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    The Fed Wants to Quash Inflation. But Can It Do It More Gently?

    Federal Reserve officials have raised rates five times this year as they try to beat back the worst inflation in 40 years, and the past three moves have been especially rapid. That has prompted Wall Street and policymakers to contemplate when the Fed might start to slow down.Jerome H. Powell, the Fed chair, has signaled that moving less rapidly will be appropriate at some point in the future, though he has declined to put a date on when that might begin. On Thursday, Lisa D. Cook, one of the Fed’s newest governors, echoed that stance, saying that “at some point” the central bank will decide to “slow the pace of increases while we assess the effects of our cumulative tightening on the economy and inflation.”Based on the central bank’s statements and economic projections, markets are betting heavily that the pace will not step down until December. But a debate is beginning to firm up ahead of the central bank’s meeting in early November: Some officials are open to a potential slowdown as soon as the meeting next month, while others believe that the central bank needs to push ahead with very rapid policy adjustments as it races to control inflation.Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said she could potentially support a half-point move at the central bank’s meeting next month. While still a larger increase than in normal times, a half-point move would be less aggressive than the three-quarter-point change the Fed made at each of its last three meetings.Ms. Daly is less aggressive than the majority of her colleagues, favoring one percentage point of further rate increases before the end of the year — less than the at least 1.25 percentage points that most people on the committee view as warranted.“I think we don’t need to signal that we’re resolute anymore; I think people really understand that we’re resolute,” Ms. Daly said during an interview with The New York Times this week. “I am very open to stepping down the pace. But the data will help me determine whether I’m supportive of 75 followed by 25, or whether I’m supportive of 50 followed by 50.”Christopher Waller, a Fed governor, said on Thursday that inflation had not shaped up the way he would want “to support a slower pace of rate hikes” than the Fed had previously projected, and argued that a few more data points were unlikely to change his mind.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Friday’s jobs report could be a case where good news isn’t really good

    In normal times, strong job gains and rising wages would be considered a good thing. But these days, they’re exactly what the U.S. economy doesn’t need.
    Economists surveyed by Dow Jones expect the report will show that payrolls increased 275,000 in September, while the unemployment rate held at 3.7%.
    An upside surprise could mean a more aggressive Fed that could roil markets.
    Along with the headline job number, investors will be watching wage growth closely.

    A worker takes a panini sandwich off a grill at a restaurant in the Union Market district in Washington, D.C., on Tuesday, Aug. 30, 2022.
    Al Drago | Bloomberg | Getty Images

    Investors are closely watching the nonfarm payrolls report due out Friday, but not for the usual reasons.
    In normal times, strong job gains and rising wages would be considered a good thing. But these days, they’re exactly what the U.S. economy doesn’t need as policymakers try to beat back an inflation problem that just won’t seem to go away.

    “Bad news equals good news, good news equals bad news,” Vincent Reinhart, chief economist at Dreyfus-Mellon, said in describing investor sentiment heading into the key Bureau of Labor Statistics employment count. “Pretty much uniformly what is dominant in investors’ concerns is the Fed tightening. When they get bad news on the economy, that means the Fed is going to tighten less.”
    Economists surveyed by Dow Jones expect the report, due out Friday at 8:30 a.m. ET, will show that payrolls increased 275,000 in September, while the unemployment rate held at 3.7%. At least as important, estimates are for average hourly earnings to increase 0.3% month over month and 5.1% from a year ago. The latter number would be slightly below the August report.

    Any deviation above that could signal that the Federal Reserve needs to get even more aggressive on inflation, meaning higher interest rates. Lower numbers, conversely, might provide at least a glimmer of hope that cost of living increases are abating.
    Wall Street forecasters were split on which way the surprise might come, with most around the consensus. Citigroup, for instance, is looking for a gain of 265,000, while Nomura expects 285,000.

    In search of middle ground

    For investors, the focus will be keen on what wages are saying about the state of the labor market.

    Even hitting the consensus 5.1% increase means wage pressure “is still high. Markets might want to reconsider a sanguine view of what the Fed plans to do,” said Beth Ann Bovino, U.S. chief economist at S&P Global Ratings. “The Fed is planning an aggressive stance. A hotter wage reading would just confirm their position.”

