some analysts warned that after a year of consistently beating forecasters’ expectations, job growth appeared set to fall sharply or even turn negative in the coming months. That is in part because banks are pulling back lending after administration officials and the Federal Reserve intervened last month to head off a potential financial crisis.Surveys suggest that Americans’ views of the economy are improving, but that people remain displeased by its performance and pessimistic about its future. A CNN poll conducted in March and released this week showed that seven in 10 Americans rated the economy as somewhat or very poor. Three in five respondents expected the economy to be poor a year from now.As he tours the country in preparation for the 2024 campaign, Mr. Biden has built his economic pitch around a record rebound in job creation. He regularly visits factories and construction sites in swing states, casting corporate hiring promises as direct results of a White House legislative agenda that produced hundreds of billions of dollars in new investments in infrastructure, low-emission energy, semiconductor manufacturing and more.On Friday, the president took the same approach to the March employment data. “This is a good jobs report for hardworking Americans,” he said in a written statement, before listing seven states where companies this week have announced expansions that Mr. Biden linked to his agenda.But as he frequently does, Mr. Biden went on to caution that “there is more work to do” to bring down high prices that are squeezing workers and families.Aides were equally upbeat. Lael Brainard, who directs Mr. Biden’s National Economic Council, told MSNBC that it was a “really nice” report overall.“Generally this report is consistent with steady and stable growth,” Ms. Brainard said. “We’re seeing some moderation — we’re certainly seeing reduction in inflation that has been quite welcome.”.css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.But analysts warned that the coming months could bring a much more rapid deterioration in hiring, as banks pull back on lending in the wake of the government bailout of depositors at Silicon Valley Bank and Signature Bank.Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote Friday that he expected job gains to fall to just 50,000 in May, and for the economy to begin shedding jobs on a net basis over the summer. But he acknowledged that the job market continued to surprise analysts, in a good way, by pulling more and more workers back into the labor force.“Labor demand and supply are moving back into balance,” Mr. Shepherdson wrote.In May, Mr. Biden wrote that monthly job creation needed to fall from an average of 500,000 jobs to something closer to 150,000, a level that he said would be “consistent with a low unemployment rate and a healthy economy.”Since then, the president has had a complicated relationship with the labor market. Job creation has remained far stronger than many forecasters — and Mr. Biden himself — expected. That growth has delighted Mr. Biden’s political advisers and helped the economy avoid a recession. But it has been accompanied by inflation well above historical norms, which continues to hamstring consumers and dampen Mr. Biden’s approval ratings.The March report showed the political difficulty of reconciling those two economic realities. Analysts called the cooling in job and wage growth welcome signs for the Federal Reserve in its campaign to bring down inflation by raising interest rates.But that cooling included a decline of 1,000 manufacturing jobs, for which some groups blamed the Fed. “America’s factories continue to experience the destabilizing influence of rising interest rates,” said Scott Paul, president of the Alliance for American Manufacturing, a trade group. “The Federal Reserve must understand that its policies are undermining our global competitiveness.”Republicans blasted Mr. Biden for falling wage growth. “Average hourly wages continue to trend down even as inflation has wiped out any nominal wage gains for more than two years,” Tommy Pigott, rapid response director for the Republican National Committee, said in a news release.Representative Jason Smith, Republican of Missouri and the chairman of the Ways and Means Committee, said the report showed that “small businesses and job creators are reacting to the dark clouds looming over the economy.”In his own release, Mr. Biden nodded to one of the clouds that could turn into an economic storm as soon as this summer: a standoff over raising the nation’s borrowing limit, which could result in a government default that throws millions of Americans out of work. Republicans have refused to budge unless Mr. Biden agrees to unspecified spending cuts.Mr. Biden has refused to negotiate directly over raising the limit. He closed his jobs report statement on Friday with a shot at congressional Republicans’ strategy. “I will stop those efforts to put our economy at risk,” he said. More

