Evelyn Reynolds

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    Inflation Slowdown Remains Bumpy, September Consumer Price Data Shows

    Prices are rising at a pace that is much less rapid than in 2022, but signs of stalling progress are likely to keep Federal Reserve officials wary.Consumer prices grew at the same pace in September as they had in August, a report released on Thursday showed. The data contained evidence that the path toward fully wrangling inflation remains a long and bumpy one.The Consumer Price Index climbed 3.7 percent from a year earlier. That matched the August reading, and it was slightly higher than the 3.6 percent that economists had predicted.The report did contain some optimistic details. After cutting out food and fuel prices, both of which jump around a lot, a “core” measure that tries to gauge underlying price trends climbed 4.1 percent, which matched what economists had expected and was down from 4.3 percent previously. And inflation is still running at a pace that is much less rapid than in 2022 or even earlier this year.Even so, several signs in the report suggested that recent progress toward slower price increases may be stalling out — and that could help to keep officials at the Federal Reserve wary.The S&P 500 fell 0.6 percent and the yield on 10-year Treasuries rose on Thursday to 4.7 percent, as investors worried that September’s inflation report showed less progress than they had hoped for, both in rents and a measure of inflation that strips out volatile goods and services.Fed policymakers have been raising interest rates in an effort to slow economic growth and wrestle inflation under control. They have already lifted borrowing costs to a range of 5.25 to 5.5 percent, up sharply from near-zero 19 months ago. Now, they are debating whether one final rate move is needed.Given the fresh inflation data, economists predict that policymakers are likely to keep the door open to that additional rate increase until they can be more confident that they are well on their way to winning the battle against rising prices. Inflation has begun to flag, but the September data served as a reminder that it is not yet clearly vanquished.“This report still suggests that we have stepped out of the higher inflation regime,” said Laura Rosner-Warburton, a senior economist at MacroPolicy Perspectives. Still, “we’re not out of the woods — there are still some sticky corners of inflation.” More

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    Ford Says It Won’t Raise Its Contract Offer to U.A.W.

    The company said it had reached the limit of what it could offer to the United Automobile Workers union, which has expanded its strike to Ford’s largest plant.Ford Motor said on Thursday that it could not improve its contract offer to the United Automobile Workers union without hurting its business and its ability to invest in electric vehicles.The automaker also said the union’s decision to expand its strike to Ford’s largest factory, the Kentucky Truck Plant, would probably hurt workers at other factories and lead to layoffs across the auto industry.“We are very clear,” Kumar Galhotra, president of the Ford division that makes combustion engine vehicles, said in a conference call with reporters. “We are at the limit. Any more will stretch our ability to invest in the business.”The U.A.W. is negotiating new labor contracts with Ford, General Motors and Stellantis, the parent of Chrysler and Jeep. The union’s members have struck selected plants and parts warehouses owned by the three companies. On Wednesday, its talks with Ford broke down, and the union responded by calling on the 8,700 U.A.W. workers at Kentucky Truck to walk off the job.“If the companies are not going to come to the table and take care of the membership’s needs, then we will react,” the U.A.W. president, Shawn Fain, said in an online video after the strike in Kentucky was announced.Production at the plant, in Louisville, stopped Wednesday evening. The factory makes the Super Duty versions of Ford’s F-Series pickup trucks as well as the Ford Expedition and Lincoln Navigator full-size sport utility vehicles.On its own, the Kentucky Truck plant generates about 16 percent of Ford’s revenue. On a typical day, a new vehicle rolls off its assembly line every 37 seconds.The plant is so large that a prolonged idling will probably cause stoppages and layoffs at up to 13 other Ford plants that make engines, transmission and axles. Factories owned by the 600 suppliers that provide parts for Ford could also have to lay off workers, Mr. Galhotra said.“This goes way beyond just hitting Ford’s profits,” he said.The U.A.W. is seeking a substantial increase in wages as well as a cost-of-living provision, an expanded retirement plan, improved retiree health care benefits and job security as automakers make the transition to producing electric vehicles. It also wants to end a system in which new hires start at a little more than half the top U.A.W. wage of $32 an hour.Ford has offered to increase wages 23 percent over four years, adjust wages in response to inflation and cut the time for new hires to rise to the top wage, to four years from eight.The U.A.W. went into a negotiating session on Wednesday expecting Ford to sweeten its offer, according to the union. Mr. Galhotra said Ford was prepared to discuss adjustments to its existing offer but not to make a completely new proposal.The differences became clear quickly, and Mr. Fain instructed Ford workers at the Kentucky plant to strike, union and company officials said. Mr. Fain and other union negotiators left the meeting minutes after it started.“Unfortunately, we had to escalate our action,” Mr. Fain said in his video. “We came here today to get another offer from Ford, and they gave us the same exact offer as two weeks ago.” More