    Policymakers essentially are looking for Goldilocks — trying to find monetary policy that is restrictive enough to bring down prices while not so tight that it drags the economy into a steep recession.
    Comments in recent days indicate that officials still consider slowing inflation as paramount and are willing to sacrifice economic growth to make that happen.
    “I want Americans to earn more money. I want families to have more money to put food on the table. But it’s got to be consistent with a stable economy, an economy of 2% growth” in inflation, Minneapolis Fed President Neel Kashkari said Thursday during a Q&A session at a conference. “Wage growth is higher than you would expect for an economy delivering 2% inflation. So that gives me some concern.”
    Likewise, Atlanta Fed President Raphael Bostic on Wednesday said he thinks the inflation battle “is likely still in the early days” and cited a still-tight labor market as evidence. Governor Lisa Cook said Thursday that she still sees inflation running too high and expects “ongoing rate hikes” to be necessary.
    However, worries have shifted in the market lately over the Fed doing too much rather than too little, as some indicators in recent days have pointed to some loosening of inflation pressures.
    The Institute for Supply Management on Wednesday reported that its September survey showed expectations for prices around their lowest levels since the early days of the pandemic.
    Recent BLS data indicated that prices for long-distance truck deliveries fell 1.5% in August and are well off their January record peak (though still up nearly 22% from a year ago).
    Finally, outplacement firm Challenger, Gray & Christmas reported Thursday that job cuts surged 46.4% in September from a month ago (though they are at their lowest year-to-date level since the firm began tracking the data in 1993). Also, the BLS reported Tuesday that job openings fell by 1.1 million in August.

    Correcting a mistake

    Still, the Fed is likely to keep pushing, with chances rising that the economy enters into recession if not this year then in 2023.
    “The Fed’s mistake is already made i.e. not moving in advance of inflation rising. So it has to double-down if it’s going to deal with the inflation problem,” Reinhart said. “Yes, recession is inevitable. Yes, the Fed’s policy is probably going to make it worse. But the Fed’s policy mistake was earlier, not now. It’s going to catch up because of it’s previous mistake. Hence, recession is around the corner.”
    Even if Friday’s number is weak, the Fed rarely reacts to a single month’s data point.
    “The Fed will keep hiking until the labor market cracks. To us this means the Fed is confident that payrolls growth has slowed and unemployment is on an upward trajectory,” Meghan Swiber, rates strategist at Bank of America, said in a client note. In real terms, Swiber said that likely means no change until the economy is actually losing jobs.
    There was, however, one instance where the Fed did seem to react to a single data point, or two points more specifically.
    In June, the central bank was set to approve a 0.5 percentage point rate increase. But a higher-than-expected consumer price index reading, coupled with elevated inflation expectations in a consumer sentiment survey, pushed policymakers in an 11th-hour move to a 0.75 percentage point move.
    That should serve as a reminder on how focused on the Fed is on pure inflation readings, with Friday’s report possibly viewed as tangential, said Shannon Saccocia, chief investment officer at SVB Private Bank.
    “I don’t think the Fed is going to pivot or pause or anything of that nature before the end of the year, certainly not because of jobs data,” Saccocia said.
    Next week’s CPI reading is likely to be more consequential when it comes to any shift in Fed attitudes, she added.
    “Wages are embedded in the cost structure now, and that’s not going to change. They’re probably going to put more emphasis on food and housing prices in terms of their areas of interest, because all that can happen now [with wages] is we stabilize at current levels,” Saccocia said. “Any sort of lift we got out of this print [Friday] is likely to be temporary, and tempered by the perception that this is all really about CPI.”


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    Businesses added 208,000 jobs in September, better than expected, ADP reports

    Businesses added 208,000 for the month, better than the 200,000 Dow Jones estimate and ahead of the upwardly revised 185,000 in August, according to ADP.
    Trade, transportation and utilities saw a jobs gain of 147,000, while professional and business services and education and health services also posted large increases.