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      Your Thursday Briefing: U.S. Raises Interest Rates

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      Also, China and Russia grow closer and the U.S. waits for news of a possible Donald Trump indictment.Jerome Powell, the Fed chair, signaled that officials were still focused on fighting inflation. T.J. Kirkpatrick for The New York TimesThe Fed raises rates amid turmoilThe U.S. Federal Reserve raised interest rates by a quarter-point as officials tried to balance the risk of runaway inflation with the threat of turmoil in the banking system.The decision was one of the most closely watched in years, and the conflicting forces had left investors and economists guessing what central bankers would do. The Fed raised rates to a range of 4.75 to 5 percent — matching last month’s increase in size — and the central bank projected one more rate increase in 2023 to 5.1 percent. Jerome Powell, the Fed chair, said that officials “considered” pausing interest rates because of the banking problems but noted that the economic data had been strong. He added that the American banking system was “sound and resilient.”He also called Silicon Valley Bank, which collapsed earlier this month, an “outlier,” trying to cast its problems as unique. He said it was not a reason to panic about the banking system, even as he acknowledged the need for better supervision and regulation.Context: This is the ninth rate increase in a year. The Fed has been rapidly raising its interest rate since March 2022, making borrowing money more expensive in hopes of cooling inflation.Markets: Wall Street stocks dropped as investors balked at the Fed’s decision.Journalists waited for updates outside of the criminal court in Manhattan.Anna Watts for The New York TimesAwaiting a Trump indictmentAmericans are awaiting news of a possible indictment of Donald Trump, which could come as early as today. Criminal charges against the former president have been hotly anticipated since at least Saturday, when Trump, with no direct knowledge, declared that he would be arrested on Tuesday.The grand jury in the case against Trump did not meet yesterday as expected, and it may still hear from another witness before being asked to vote on an indictment. Prosecutors have signaled that criminal charges against the former president are likely. The prospect that Trump, who is running for re-election, could face criminal charges is extraordinary. No sitting or former American president has ever been indicted. This case, which hinges on an untested legal theory, is just one of several criminal investigations he faces.Case details: The charges most likely center on how Trump handled reimbursing a lawyer for a hush-money payment of $130,000 to the porn star Stormy Daniels during the final days of the 2016 presidential campaign.While hush money is not inherently illegal, the prosecutors could argue that the payout was a federal crime because it was done by falsifying business records. It could also be considered an improper donation to Trump’s campaign — a violation of election law.Trump’s response: Trump has referred to the investigation as a “witch hunt” against him. Those who have spent time with Trump in recent days say he has often appeared significantly disconnected from the severity of his potential legal woes.What’s next: The timing of any potential indictment is unknown, and an arrest would not immediately follow. If Trump were convicted of a felony, he would face a maximum sentence of four years, but prison time would not be mandatory.President Xi Jinping and President Vladimir Putin used the pomp of the visit to celebrate their close ties.Vladimir Astapkovich/SputnikChina-Russia versus the U.S.China’s leader, Xi Jinping, wrapped up a three-day summit in Moscow with President Vladimir Putin that showed the two superpowers aligned in countering American dominance and a Western-led world order.The summit demonstrated that Xi remains focused on shoring up ties with Moscow to gird against what he sees as a long U.S. “containment” effort to block China’s rise. The leaders laid out their vision for the world in a joint statement that covered an array of topics, including Taiwan and climate change — and often depicted the U.S. as the obstacle to a better, fairer world. They also endorsed an expanded role for China’s currency, the renminbi, a step that would tie Russia’s economy closer to China’s. A broader use of the currency