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    Getting to 2% inflation won’t be easy. This is what will need to happen, and it might not be pretty

    In theory, getting inflation closer to the Fed’s target doesn’t sound terribly difficult. In practice, it could be a different story.
    Without progress on services and shelter, there’s little chance of the Fed achieving its goal anytime soon.
    “You need a recession,” said Steven Blitz, chief U.S. economist at GlobalData TS Lombard.

    A construction in a multifamily and single family residential housing complex is shown in the Rancho Penasquitos neighborhood, in San Diego, California, September 19, 2023.
    Mike Blake | Reuters

    In theory, getting inflation closer to the Federal Reserve’s 2% target doesn’t sound terribly difficult.
    The main culprits are related to services and shelter costs, with many of the other components showing noticeable signs of easing. So targeting just two areas of the economy doesn’t seem like a gargantuan task compared to, say, the summer of 2022 when basically everything was going up.

    In practice, though, it could be harder than it looks.
    Prices in those two pivotal components have proven to be stickier than food and gas or even used and new cars, all of which tend to be cyclical as they rise and fall with the ebbs and flows of the broader economy.

    Instead, getting better control of rents, medical care services and the like could take … well, you might not want to know.
    “You need a recession,” said Steven Blitz, chief U.S. economist at GlobalData TS Lombard. “You’re not going to magically get down to 2%.”
    Annual inflation as measured by the consumer price index fell to 3.7% in September, or 4.1% if you kick out volatile food and energy costs, the latter of which has been rising steadily of late. While both numbers are still well ahead of the Fed’s goal, they represent progress from the days when headline inflation was running north of 9%.

    The CPI components, though, told of uneven progress, helped along by an easing in items such as used-vehicle prices and medical care services but hampered by sharp increases in shelter (7.2%) and services (5.7% excluding energy services).
    Drilling down further, rent of shelter also rose 7.2%, rent of primary residence was up 7.4%, and owners’ equivalent rent, pivotal figures in the CPI computation that indicates what homeowners think they could get for their properties, increased 7.1%, including a 0.6% gain in September.
    Without progress on those fronts, there’s little chance of the Fed achieving its goal anytime soon.

    Uncertainty ahead

    “The forces that are driving the disinflation among the various bits and micro pieces of the index eventually give way to the broader macro force, which is rising, which is above-trend growth and low unemployment,” Blitz said. “Eventually that will prevail until a recession comes in, and that’s it, there’s nothing really much more to say than that.”
    On the bright side, Blitz is among those in the consensus view that see any recession being fairly shallow and short. And on the even brighter side, many Wall Street economists, Goldman Sachs among them, are coming around to the view that the much-anticipated recession may not even happen.
    In the interim, though, uncertainty reigns.
    “Sticky-price” inflation, a measure of things such as rents, various services and insurance costs, ran at a 5.1% pace in September, down a full percentage point from May, according to the Cleveland Fed. Flexible CPI, including food, energy, vehicle costs and apparel, ran at just a 1% rate. Both represent progress, but still not a goal achieved.

    Markets are puzzling over what the central bank’s next step will be: Do policymakers slap on another rate hike for good measure before year-end, or do they simply stick to the relatively new higher-for-longer script as they watch the inflation dynamics unfold?
    “Inflation that is stuck at 3.7%, coupled with the strong September employment report, could be enough to prompt the Fed to indeed go for one more rate hike this year,” said Lisa Sturtevant, chief economist for Bright MLS, a Maryland-based real estate services firm. “Housing is the key driver of the elevated inflation numbers.”
    Higher interest rates’ biggest impact has been on the housing market in terms of sales and financing costs. Yet prices are still elevated, with concern that the high rates will deter construction of new apartments and keep supply constrained.
    Those factors “will only lead to higher rental prices and worsening affordability conditions in the long run,” wrote Christopher Bruen, senior director of research at the National Multifamily Housing Council. “Rising rates threaten the strength of the broader job market and economy, which has not yet fully digested the rate hikes already enacted.”