    The U.S. labor market showed strength in September, with private companies adding more jobs than expected, payroll services firm ADP reported Wednesday.
    Businesses added 208,000 for the month, better than the 200,000 Dow Jones estimate and ahead of the upwardly revised 185,000 in August.

    Those gains came even as goods-producing industries reported a loss of 29,000 positions, with manufacturing down 13,000 and natural resources and mining losing 16,000.
    However, a big jump in trade, transportation and utilities helped offset those losses, as the sector saw a jobs gain of 147,000.
    Professional and business services added 57,000, while education and health services picked up 38,000 and leisure and hospitality grew by 31,000. There also were losers within the services sector, as information declined by 19,000 and financial activities saw a loss of 16,000 positions.
    By size, companies employing 50-499 workers led with a 90,000 gain, while large firms added 60,000 and small businesses contributed 58,000.

    The tight job market saw another month of sizeable pay hikes, with annual pay trending up 7.8% from a year ago, according to ADP, which compiles the report in tandem with the Stanford Digital Economy Lab. Those changing jobs saw a median change in annual pay of 15.7%, down from 16.2% in August for the biggest monthly drop in the three years ADP has been tracking the data.

    ADP’s report comes two days before the closely watched nonfarm payrolls report issued by the Bureau of Labor Statistics.
    The estimate for the Friday report is a growth of 275,000 jobs. Though ADP revised its methodology over the summer, the August total, which was revised up sharply from the originally reported 132,000, was still well shy of the BLS count of 315,000 added jobs.
    Federal Reserve officials are watching the jobs numbers closely as the central bank looks to stem high inflation.


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    US National Debt Tops $31 Trillion for First Time

    America’s borrowing binge has long been viewed as sustainable because of historically low interest rates. But as rates rise, the nation’s fiscal woes are getting worse.WASHINGTON — America’s gross national debt exceeded $31 trillion for the first time on Tuesday, a grim financial milestone that arrived just as the nation’s long-term fiscal picture has darkened amid rising interest rates.The breach of the threshold, which was revealed in a Treasury Department report, comes at an inopportune moment, as historically low interest rates are being replaced with higher borrowing costs as the Federal Reserve tries to combat rapid inflation. While record levels of government borrowing to fight the pandemic and finance tax cuts were once seen by some policymakers as affordable, those higher rates are making America’s debts more costly over time.“So many of the concerns we’ve had about our growing debt path are starting to show themselves as we both grow our debt and grow our rates of interest,” said Michael A. Peterson, the chief executive officer of the Peter G. Peterson Foundation, which promotes deficit reduction. “Too many people were complacent about our debt path in part because rates were so low.”The new figures come at a volatile economic moment, with investors veering between fears of a global recession and optimism that one may be avoided. On Tuesday, markets rallied close to 3 percent, extending gains from Monday and putting Wall Street on a more positive path after a brutal September. The rally stemmed in part from a government report that showed signs of some slowing in the labor market. Investors took that as a signal that the Fed’s interest rate increases, which have raised borrowing costs for companies, may soon begin to slow.Higher rates could add an additional $1 trillion to what the federal government spends on interest payments this decade, according to Peterson Foundation estimates. That is on top of the record $8.1 trillion in debt costs that the Congressional Budget Office projected in May. Expenditures on interest could exceed what the United States spends on national defense by 2029, if interest rates on public debt rise to be just one percentage point higher than what the C.B.O. estimated over the next few years.The Fed, which slashed rates to near zero during the pandemic, has since begun raising them to try to tame the most rapid inflation in 40 years. Rates are now set in a range between 3 and 3.25 percent, and the central bank’s most recent projections saw them climbing to 4.6 percent by the end of next year — up from 3.8 percent in an earlier forecast.Federal debt is not like a 30-year mortgage that is paid off at a fixed interest rate. The government is constantly issuing new debt, which effectively means its borrowing costs rise and fall along with interest rates.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Why the Federal Reserve won't be so quick to ease up on its fight against inflation

    The consequences for the Fed not bringing inflation under control could be severe. Unemployment could spiral with the lowest earners sustaining the biggest impact.
    Economist Joseph Brusuelas said a worst-case scenario would look something like a 5.5% unemployment rate and 3.5 million jobs lost.
    That the Fed goes too far and stifles the economy too much is the principal fear of the central bank’s critics.
    “I really think the war on inflation has been won. We just don’t know it,” said Leuthold Group strategist James Paulsen.