among China’s allies, including in Iran and North Korea, could make it easier to conduct transactions without worrying about sanctions linked to the dollar.Ukraine: The two leaders did not reveal any progress toward achieving peace in Ukraine. Leadership: The two declared their admiration for each other’s authoritarian rule. Xi even endorsed Putin for another term. THE LATEST NEWSAsia PacificRhona Wise/USA Today Sports, via ReutersJapan beat the U.S. in the World Baseball Classic, 3-2. See the final moment.China approved its first Covid vaccine that uses mRNA — a technology considered among the most effective the world has to offer.A report analyzing a swab from Wuhan strengthens the case that illegally traded wild animals ignited the coronavirus pandemic.Around the WorldUgandan legislators debated the bill this week.Abubaker Lubowa/ReutersUganda passed a strict anti-gay bill that can bring punishments as severe as the death penalty and that calls for life in prison for anyone engaging in gay sex. Facing a hearing that could curtail his political career, Britain’s former prime minister Boris Johnson denied lying to Parliament about parties held at Downing Street during lockdowns.TikTok’s C.E.O. will testify before U.S. lawmakers today, as tensions over the Chinese-owned app come to a head.Analysts and residents say gangs have taken over most of Port-au-Prince, Haiti’s capital.The War in Ukraine The I.M.F. agreed to a $15.6 billion loan for Ukraine.President Volodymyr Zelensky visited troops on the frontline near Bakhmut.The Russian authorities in occupied Crimea reported a second day of drone attacks.A Morning ReadRenovations to a stained glass window in the Qibli Mosque inside the Aqsa compound.Afif Amireh for The New York TimesThe artisans who maintain the Aqsa Mosque in Jerusalem — known to Jews as the Temple Mount — are struggling to keep up with repairs after clashes. They are also bracing for more unrest: Ramadan is starting and Passover is just a few weeks away, raising worries that the larger numbers of visitors to the contested site will increase the possibility of clashes.“This takes months to finish, and in one minute, in one kick, all this hard work goes,” said one man who works in stained glass.SPOTLIGHT ON AFRICAHeavy winds damaged a road that connects two cities in Malawi.Thoko Chikondi/Associated PressA record-setting stormAs southeast Africa begins to recover from Cyclone Freddy, scientists are taking a closer look at whether the storm could be a sign of things to come on a warming planet.Cyclone Freddy lashed three countries, hitting Madagascar and Mozambique twice. When it moved inland last week, heavy rain and mudslides devastated Malawi, killing 438 people. The storm was remarkable for a couple of reasons. One is longevity. It lasted 36 days, by one measure, and underwent rapid intensification cycles at least seven times, quickly waning and then intensifying. Freddy is now the longest-lasting tropical cyclone in the Southern Hemisphere, and experts from the World Meteorological Organization are working to determine whether it is the longest-lasting storm in history.Freddy was also remarkable for its range. The storm traveled more than 4,000 miles from the northern coast of Australia to the southeast coast of Africa.Understanding the links between climate change and individual storms requires complex research, but scientists know in general that global warming is leading to bigger, wetter storms.“A warmer atmosphere holds more moisture,” said Anne-Claire Fontan, who studies tropical cyclones at the World Meteorological Organization. “We expect that tropical cyclones will bring more intense rainfall.” — Lynsey Chutel, a Briefings writer in Johannesburg PLAY, WATCH, EATWhat to CookDavid Malosh for The New York TimesA recipe for Ramadan: Qatayef asafiri, sweet stuffed pancakes drizzled with syrup.What to Read“Bottoms Up and the Devil Laughs” by Kerry Howley explores how the erosion of privacy has fueled conspiracy theories and the national security state.What to WatchOur selection of five science fiction films includes a trippy Japanese time-loop and an Italian remake of the 2021 Australian film “Long Story Short.”Now Time to PlayPlay the Mini Crossword, and a clue: Exchange (four letters).Here are the Wordle and the Spelling Bee.You can find all our puzzles here.That’s it for today’s briefing. See you next time. — AmeliaP.S. Our visual journalists won 34 awards in the Pictures of the Year International Awards.“The Daily” is on the roots of the banking crisis.We’d like your feedback! Please email thoughts and suggestions to briefing@nytimes.com. More

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      The Fed’s Struggle With Inflation Has the Markets on Edge