    Longer-run concerns

    The notion that rate increases totaling 5.25 percentage points have yet to wind their way through the economy is one factor that could keep the Fed on hold.
    That, however, goes back to the idea that the economy still needs to cool before the central bank can complete the final mile of its race to bring down inflation to the 2% target.
    One positive in the Fed’s favor is that pandemic-related factors largely have washed out of the economy. But other factors linger.
    “Pandemic-era effects have a natural gravitational pull and we’ve seen that take place over the course of the year,” said Marta Norton, chief investment officer for the Americas at Morningstar Wealth. “However, bringing inflation the remainder of the distance to the 2% target requires economic cooling, no easy feat, given fiscal easing, the strength of the consumer and the general financial health in the corporate sector.”
    Fed officials expect the economy to slow this year, though they have backed off an earlier call for a mild recession.
    Policymakers have been banking on the notion that when existing rental leases expire, they will be renegotiated at lower prices, bringing down shelter inflation. However, the rising shelter and owners’ equivalent rent numbers are running counter to that thinking even though so-called asking rent inflation is easing, said Stephen Juneau, U.S. economist at Bank of America.
    “Therefore, we must wait for more data to see if this is just a blip or if there is something more fundamental driving the increase such as higher rent increases in larger cities offsetting softer increases in smaller cities,” Juneau said in a note to clients Thursday. He added that the CPI report “is a reminder that we do not have good historic examples to lean on” for long-term patterns in rent inflation. More

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    Consumer prices rose 0.4% in September, more than expected

    A person goes through a note pad while shopping for items at a Costco Wholesale store on September 6, 2023 in Colchester, Vermont. 
    Robert Nickelsberg | Getty Images

    Prices that consumers pay for a wide variety of goods and services increased at a slightly faster than expected pace in September, keeping inflation in the spotlight of policymakers.
    The consumer price index, a closely followed inflation gauge, increased 0.4% on the month and 3.7% from a year ago, according to a Labor Department report Thursday. That compared to respective Dow Jones estimates of 0.3% and 3.6%.

    Excluding volatile food and energy prices, so-called core CPI increased 0.3% on the month and 4.1% on a 12-month basis, both exactly in line with expectations. Policymakers place more weight on the core numbers as they tend to be better predictors of long-term trends.

    In keeping with recent trends, shelter costs were the main factor in the inflation increase. The index for shelter, which makes up about one-third of the CPI weighting, accelerated 0.6% for the month and 7.2% from a year ago.
    Energy costs rose 1.5%, including a 2.1% pickup in gasoline prices and 8.5% on fuel oil, and food was up 0.2% for the third month in a row.
    Services prices, considered a key for the longer-run direction for inflation, also posted a 0.6% gain excluding energy services, and were up 5.7% on a 12-month basis. Vehicle prices were mixed, with new vehicles up 0.3% and used down 2.5%.
    Markets showed only a modest reaction to the report. Stock market futures were off their highs but still mostly positive while Treasury yields came off previous lows, with longer-duration notes little changed.

    The CPI increase meant worker wages fell in real terms.
    Real average hourly earnings fell 0.2% on the month, owing to the difference between the inflation rate and the 0.2% gain in nominal earnings, the Labor Department said in a separate report. On a yearly basis, earnings were up 0.5%.
    In other economic news Thursday, the Labor Department reported that initial jobless claims totaled 209,000, unchanged from the previous week and just below the 210,000 estimate.
    The CPI report comes with Federal Reserve officials contemplating their next policy moves.
    Minutes from the Fed’s September meeting, released Wednesday, reflected divisions within the rate-setting Federal Open Market Committee. The meeting concluded with the committee opting not to raise interest rates, but the summary showed lingering concern about inflation and worries that upside risks remain.
    Since then, however, Treasury yields have jumped, at one point hitting 16-year highs.
    Multiple Fed officials have said that the increases could negate the need for further policy tightening, and markets now are pricing only a small chance that the central bank votes to hike before the end of the year. Market pricing further indicates that the Fed will shave about 0.75 percentage point off its key borrowing rate before the end of 2024.
    Recent days, though, have brought mixed news on where inflation is heading.
    The Labor Department said Thursday that prices at the wholesale level increased 0.5% in September, pushing the 12-month rate to 2.2%, the highest since April and above the Fed’s goal of 2% inflation.
    This is breaking news. Please check back here for updates. More