    Jerome Powell, chairman of the US Federal Reserve, speaks during a Fed Listens event in Washington, D.C., US, on Friday, Sept. 23, 2022. Federal Reserve officials this week gave their clearest signal yet that they’re willing to tolerate a recession as the necessary trade-off for regaining control of inflation.
    Al Drago | Bloomberg | Getty Images

    Think of Federal Reserve Chairman Jerome Powell as a gymnast sprinting across the mat, spiraling, turning, churning, then twisting through the air and trying to make sure he still lands perfectly on his feet.
    That’s monetary policy in this era of rapid inflation, swooning economic growth and heightened fears over what could go wrong. Powell is that gymnast, standing on the economic version of an Olympic mat, and having to make sure everything goes right.

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    Because if things go wrong, they could go very wrong.
    “They have to stick the landing,” said Joseph Brusuelas, U.S. chief economist at RSM.. “It’s the lower end of the economic ladder that is going to bear the burden if the Fed doesn’t stick the landing correctly. They lose jobs and their spending goes down and they have to draw on savings and 401(k)s to make ends meet.”
    Consumers pressured by consistently rising prices already are dipping into savings to cover costs.
    The personal saving rate was just 3.5% in August, according to the Bureau of Economic Analysis. That was just above a 3% rate in June that was the lowest in 14 years, dating back to the early days of the financial crisis.

    Prices for everyday items have been surging at an extraordinary clip. Eggs were up 40% from a year ago in August, butter and margarine soared nearly 30% and gasoline, even with a 10.6% decline in the month, was still more than 25% higher than the same point in 2021.

    The consequences for not bringing that under control could be severe, just as they could be if the Fed goes too far in its quest to regain price stability for the U.S. economy.
    Brusuelas said a worst-case scenario would look something like a 5.5% unemployment rate and 3.5 million jobs lost as companies have to lay off workers to deal with the economic deceleration and surging costs that would come should inflation run rampant.

    The risk of failure

    As it stands, the economy is quite likely headed for a recession anyway. The question is how much worse it can end up.
    “It’s not a matter of are we going into recession or not, it’s when we’re going to have it and the degree of intensity of the recession,” Brusuelas said. “My sense is we’re in a recession by the second quarter of 2023.”
    The Fed cannot just keep raising rates as the economy weakens. It must hike until it reaches an equilibrium where it slows down the economy enough to correct the multifaceted supply/demand mismatches but not so much that it causes deeper, unnecessary pain. According to the Fed’s most recent outlook, policymakers expect to keep going into 2023, with benchmark rates about 1.5 percentage points from the current level.
    “If the Fed overdoes it, you’ll have a much deeper recession with higher unemployment,” Brusuelas said.
    That the Fed goes too far and stifles the economy too much is the principal fear of the central bank’s critics.
    They say there are tangible signs that the 3 percentage points of rate hikes so far in 2022 have accomplished their goal, and the Fed now can pause to let inflation recede and the economy recover, albeit slowly.

    “The Fed could quit today and inflation’s going to be back to acceptable levels next spring,” said James Paulsen, chief investment strategist at The Leuthold Group. “I really think the war on inflation has been won. We just don’t know it.”
    Paulsen looks at things such as falling prices for commodities, used cars and imported goods. He also said prices on technology-related items are declining, while retail inventories are rising.
    On the jobs market, he said the balance of payroll growth this year has come from the supply side of the economy that the Fed wants to stimulate, rather than the demand side that fueled the inflation explosion.
    “If they want to, they can cause a needless recession,” Paulsen said. “I just don’t know why they want to do that.”
    Paulsen is not alone in his criticism. There are spreading calls around Wall Street for the central bank to dial down its policy tightening and watch how the economy progresses from here.
    Wells Fargo head of equity strategy Christopher Harvey said the Fed’s messaging, particularly from Chairman Jerome Powell, that it is willing to inflict “some pain” on the economy is being interpreted as the central bank willing to keep going “until something breaks.”
    “What is troubling is the apparent downplaying of capital market signals as the Fed trudges toward its 2% inflation target,” Harvey said in a client note. “Therefore, those signals will need to get louder (i.e. even lower equities and wider spreads) before the Fed reacts. This also implies the recession likely will be longer/more severe than current fundamentals and market risk indicate.”