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      The central bank’s success or failure will affect your wallet and, maybe, the next election, our columnist says.Clarity about the future of inflation and the stock and bond markets would be wonderful right now, but that’s just what we don’t have.What we do have are enormous quantities of inconclusive data. There is something for everyone, and for every possible interpretation.The Federal Reserve is intent on whipping inflation now — to borrow an infamous phrase from the Ford administration, which failed spectacularly to “WIN” in the 1970s. But despite a series of steep interest rate increases by the Fed, and its stated intention to raise rates further this year, inflation remains intolerably high.“We’re stuck in the messy middle,” Josh Hirt, senior economist at Vanguard, said in a note this month.It’s a muddle right now, and the lurching stock and fixed-income markets reflect investors’ uncertainty.In testimony before Congress on Tuesday and Wednesday, Jerome H. Powell, the Fed chair, made it clear that the central bank not only intends to keep raising interest rates, but will increase them even more than “previously anticipated” if it deems that necessary to squelch inflation.It’s too soon to say how effective the measures taken by the Fed have been. The economy has been generating a lot of jobs and unemployment is quite low, but corporate earnings are beginning to fall. At some point, the economy is going to slow down — Vanguard thinks that may not happen until the end of the year. We may be heading into a recession. Or we may not be. The verdict isn’t in yet.Really long-term investors can ride out the turmoil, and those who prize safety above all else have reasonably good options now, too: There are plenty of attractive, high-interest places to park your cash.But what transpires in the next few months will still be critical for consumers and investors, and may even determine the outcome of the next presidential election. Considering what’s at stake, it is worth wading a little more deeply into this morass.The Fed and InflationThe Fed finds itself in a difficult spot. It has declared that it intends to bring inflation down to its longtime 2 percent target, but prices keep rising much faster than that.Our Coverage of the Investment WorldThe decline of the stock and bond markets this year has been painful, and it remains difficult to predict what is in store for the future.Value and Growth Stocks: Eight tech giants are no longer “pure growth” stocks, while Exxon and Chevron are, according to a new study. Here is what that means for investors.2023 Predictions: There are plenty of forecasts coming for where the S&P 500 will be at the end of the year. Should you be paying attention to them?May I Speak to a Human?: Younger investors who are navigating market volatility and trying to save for retirement are finding that digital investment platforms lack the personal touch.Tips for Investors: When you invest and where matters for taxes. But a few rules of thumb can stave off some nasty surprises.That 2 percent target is an arbitrary number, without much science to it. Whether 2 percent inflation is better than, say, 1.5 or 2.5 or 3 percent inflation — and how the inflation rate should be measured — are all open for debate. Let’s save those issues for another day.For now, the Fed has drawn a red line at 2 percent, and its credibility is at stake. The Consumer Price Index in January rose at more than three times that target rate.  The Personal Consumption Expenditures price index, which the Fed favors — and which, not coincidentally, generally produces lower readings than the C.P.I. — rose at a 5.4 percent annual rate in January, which was more than in the previous month. No matter how you slice it, inflation is ugly.So the Fed has few immediate options. It will keep raising the federal funds rate, the short-term interest rate it controls, in an effort to slow the economy and squelch inflation. The only questions are how high it will go and how rapidly it will get there. Traders in the bond market, who set longer-term rates through bidding and purchases, have had trouble coming up with consistent answers.  