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    Yellen Says U.S. Is Considering New Sanctions on Iran and Hamas

    Treasury Secretary Janet L. Yellen said on Wednesday that the Israel-Gaza war was a potential concern for the global economy and signaled that additional U.S. sanctions could be coming in response to the attack on Israel by Hamas.Questions about the economic impact of the war were growing as Ms. Yellen offered a forceful defense of Israel and pushed back on the notion that U.S. sanctions against Iran — a key backer of Hamas — have become too lenient. Ms. Yellen said the Treasury Department continued to review its sanctions on Iran, Hamas and Hezbollah, the Lebanese militant group that is also a longtime adversary of Israel.“We have not in any way relaxed our sanctions on Iranian oil,” Ms. Yellen said at a news conference on the sidelines of the annual meetings of the International Monetary Fund and the World Bank in Marrakesh, Morocco. “We have sanctions on Hamas, on Hezbollah, and this is something that we have been constantly looking at and using information as it becomes available to tighten sanctions.”She added: “We will continue to do that.”The Treasury secretary also did not rule out reversing a decision made last month — to unfreeze $6 billion of Iranian funds in exchange for the release of American hostages — if it is determined that Iran was involved in the attack by Hamas.At the time of the exchange, the United States informed Iran that it had transferred about $6 billion in Iranian oil revenue from South Korea to a Qatari bank account. The money is supposed to be used only for food, medicine and other humanitarian goods.“These are funds that are sitting in Qatar that were made available purely for humanitarian purposes, and the funds have not been touched,” Ms. Yellen said, adding: “I wouldn’t take anything off the table in terms of future possible actions.”The crisis in Israel poses a new challenge for the world economy and the Biden administration, which has spent the last year working to combat inflation in the United States and to corral energy prices that have become volatile because of Russia’s war in Ukraine. Another war in the Middle East complicates those efforts by threatening to constrain oil supplies and send prices higher.Ms. Yellen said geopolitical “shocks” continued to pose risks to the world economic outlook.“Of course, the situation in Israel poses additional concerns,” she said.Economic officials across the Biden administration are closely tracking developments in global oil markets this week. Global oil prices jumped on Monday after the terrorist attacks in Israel but were falling slightly on Wednesday. Administration officials are concerned that a sustained increase in the cost of crude could hurt economic growth and dent Mr. Biden’s approval rating, by pushing up the price of gasoline for American drivers.Ms. Yellen said she continued to believe that the U.S. economy could achieve a so-called soft landing — where inflation eases without a recession — but was closely watching for any economic fallout from the new conflict in the Middle East.“While we’re monitoring potential economic impacts from the crisis, I’m not really thinking of that as a major driver of the global economic outlook,” Ms. Yellen said. “We will see what impact it has. Thus far, I don’t think we’ve seen anything suggesting it will be very significant.”International policymakers gathered in Morocco for a week of meetings, as the global economic recovery is losing momentum. The prospect of a new regional conflict gave other policymakers more reason to feel anxious about a sluggish world economy that has been battered by war, a pandemic and inflation in recent years. Central banks around the globe have been raising interest rates to tame rapid inflation, and investors had begun to hope that a recent slowdown in price gains could signal an end to those rate increases.“I think central bank governors are concerned about what might happen to energy prices if the Israel-Gaza conflict were to turn into a bigger regional conflict and have implications for supply of oil on markets,” Gita Gopinath, the first deputy managing director of the I.M.F., said in an interview on Wednesday.Ms. Gopinath added that higher oil prices could elevate prices more broadly, complicating interest rate decisions for central bankers. She suggested that it was too soon to say how the economic impact of the conflict in the Middle East might compare with the effects of the war in Ukraine, but that overlapping crises were a headwind.“The geopolitical risks are certainly piling up in Russia’s invasion of Ukraine and we’re seeing now in Israel and Gaza,” she said.That sentiment was echoed on Wednesday by Ajay Banga, the World Bank president, who said at a news conference that he now expected interest rates to be “higher for longer” despite signs that inflation was cooling.“I believe that wars are completely and extremely challenging for central banks who are trying to find their way out of a very difficult situation,” Mr. Banga said.It is not yet clear what steps the Biden administration would take to contain oil prices if the Israel-Gaza war intensifies or how that might affect its efforts to curb Russia’s oil revenues.Ms. Yellen suggested on Wednesday that the “price cap” policy that the Group of 7 devised last year, which forbids Russia to sell oil over $60 a barrel using Western banking and insurance services, had been successful.“Global energy prices have been largely unchanged while Russia has had to either sell oil at a significant discount or spend huge amounts on its alternative ecosystem,” she said.Jim Tankersley More