    Human costs

    No less an authority than the United Nations issued an agency report Monday in which the UN Conference on Trade and Development warned of the ramifications that the rate hikes could have globally.
    “The current course of action is hurting vulnerable people everywhere, especially in developing countries. We must change course,” UNCTAD Secretary-General Rebeca Grynspan told a news conference in Geneva, according to a Reuters account.
    Yet the data suggest the Fed still has work to do.
    The upcoming consumer price index report is expected to show that the cost of living continued to climb in September. The Cleveland Fed’s Nowcast tracker of the items in the broad-based basket of goods and services the Bureau of Labor Statistics uses to compute the CPI is showing another 0.5% gain excluding food and energy, good for a 6.6% year over year pace. Including food and energy, headline CPI is projecting to rise 0.3% and 8.2% respectively.
    While critics argue that those kinds of data points are backward-looking, the Fed faces an added optics issue after it downplayed inflation when it first started rising significantly more than a year ago, and was late to act.

    That puts the burden back on policymakers to keep tightening to avoid a scenario like the 1970s and early ’80s, when then-Chairman Paul Volcker had to drag the economy into a tough recession to stop inflation once and for all.
    “This is not the ’70s by any stretch of the imagination, for a whole lot of reasons,” said Steve Blitz, chief economist at TS Lombard. “But I would argue that they’re still being overly optimistic at which the inflation rate is going to decelerate on its own.”
    For their part, Fed officials have stuck to the company line that they are willing to do whatever it takes to halt price surges.
    San Francisco Fed President Mary Daly spoke emphatically about the human consequences of inflation, telling an audience Tuesday that she has been hearing about it from her constituents.
    “Right now, the pain that I hear, the suffering that people are telling me what they’re going through, is on the inflation side,” she said during a talk at the Council on Foreign Relations. “They’re worried about their day-to-day living.”
    Specifically addressing the wage issue, Daly said she one person told her, “I’m running fast and falling behind every single day. I’m working as hard as I can and I’m falling further behind.”


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    Economists Nervously Eye the Bank of England’s Market Rescue

