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Wage Growth Exceeds Forecasts, Potentially Deterring Fed Rate Cuts
Wage growth ticked up in MayYear-over-year percentage change in earnings vs. inflation More
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Fed Chair Powell Signals a Retreat on Banking Rules
The Fed chair said regulators could scale back or rework a sweeping capital-requirements proposal that Wall Street has been fighting for months.Jay Powell, the Fed chair, stunned Wall Street yesterday with an apparent U-turn in bank regulation.Kenny Holston/The New York TimesJay Powell’s surprise For months, Wall Street C.E.O.s have been complaining bitterly and lobbying against the prospect of higher capital requirements, which would require them to keep more money on hand and would lower their profits. It appears they have scored a big win.Jay Powell dropped the bombshell in his testimony before the House on Wednesday. Markets were still digesting the Fed chair’s go-slow comments on interest rate cuts when he signaled that proposed new rules to force lenders to beef up their books would be scaled back, or reworked.“I do expect that there will be broad and material changes to the proposal,” he said.The capital rules, known as the “Basel III Endgame,” would apply to the largest banks. They would have to set aside a bigger emergency cushion to soak up losses stemming from shocks like the bank run last year that led to the collapse of Silicon Valley Bank and prompted a wider crisis.But the proposals have come under fire from bank chiefs, industry lobbyists, Republican lawmakers and even some liberal members of Congress, who fear that a mandate to set aside billions to fight the next potential crisis could feed another one.Critics fear that Basel III would crimp lending just as banks grapple with upheaval in commercial real estate. Lenders face a looming “maturity wall” of as much as $1.5 trillion in commercial real estate loans set to come over the next two years.That risk came into blaring focus during Powell’s testimony. The stock price of New York Community Bank, a Long Island-based lender with a mountain of souring real estate loans, plummeted on news it was seeking emergency funding. (More on that below.)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 Still Expects to Cut Rates This Year, but Not Yet
Jerome H. Powell, chair of the Federal Reserve, said policymakers still expect to lower rates in 2024 — but the timing hinges on data.Jerome H. Powell, the chair of the Federal Reserve, said on Wednesday that he thinks the central bank will begin to lower borrowing costs in 2024 but that policymakers still needed to gain “greater confidence” that inflation was conquered before making a move.“We believe that our policy rate is likely at its peak for this tightening cycle,” Mr. Powell said in remarks prepared for testimony before the House Financial Services Committee. “If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year.”The Fed next meets on March 19-20, but few investors expect officials to lower interest rates at that gathering. Markets see the Fed’s June meeting as a more likely candidate for the first rate cut, and are betting that central bankers could lower borrowing costs three or four times by the end of the year.The Fed chair warned against cutting rates too early — before inflation is sufficiently snuffed out — noting that “reducing policy restraint too soon or too much could result in a reversal of progress we have seen in inflation and ultimately require even tighter policy.”He also acknowledged that there could be risks to waiting too long, adding that “reducing policy restraint too late or too little could unduly weaken economic activity and employment.”Mr. Powell and his colleagues are trying to strike a delicate balance as they figure out their next policy steps. Policymakers raised interest rates rapidly between March 2022 and July 2023, lifting them to a range of 5.25 to 5.5 percent, where they currently sit. That has made mortgages, business loans and other types of borrowing more expensive, helping to tap the brakes on an economy that otherwise retains substantial momentum.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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Inflation Fears Stalk Presidential Politics and the Markets
Lawmakers on Capitol Hill are set to grill Jay Powell, the Fed chair, about interest rates and the economy, topics that are top of mind for voters and investors alike.Jay Powell, the Fed chair, will begin two days of testimony on Capitol Hill with inflation a hot topic for voters and markets.Richard Drew/Associated PressInflationary pressure and presidential politics President Biden and Donald Trump dominated Super Tuesday, setting the stage for a rematch of the 2020 election. One topic that’s high on the agenda for voters: Inflation.That means all eyes will be on Jay Powell, as the Fed chair makes a two-day appearance on Capitol Hill this week, for any sign of what’s next on rate cuts.Inflation is kryptonite for any politician, and especially for Biden. Trump again pounded the president on high prices, an issue that’s lifting the Republican in polls even as a range of indicators show that the economy is performing strongly.(The White House is putting the blame on corporations that “try to rip off Americans.” Watch for that theme at Thursday’s State of the Union address.)Powell will appear before the House on Wednesday and before the Senate on Thursday. Data published in recent weeks shows that jobs are plentiful, wages are rising and consumers are still spending. Analysts have upgraded their economic forecasts, raising hopes that a soft landing is likely.But market pros see warning signs. Concerns remain that inflation will stick above the Fed’s 2 percent target, forcing the central bank to put the brakes on interest rate cuts that traders expect to begin in June. The futures market on Wednesday is forecasting three to four cuts this year — down from nearly seven just weeks ago — and the more cautious sentiment has helped drag the S&P 500 lower this week.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 Jobs Conundrum: Questions About Wages Persist
The latest data on jobs and wages are positive on the surface, but a large group of voters are still downbeat about the state of the economy. Jobs seem plentiful, but a large group of voters are feeling downbeat about inflation and the economy.Spencer Platt/Getty Images‘The job’s not quite done’ The U.S. economy is a paradox. Official figures show that growth is solid, jobs are plentiful and wages are climbing, and yet voters are mostly feeling down and giving President Biden little credit.Friday’s jobs data is adding to that split-screen view, with economists pointing out red flags in an otherwise sterling report.The labor market seems to be performing strongly. Employers added 353,000 jobs last month, almost double economists’ forecasts, and an additional 100,000 via revisions in previous months. Average hourly wages rose, too.But that doesn’t necessarily mean workers are more prosperous. For a start, wintry weather shrank the average workweek to 34.1 hours in January. In particular, nonsalaried employees, especially those in retail, construction and the hospitality sectors, worked fewer hours, which probably ate into their pay, Bill Adams, an economist at Comerica Bank, said in a research note.And Goldman Sachs’s wage tracker for U.S. workers fell after Friday’s report on a quarterly annualized basis.Workers are increasingly anxious about changing jobs. Quit rates have fallen to a four-year low, suggesting employees are feeling less confident that they’ll find a better position elsewhere. If this trend persists, it could also put the chill on wage gains that soared during the so-called Great Resignation.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
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
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.
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