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    Already a humanitarian crisis, war with Hamas could have major impact on Israel’s economy

    More than 300,000 ordinary Israeli workers are now out of the economy, and in the fight.
    The amount of the economic damage, however, will depend on how long the reservists are away from their jobs.
    “There will be a temporary hit for the startup industry but when the soldiers return so will investment and demand,” said an economics professor at Hebrew University.

    Israeli armuy soldiers deploy at a position near the border with Gaza in southern Israel on October 11, 2023.
    Menahem Kahana | AFP | Getty Images

    As Israel prepares for what could be a long war with massive humanitarian implications, there are also concerns about how a protracted fight could weigh on the country’s dynamic economy.
    Since Hamas militants staged a surprise terrorist attack over the weekend, Israel’s defense forces called up more than 300,000 reservists for duty, an unprecedented number in recent history. Israel’s standing army, air force and navy is is comprised of 150,000 members. 

    The reserve force, made up of a cross section of Israeli society, has about 450,000 members, many of which are more experienced in combat than the younger soldiers in the standing army. The reservists are teachers, tech workers, startup entrepreneurs, farmers, attorneys, doctors, nurses, tourism and factory workers.
    “The impact is substantial,” said Eyal Winter, a professor of economics at Hebrew University in Jerusalem who has studied the economic impact of Israel’s wars.
    The amount of the economic damage, however, will depend on how long the reservists are away from their jobs in the country, which has a population of over 9 million and a gross domestic product of $521.69 billion. 
    “In a case like this, tourism dries up immediately” said Winter. But, he added, “there’s also a major increase in tourism when the fighting ends due to pent up demand.”

    Where does the Israeli economy stand now?

    Many of Israel’s key employment sectors will continue uninterrupted during the war due to the fact that they’re heavily staffed with foreign workers. 

    That includes Israel’s chemical sector, which is a major source of exports. 
    The Dead Sea region is rich in minerals. The Port of Ashdod, just 20 miles north of the Gaza Strip, is a major hub for potash exports. Wall Street was so concerned about the prospect of a potash supply problem stemming from Israel, several fertilizer stocks saw significant jumps earlier this week, including Mosaic and CF Industries. Both were up almost 7% in the first day of trading after Saturday’s attack.
    So far this week the main Israeli stock index is down 6%. There’ve been no new warnings from ratings agencies about Israel’s debt. All, however, were concerned about economic problems before the fighting due to the instability in Israel’s political climate over proposed reforms to the judicial system. 
    Since Hamas’ takeover of Gaza in 2007, Israelis have always believed the status quo wasn’t sustainable.  Winter of Hebrew University believes as bleak as things are right now, there will be an improvement for the country and the economy. 
    “Confidence is high that in the end we’ll have a military victory, even as it’s likely we’ll suffer terrible losses,” Winter said. “But Gaza has been an unstable problem for years, this war should end that.” 

    What is the impact on Israel’s tech industry?