    The Bank of England stepped in to save a critical market this week. Economists say it was necessary but also worry about the precedent.When the Bank of England announced last week that it would buy bonds in unlimited quantities in an effort to stabilize the market for U.K. government debt, economists agreed it was probably a necessary move to prevent a cataclysmic financial crisis.They also worried it could set a dangerous precedent.Central banks defend the financial stability of the nations in which they operate. In an era of highly leveraged and deeply interconnected markets, that means that they sometimes have to buy bonds or backstop lending to prevent a problem in one area from spiraling into a crisis that threatens the entire financial system.But that backstop role also means that if a government does something to generate a major shock, politicians can be fairly confident that the local central bank will step in to stem the fallout.Some economists say that is essentially what happened in the United Kingdom. Liz Truss, the new prime minister, proposed a huge package of tax cuts and spending during a period of already high inflation, when standard economic theory suggests governments should do the opposite. Markets reacted forcefully: Yields on long-term government debt shot up, and the value of the British pound fell sharply relative to the dollar and other major currencies.The Bank of England announced that it would buy long-term government debt “on whatever scale is necessary” to prevent a full-blown financial crisis. The move was particularly striking because the bank had been poised to begin selling its bond holdings — a plan that is now postponed — and has been raising interest rates in a bid to bring down inflation.Economists broadly agreed that the bank’s decision was the right one. The rapid rise in interest rates sent shock waves through financial markets and upended a typically sleepy corner of the pension fund industry, which, left unaddressed, could have carried severe consequences for millions of workers and retirees, destabilizing the country’s entire financial system.“You saw very substantial market dislocation,” said Lawrence H. Summers, a former U.S. Treasury Secretary who is now at Harvard. “It’s a recognized role of central banks to respond to that.”To some economists, that was exactly the problem: By shielding the U.K. government from the full consequences of its actions — both preventing citizens from feeling the painful aftereffects and keeping government borrowing costs from shooting higher — the policy demonstrated that central bankers stand ready to clean up messy fallout. That could make it easier for elected leaders around the world to take similar risks in the future.Those concerns eased somewhat on Monday when Ms. Truss partly backed down, reversing plans to abolish the top income tax rate of 45 percent on high earners.But she appears poised to go forward with the rest of her proposed tax cuts and spending programs, putting the Bank of England in a delicate spot.Rising Inflation in BritainInflation Slows Slightly: Consumer prices are still rising at about the fastest pace in 40 years, despite a small drop to 9.9 percent in August.Interest Rates: On Sept. 22, the Bank of England raised its key rate by another half a percentage point, to 2.25 percent, as it tries to keep high inflation from becoming embedded in the nation’s economy.Mortgage Market: The uptick in interest rates roiled Britain’s mortgage market, leaving many homeowners calculating their potential future mortgage payments with alarm.Investor Worries: The financial markets have been grumbling with unease about Britain’s economic outlook. The government plan to freeze energy bills and cut taxes is not easing concerns.The “partial U-turn” from Ms. Truss “still leaves the Bank of England with a set of near-impossible choices,” analysts at Evercore ISI wrote in a note to clients. “The only way to alleviate this is for the government to take much bigger steps to restore credibility — but there is little sign this is imminent.”There’s a reason that the interplay between monetary policy and politics in the United Kingdom is garnering so much attention. Central banks have for decades closely guarded their independence from politics. They set their policies to either stoke the economy or to slow it down based on what was necessary to achieve their goals — in most cases, low and stable inflation — free from the control of elected officials.The logic behind that insulation is simple. If central bankers had to listen to politicians, they might let price increases get out of control in exchange for faster short-term growth that would help the party in power.Now, that independence is being tested, and not just in the United Kingdom. Central banks around the world are raising interest rates to try to fight inflation, resulting in slower growth and making it harder for governments to borrow and spend. That is likely to lead to tension — if not outright conflict — between central bankers and elected leaders.It is already beginning. A United Nations agency on Monday warned that the Federal Reserve risked a global recession and significant harm in developing countries, for instance. But the United Kingdom’s example is stark because the elected government is carrying out policy that works against what the nation’s central bank is trying to achieve.