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    Job Openings Fell Slightly in January; Layoffs Rose

    The monthly data points to a cooling in the frenetic pace of hiring even as the labor market remains strong.Demand for workers let up slightly in January, a possible sign that employers are gradually easing off their frenetic pace of hiring even as the job market remains strong.There were 10.8 million job openings, a moderate decrease from 11.2 million on the last day of December, the Labor Department reported Wednesday in the Job Openings and Labor Turnover Survey, known as JOLTS.The total number of open jobs per available unemployed worker — a figure that the Federal Reserve has been watching closely as it tries to cool the job market and ease inflation — was relatively unchanged at 1.9.Still, although employers have proved remarkably resilient in the face of the Fed’s interest rate increases, the drop in open positions is the latest indication that the once red-hot labor market is slowly cooling. Some industries that had shown unexpected strength recorded notable declines in open positions, including construction, where job openings fell by 240,000. Even leisure and hospitality businesses, like restaurants and bars, which have been trying to adjust to unrelenting demand, had slightly fewer open positions.“Job openings remain pretty sky high in January,” said Julia Pollak, chief economist at the employment site ZipRecruiter. “But this report finally points to the slowdown in the labor market that many of us on the front line of the labor market have been observing.”An open question is whether the slowdown in the job market is sufficient for policymakers. Jerome H. Powell, the Federal Reserve chair, made clear on Tuesday that recent reports showing the persistent strength of the labor market could require a more robust response from central bankers.Matthew Martin, an economist at Oxford Economics, said in a research note on Wednesday: “While the January JOLTS report shows job openings are heading in the right direction for the Fed, the decline is far too modest to convince that labor market conditions are cooling enough to bring down inflation.”A clearer picture of the job market will come on Friday, when the Labor Department releases employment data for February.Other measures in the report on Wednesday also suggested that the labor market was gently settling into a more normal state. Layoffs, which have been extraordinarily low outside of some high-profile companies mostly in the tech sector, rose by 241,000, to 1.7 million. That is the highest number since December 2020, when a winter wave of Covid-19 cases swept across the country and jolted the economy anew.The increase was driven by a surge of layoffs in the professional and business services sector, which includes advertising, accounting and architectural businesses. The rise in layoffs overall was heavily concentrated in the South.The number of people voluntarily leaving their jobs, which has been elevated as workers continue seek — and find — higher-paying jobs, fell in January by 207,000, to 3.9 million. The one-month drop was the largest since May, adding to the sense that employees are losing some of their power and job security that had characterized the pandemic era.Ben Casselman More

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    Private payrolls rose by 242,000 in February, better than expected, ADP says

    Private payrolls in February increased by 242,000 vs. the estimate for 205,000 and above the 119,000 in January, ADP reported Wednesday.
    Leisure and hospitality led job growth with 83,000 additions. Financial activities added 62,000 while manufacturing showed a 43,000 gain .
    The ADP report comes two days before the government’s nonfarm payrolls count, which is expected to show a gain of 225,000.

    A worker prepares a 155mm artillery shell at the Scranton Army Ammunition Plant in Scranton, Pennsylvania, U.S., February 16, 2023.
    Brendan McDermid | Reuters

    Companies added jobs at a brisk pace in February as the U.S. labor market kept humming, payroll services firm ADP reported Wednesday.
    Private payrolls increased by 242,000 for the month, ahead of the Dow Jones estimate for 205,000 and well above the upwardly revised 119,000 jobs gain, from 106,000, in January.

    Wage growth decelerated slightly, with those remaining in their jobs seeing a 7.2% annual increase, down 0.1 percentage point from a month ago. Job changers saw growth of 14.3%, compared to 14.9% in January.
    The report comes with Federal Reserve officials watching jobs data closely for clues on where inflation is headed. Remarks Tuesday from Fed Chairman Jerome Powell, who called the jobs market “extremely tight,” triggered a sell-off on Wall Street amid expectations that the central bank could accelerate the pace of its interest rate increases.
    “There is a tradeoff in the labor market right now,” said ADP chief economist Nela Richardson. “We’re seeing robust hiring, which is good for the economy and workers, but pay growth is still quite elevated. The modest slowdown in pay increases, on its own, is unlikely to drive down inflation rapidly in the near-term.”
    By sector, leisure and hospitality led job growth with 83,000 additions. Financial activities added 62,000 while manufacturing showed a robust 43,000 gain as the industry benefited from a mild winter.
    Other areas showing increases included education and health services (35,000), the “other services” category (34,000) and natural resources and mining (25,000). Professional and business services lost 36,000 jobs, while construction was down 16,000.

    All of the job additions came from companies employing 50 or more workers. Small businesses saw a net loss of 61,000, most of which came at establishments employing fewer than 20 people.
    The ADP report serves as a precursor to the more closely followed nonfarm payrolls report the Labor Department will release Friday.
    Though ADP last year entered into a new partnership with Stanford University, the two counts still have differed by large margins in some cases. For instance, the Labor Department estimated payrolls rose 517,000 in January, more than four times what ADP reported.
    Friday’s report is expected to show growth of 225,000 in February, with the unemployment rate holding steady at 3.4%, according to Dow Jones estimates.