    Winter has also seen increased economic activity in other segments of the economy after previous wars.
    In the case of Israel’s ever-growing technology industry, when many of the soldiers come home, they will take experiences they learned on the battlefield and turn them into security businesses. 
    “There will be a temporary hit for the startup industry but when the soldiers return so will investment and demand,” Winter said.
    Almost every major American technology company also has significant production or research and development offices in Israel, including Microsoft, Alphabet, Apple and Oracle, to name a few. Intel is investing in a manufacturing facility 30 minutes away from the Gaza border.
    While nobody would comment directly due to security concerns, one high-tech manager in Israel said “because of our experience with allowing employees to work from home during and after Covid, work continues, unless you’ve been called in to a reserve unit.” More

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    Federal Reserve Officials Were Cautious in September

    Minutes from their last meeting showed that Fed officials saw risks of doing too much — or too little — to tame inflation.Federal Reserve policymakers expected that rates might need to rise slightly higher as of their September meeting, freshly released minutes from the gathering showed. But they were also determined to creep forward carefully, wary that they could overdo it and clamp down on the economy too hard.Officials left interest rates unchanged at their Sept. 19-20 meeting, having raising them sharply since March 2022. Rates are now set to 5.25 to 5.5 percent, up from near-zero 19 months ago.Even as policymakers left borrowing costs steady last month, they projected that they might need to make one more rate move in 2023. They also estimated that they would leave interest rates at a high level for a long time, lowering them only slightly next year. Because steeper Fed rates make it more expensive to borrow to buy a house or expand a business, those higher costs would be expected to gradually cool the economy, helping central bankers to curb demand and wrestle inflation under control.Yet Fed officials have become increasingly wary that they could overdo their campaign to slow economic growth. Inflation has begun to moderate, and central bankers do not want to crimp the economy so aggressively that they cause unemployment to jump or spur a meltdown in financial markets.“Participants generally noted that it was important to balance the risk of overtightening against the risk of insufficient tightening,” according to the minutes, released on Wednesday.The economy has so far proved to be very resilient to higher interest rates. Even as Fed officials have pushed their policy rate to the highest level in 22 years, consumers have continued to spend money and businesses have continued to hire. The September jobs report showed that employers added far more new workers last month than economists had expected.That staying power has caused policymakers and Wall Street alike to hope that the Fed might be able to pull off what is often called a soft landing, gently cooling the economy and lowering inflation without tanking growth and pushing unemployment drastically higher.But soft landings are historically rare, and officials remain wary about risks to the outlook. Fed officials identified the autoworkers’ strike as a new risk facing the economy, one with the potential to both increase inflation and slow growth, the minutes showed. They also saw climbing gas prices as something that could make it harder to bring inflation under control. At the same time, they pointed out that a slowdown in China could cool global growth, and noted that stress in the banking sector could also pose a hurdle to the economy.There is also the possibility that the economy will not slow down enough to allow inflation to fully moderate.As of the September meeting, “a majority” of Fed officials thought one more rate move would be needed, while “some” thought rates would probably not need to be raised again.Since that gathering, longer-term interest rates in markets have moved up notably. That has caused investors to doubt that officials will actually follow through with a final rate move.Fed policymakers themselves have signaled that they may not need to raise rates any further, since higher borrowing costs in markets will help to slow the economy.Christopher J. Waller, a Fed governor who often favors higher rates, said at an event on Wednesday that officials were in a position to “watch and see” what happened, and would keep a “very close eye” on the move and “how these higher rates feed into what we’re going to do with policy in the coming months.” More

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    Investors Are Calling It: The Federal Reserve May Be Done Raising Rates