“One always worries that actions like these can affect incentives going forward,” said Karen Dynan, a Harvard economist who served as a top official in the Treasury Department under President Obama. “It’s basic economics: People respond to incentives, and fiscal policymakers are people.”Part of the issue is that it is hard for central bankers to single-mindedly focus on controlling inflation in an era when financial markets are fragile and susceptible to disruption — including disruptions caused by elected governments.Before 2008, the Fed had never used mass long-term bond purchases to calm markets in its modern era. It has now used them twice in the span of 12 years. In addition to last week’s moves, the Bank of England also turned to mass bond purchases to calm markets in 2020.Bank of England officials have stressed that the policies they announced last week are a temporary response to an immediate crisis. The bank plans to buy long-dated bonds for less than two weeks and says it will not hold them longer than necessary. The Treasury, not the bank, will be responsible for any financial losses. The bank said it remained committed to fighting inflation, and some economists have speculated that it could raise rates even more aggressively in light of the government’s growth-stoking policies.If the bank is able to hold to that plan, it could mitigate economists’ concerns about the longer-run risks of the program. If interest rates rise again and it gets more expensive for the government to borrow, Ms. Truss will still need to grapple with the costs of her proposed programs, just without facing an imminent financial crisis.But some economists warn that the Bank of England may find the situation harder to extricate itself from than it hopes. It may turn out that the bank needs to keep buying bonds longer than expected, or that it cannot sell them without threatening another crisis. That could have the unintentional side effect of giving the British government a helping hand — and it could demonstrate that it is hard for a big central bank to remove support from its economy when the elected government wants to do the opposite.Liz Truss, Britain’s prime minister, will still need to grapple with the costs of her proposed programs, but she won’t be facing an imminent financial crisis because of the Bank of England’s actions.Alberto Pezzali/Associated PressMs. Truss’s policies — particularly before her partial reversal on Monday — would work directly against the bank’s efforts to cool growth, stoking demand through lower taxes and increased spending. The rapid rise in bond yields last week suggested that investors expected inflation to rise even further.Under ordinary circumstances, these conditions would lead the Bank of England to do even more to bring down the inflation it had already been fighting, raising interest rates more quickly or selling more of its bond holdings. Some analysts early last week expected the bank to announce an emergency rate increase. Instead, the brewing financial crisis forced the bank to do, in effect, the opposite, lowering borrowing costs by buying bonds.While lowering rates and stoking the economy was not the point — just a side effect — some economists warn that those actions risk setting a dangerous precedent in which central banks can only tighten policy to control inflation if their national governments cooperate and do not roil markets in a way that threatens financial stability. That situation puts politicians more in the driver’s seat when it comes to making economic policy.Guillaume Plantin, a French economist who has studied the interplay between central banks and governments, likened the dynamic to a game of chicken: To avoid a financial crisis, either Ms. Truss had to abandon her tax-cut plans, or the Bank of England had to set aside, at least temporarily, its efforts to raise borrowing costs. The result: “The Bank of England had to chicken out,” he said.Policymakers have known for decades that when the government steps in to rescue private companies or individuals, it can encourage them to repeat the same risky behavior in the future, a situation known as “moral hazard.” But in the private sector, there are steps governments can take to offset those risks — regulating banks to reduce the risk of collapse, for example, or wiping out shareholders if the government does need to step in to help.It is less clear what monetary policymakers can do to prevent the government itself from taking advantage of the safety net a central bank provides.“There is a moral hazard here: You are protecting some people from the full consequences of their actions,” said Donald Kohn, a former Fed vice chair and a former member of the Bank of England’s Financial Policy Committee, who agreed that it is necessary to intervene to prevent market dysfunction. “If you think about the entities that benefited from this, one was the chancellor of the Exchequer, the government.”Some forecasters have warned that other central banks might have to pull back on their own efforts to fight inflation to avoid destabilizing financial markets. Some investors are speculating that the Fed will have to end its policy of shrinking government bond holdings early or risk stirring market turmoil, for instance.Not all of those scenarios would necessarily raise the same concerns. In the United States, the Biden administration and the Fed are both focused on fighting inflation, so any reversal by the central bank would probably not look like bowing to pressure from the elected government.Still, the common thread is that financial stability issues could become a hurdle in the fight against inflation — especially where governments do not decide to go along with the push to rein in prices. And how worrying the British precedent proves will depend on whether the Bank of England is capable of backing away from bond buying quickly.“Is this just an exigent moment that they needed to respond to, or does it give the fiscal authority room to be irresponsible?” said Paul McCulley, an economist and the former managing director at the investment firm PIMCO. “The question is who blinks.”Joe Rennison More