The central bank has already raised the short-term federal funds rate substantially and quickly, to a range of 4.5 to 4.75 percent, up from near zero just a year ago. But the federal funds rate is a blunt instrument, and the economic effects of these rate increases operate with a significant lag,The Fed could easily plunge the economy into a major recession. In a misguided bet that the Fed would beat inflation quickly or that a recession would arrive so definitively that the Fed could reverse course, bond traders began moving longer-term rates lower in October. That optimism also set off a stock market rally.But lately, with inflation and the economy failing to respond as traders had expected, the outlook has turned gloomier. Treasury yields reached or exceeded 5 percent for so-called risk-free securities in the range of three months to two years. That’s an attractive proposition in comparison with the stock market, and it’s no accident that stocks have fallen.Bonds and StocksEven 10-year Treasury yields have ascended to the 4 percent range. Compared with stocks, Treasuries in a murky market are, for the moment, exceptionally attractive.Falling earnings haven’t helped the stock market, either. For the last three months of 2022, the earnings of companies in the S&P 500 declined 3.2 percent from a year earlier, according to the latest I/B/E/S data from Refinitiv. And if you exclude the windfall from the energy sector, where prices were bolstered by Russia’s war in Ukraine, earnings fell 7.4 percent, the data showed.Corporate prospects for 2023 have begun to dim a bit, too, executives and Wall Street analysts are concluding. On Feb. 21, both Home Depot and Walmart warned that consumer spending had come under strain. The S&P 500 fell 2 percent that day, the worst performance for the short year to that date, in what Howard Silverblatt, a senior analyst for S&P Dow Jones Indices, called a “turnaround point” for the stock market.Whipping InflationIt’s early yet in 2023, but so far, stock investors are maintaining a relentless focus on the Fed, whose policymakers next meet March 21 and 22 and are all but certain to raise short-term interest rates further. The only questions are by how much, and how high rates will end up before the Fed concludes that it has accomplished its objective.  But with Mr. Powell aspiring to achieve the performance of his illustrious predecessor Paul A. Volcker, who vanquished inflation in the 1980s and set off two recessions to do it, it’s a fair bet that the Fed won’t back off its rate tightening policy soon.Bring down inflation and you are likely to be remembered as a hero. Bungle the job and you may well be memorialized as officials in President Gerald R. Ford’s administration have been, for their hapless effort to “whip inflation now.” In a widely derided public relations stunt in 1974, when inflation was running above 12 percent, the Ford White House distributed buttons with the WIN acronym, but that administration never beat inflation.It wasn’t until the next president, Jimmy Carter, appointed Mr. Volcker that the Fed even began to get control of inflation — and Mr. Volcker didn’t finish the job until the Reagan administration was well underway.The 2024 ElectionThe outcome of the next presidential election could well depend on whether the Fed gets the job done this time — and whether it causes a severe recession in the process.Ray Fair, a Yale economics professor who has been predicting presidential and congressional elections for decades, points out in a succinct note on his website that the political effects of the Fed’s efforts will be large. In his work, Professor Fair relies only on economic variables — and not the customary staples of political analysis — to forecast elections. His record is excellent.He outlines two paths for the economy. Because President Biden is an incumbent, and is likely to run for re-election, good economic results would be expected to help his cause.“In the positive case for the Democrats, if inflation is 3 percent in 2023 and 2 percent in 2024,” Professor Fair wrote, and if the economy grows at 4 percent rate in 2024 before the election, his economic model says the Democratic candidate is highly likely to win the presidency.On the other hand, he said, “in the negative case for the Democrats, if inflation is 5 percent in 2023 and 4 percent in 2024” and if the economy shrinks 2 percent in 2024 — in a recession — a Republican is highly likely to be the next president. He added, “Somewhere in between regarding the economy will mean a close election.”These statements assume that only the two main political parties mount credible campaigns. A well run third-party candidacy would complicate matters considerably.I’m not making any bets, either on politics or on the economy.  It’s all too complex and confused now.As always, for investments of at least a decade and, preferably, longer, low-cost index funds that mirror the entire markets are a good choice.Bonds are a safe and well-paying option right now. So is cash, held in money market funds or high-yield bank savings accounts.We may well be at a turning point, but taking us where, exactly? Unless you somehow know, it may be wise to play it safe for a while. More