    Investors doubt that central bankers will lift borrowing costs again following big market moves that are widely expected to cool growth.Investors are betting that the Federal Reserve, which has raised interest rates to their highest levels in 22 years, may finally be finished.Several top Fed officials have indicated in recent days that the central bank’s effort to cool the economy through higher borrowing costs is being amplified by recent market moves that are essentially doing some of that job for them.In particular, attention has focused on a run-up in interest rates on U.S. government debt, with the yield on the 10-year Treasury bond briefly touching a two-decade high last week. That yield is incredibly important because it acts as the market’s foundation, underpinning interest rates on many other types of borrowing, from mortgages to corporate debt, and influencing the value of companies in the stock market.Philip N. Jefferson, the vice chair of the Fed, said this week that although “it may be too soon to say confidently that we’ve tightened enough,” higher market rates can reduce how much businesses and households spend while depressing stock prices. He added that the Fed wanted to avoid doing too much and hurting the economy unnecessarily.Given that, he said the Fed “will be taking financial market developments into account along with the totality of incoming data in assessing the economic outlook.”Investors have sharply reduced expectations of another rate increase before the end of the year. They see about a one-in-four chance that policymakers could lift rates again.“If financial conditions are tightening independent of expectations for monetary policy” then “that will reduce economic activity,” said Michael Feroli, the chief U.S. economist at J.P. Morgan. “Things change, you change your forecast.”Investors have expected the Fed to stop raising interest rates before and been proven wrong. There is still a chance now that the market dynamics that are helping to raise borrowing costs could reverse, and this week, some of the recent pop in the yield on 10-year bonds has eased. But if market rates stay high, it could keep adding to the substantial increase in borrowing costs the Fed had already ushered in for consumers and companies.Philip Jefferson, the vice chair of the Federal Reserve, said that “it may be too soon to say confidently that we’ve tightened enough to return inflation.”Ann Saphir/ReutersThe Fed has raised its key interest rate from near zero to above 5.25 percent over the past 19 months in an attempt to tame inflation. But the Fed directly controls only very short-term rates. It can take a while for its moves to trickle through the economy to affect longer-term borrowing costs — the kind that influence mortgages, business loans and other areas of credit.There are likely several reasons those longer term rates in markets have climbed sharply over the past two months. Wall Street may be coming around to the possibility that the Fed will leave borrowing costs set to high levels for a long time, economic growth has been strong, and some investors may be concerned about the size of the nation’s debt.Over time, the rise in yields on Treasury bonds is likely to weigh on the economy, and Fed officials have been clear that it could do some of the work of further raising interest rates for them.Officials had forecast in September that they might need to make one more rate move this year. But comments by Mr. Jefferson, along with some of the Fed’s more inflation-focused members have been widely seen as a signal that the Fed is likely to be more cautious.Christopher J. Waller, a Fed governor who has often favored higher rates, said at an event on Wednesday that officials were in a position to “watch and see” what happens, and would keep a “very close eye” on the move and “how these higher rates feed into what we’re going to do with policy in the coming months.”Lorie K. Logan, president of the Federal Reserve Bank of Dallas, said on Monday that higher market yields “could do some of the work of cooling the economy for us, leaving less need for additional monetary policy tightening.”But she noted that it would depend on why rates were rising. If they had climbed because investors wanted to be paid more to shoulder the risk of holding long-term bonds, the change was likely to squeeze the economy. If they had climbed because investors believed the economy was capable of growing more strongly even with high rates, it would be a different story.The yield on 10-year Treasury bonds soared to its peak this month, a sharp move that has subsequently jolted mortgage rates.Caitlin O’Hara for The New York TimesEven Michelle W. Bowman, a Fed governor who tends to favor higher rates, has softened her stance. Ms. Bowman said on Oct. 2 that further adjustment would “likely be appropriate.” But in a speech she delivered on Wednesday, that wording was less definitive: She said policy rates “may need to rise further.”The softer tone among Fed officials appears to have helped halt the rise in market rates, with the yield on the 10-year Treasury bond easing 0.2 percentage points so far this week. On Tuesday, the yield fell by the most in a day since the turmoil induced by the banking crisis in March. That likely reflected investors who rushed to the safety of U.S. government debt as war broke out in Israel and Gaza. Still, the yield remains around 4.6 percent, roughly 0.8 percentage points higher than at the start of July.“It seems like there is a little skittishness,” said Subadra Rajappa, head of U.S. rates strategy at Société Générale.Higher interest rates also typically weigh on stock prices, with major indexes under pressure over the summer alongside the rise in yields. The S&P 500 suffered its worst month of the year through September but has risen 2 percent so far this month, alongside retracing yields.Policymakers will get another read on the effect of rate rises with the release of the Consumer Price Index on Thursday. Economists expect the data to show a gradual slowdown in inflation is continuing, despite the unexpected resilience of the economy.That could change, however, especially if yields continue to fall, relieving some of the pressure on the economy.A robust economy could keep the possibility of another Fed rate move alive, even if investors see it as unlikely. Ms. Logan warned that policymakers should avoid overreacting to market moves if they quickly fade.And Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said on Tuesday that long-term rates might have moved up in part because investors expected the Fed to do more. Therefore, if the Fed signals that it will be less aggressive, they could retreat.“It’s hard for me to say definitively — hey, because they have moved, therefore we don’t have to move,” Mr. Kashkari said. “I don’t know yet.” More