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    Job Openings Fell in August, but Turnover Was Little Changed

    Government data showed 10.1 million openings, a decline from 11.2 million in July. Overall hiring, quitting and layoffs were fairly steady.Employers continued to ease off the number of jobs they were hiring for in August, but not by much, adding to the picture of a labor market that’s cooling but still short of available workers.About 10.1 million positions were open at the end of the summer, down from 11.2 million in July, the Labor Department reported Tuesday. That still left 1.7 unemployed workers for each available job, around the highest proportion on record.The job openings rate — calculated by dividing the number of job openings by the sum of employment and open jobs — was 6.2 percent, down from a revised 6.8 percent in July. The number and share of people being hired and leaving their jobs remained about level.Federal Reserve officials have theorized that rather than prompting employers to lay people off, rising interest rates would instead subdue the economy by simply reducing their need for additional workers. So far, that’s happening — but very slowly.“Our perspective is really distorted,” said Diane Swonk, chief economist at the accounting firm KPMG. “It’s still not anything like what we saw prepandemic. It’s cooling from a boil to a rolling simmer. And that’s not enough.”Ms. Swonk referred to data released by the job search website Indeed, which shows a consistently elevated level of new job postings, even though demand for retail workers in particular has leveled off.“They’ve come off their peak, but they’re still plateauing at a high level,” Ms. Swonk said. The share of people quitting their jobs is also an indicator of workers’ confidence that employment opportunities abound. About 4.2 million people gave notice in August, slightly more than during the previous month. That left the rate of people quitting their jobs — the number of people voluntarily leaving their jobs divided by total employment — only slightly below the 3 percent it reached at the end of last year, the highest reading on record.One of the largest drops in openings came in the financial sector, where mortgage brokers have been losing work as rising interest rates are subduing the housing market, although openings in rental and leasing activities rose. Retail openings also dropped, as companies prepared for a softer holiday season.Even while slowing down job postings, companies have been holding on to workers. After rising slightly in the first half of the year, the number of initial claims for unemployment has been trending lower since midsummer as employers have tried to stay fully staffed. In the release by the Labor Department on Tuesday, layoffs ticked up slightly to 1.5 million in August, but remained lower than their historical average.“Simply put, companies slashed payrolls by more than was necessary during the height of the pandemic and are struggling to restore staffing levels to where they were before Covid-19 hit,” Bob Schwartz, an Oxford Economics senior economist, wrote in a note last week. More

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    Job openings plunged by more than 1.1 million in August

    Job openings in August totaled 10.05 million, a 10% drop from the 11.17 million reported in July and more than a million less than expected.
    The Job Openings and Labor Turnover numbers are watched closely by the Federal Reserve, which is trying to reverse runaway inflation that has been pushed by the tight labor market.

    The number of job openings plunged by more than a million in August, providing a potential early sign that the massive U.S. labor gap is beginning to close.
    Available positions totaled 10.05 million for the month, a 10% drop from the 11.17 million reported in July, according to a Bureau of Labor Statistics release Tuesday. That was also well below the 11.1 million FactSet estimate and was the biggest one-month decline since April 2020 in the early days of the Covid pandemic.

    The number of hires rose slightly, while total separations jumped by 182,000. Quits, or those who left their jobs voluntarily, rose by 100,000 for the month to 4.16 million.
    The Job Openings and Labor Turnover numbers are watched closely by the Federal Reserve, which is trying to reverse runaway inflation through a series of five interest rate increases this year that thus far have totaled 3 percentage points.
    One primary area of interest for the central bank has been the ultra-tight labor market, which had been showing about two job openings for every available worker. That ratio contracted to 1.67 to 1 in August.
    The job market has been a primary driver of inflation, as the outsized demand for the scarce labor pool has helped drive up wages sharply. Average hourly earnings rose 5.2% over the 12-month period through August. But adjusted for inflation, real earnings actually declined 2.8%.
    “Job openings took a major dive in August, falling by more than about 1 million, but they still total more than 10 million. That and other data point to a jobs market that’s still challenging for employers,” said Robert Frick, corporate economist at Navy Federal Credit Union. “But judging by the drop in openings and the high number of Americans who entered the labor force in August, almost 900,000, the worst of the tight labor market is over.”

    Health care and social assistance saw the biggest drop in vacancies, falling by 236,000. The “other services” category saw a decline of 183,000, while retail was down 143,000.
    Aligning labor supply with demand has been a big goal for the Fed, which uses rate increases to slow the flow of money through the economy. The labor market has shown little reaction to the moves, with weekly jobless claims recently hitting a five-month low and the unemployment rate at 3.7%.
    August did see a sharp bump in the labor force, which increased by 786,000, pushing up the participation rate by 0.3 percentage point to 62.4%, tied for highest of the year. The rate remains one full percentage point below where it was in February 2020, just prior to the pandemic.
    Markets still expect the Fed to push forward with a fourth consecutive 0.75 percentage point interest rate hike at its next meeting.
    Tuesday’s release comes ahead of Friday’s nonfarm payrolls report for September, which is expected to show a gain of 275,000, according to Dow Jones.