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    Jerome Powell Says Interest Rate Raises Likely to Be Higher Than Expected

    In light of recent strong data, Jerome H. Powell said the Federal Reserve was likely to raise rates higher than expected.Jerome H. Powell, the Federal Reserve chair, made clear on Tuesday that the central bank is prepared to react to recent signs of economic strength by raising interest rates higher than previously expected and, if incoming data remain hot, potentially returning to a quicker pace of rate increases.Mr. Powell, in remarks before the Senate Banking Committee, also noted that the Fed’s fight against inflation was “very likely” to come at some cost to the labor market.His comments were the clearest acknowledgment yet that recent reports showing inflation remains stubborn and the job market remains resilient are likely to shake up the policy trajectory for America’s central bank.The Fed raised interest rates last year at the fastest pace since the 1980s, pushing borrowing costs above 4.5 percent, from near zero. That initially seemed to be slowing consumer and business demand and helping inflation to moderate. But a number of recent economic reports have suggested that inflation did not weaken as much as expected last year and remained faster than expected in January, while other data showed hiring remains strong and consumer spending picked up at the start of the year.While some of that momentum could have owed to mild January weather — conditions allowed for shopping trips and construction — Mr. Powell said the unexpected strength would probably require a stronger policy response from the Fed.“The process of getting inflation back down to 2 percent has a long way to go and is likely to be bumpy,” he told the committee. “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”Senator Elizabeth Warren suggested that the Fed was trying to “throw people out of work” and that millions of people stood to lose their jobs if unemployment rose as much as central bankers expected.Michael A. McCoy for The New York TimesFed officials projected in December that rates would rise to a peak of 5 to 5.25 percent, with a few penciling in a slightly higher 5.25 to 5.5 percent. Mr. Powell suggested that the peak rate would need to be adjusted by more than that, without specifying how much more.He even opened the door to faster rate increases if incoming data — which include a jobs report on Friday and a fresh inflation report due next week — remain hot. The Fed repeatedly raised rates by three-quarters of a point in 2022, but slowed to half a point in December and a quarter point in early February.The State of Jobs in the United StatesEconomists have been surprised by recent strength in the labor market, as the Federal Reserve tries to engineer a slowdown and tame inflation.Mislabeling Managers: New evidence shows that many employers are mislabeling rank-and-file workers as managers to avoid paying them overtime.Energy Sector: Solar, wind, geothermal, battery and other alternative-energy businesses are snapping up workers from fossil fuel companies, where employment has fallen.Elite Hedge Funds: As workers around the country negotiate severance packages, employees in a tiny and influential corner of Wall Street are being promised some of their biggest paydays ever.Immigration: The flow of immigrants and refugees into the United States has ramped up, helping to replenish the American labor force. But visa backlogs are still posing challenges.“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Mr. Powell said.Before his remarks, markets were heavily prepared for a quarter-point move at the Fed’s March 21-22 meeting. After his opening testimony, investors increasingly bet that the central bank would make a half-point move in March, stock prices lurched lower, and a closely watched Wall Street recession indicator pointed to a greater chance of a downturn. The S&P 500 ended the day down about 1.5 percent.While Mr. Powell predicated any decision to pick up the pace of rate increases on incoming data, even opening the door to the possibility made it clear that “it’s definitely a policy option they’re considering pretty actively,” said Michael Feroli, chief U.S. economist at J.P. Morgan.Mr. Feroli said a decision to accelerate rate moves might stoke uncertainty about what would come next: Will the Fed stick with half-point moves in May, for instance?“It raises a lot of questions,” he said.Blerina Uruci, chief U.S. economist at T. Rowe Price, previously thought the Fed would stop lifting interest rates around 5.75 percent but now thinks there is a growing chance they will rise above 6 percent, she said. She thinks that if Fed officials speed up rate increases in March, they may feel the need to keep the moves quick in May.“Otherwise, the Fed runs the risk of looking like they’re flip-flopping around,” Ms. Uruci said.While the Fed typically avoids making too much of any single month’s data, Mr. Powell signaled that recent reports had caused concern both because signs of continued momentum were broad-based and because revisions made a slowdown late in 2022 look less pronounced.“The breadth of the reversal along with revisions to the previous quarter suggests that inflationary pressures are running higher than expected at the time of our previous” meeting, Mr. Powell said.He reiterated that there were some hopeful developments: Goods inflation has slowed, and rent inflation, while high, appears poised to cool down this year.And Mr. Powell noted on Tuesday that officials knew it took time for the full effects of monetary policy to be felt, and were taking that into account as they thought about future policy.Still, he underlined that “there is little sign of disinflation thus far” in services outside of housing, which include purchases ranging from restaurant meals and travel to manicures. The Fed has been turning to that measure more and more as a signal of how strong underlying price pressures remain in the economy.“Nothing about the data suggests to me that we’ve tightened too much,” Mr. Powell said in response to lawmaker questions. “Indeed, it suggests that we still have work to do.”When the Fed raises interest rates, it slows consumer spending on big credit-based purchases like houses and cars and can dissuade businesses from expanding on borrowed money. As demand for products and demand for workers cool, wage growth eases and unemployment may even rise, further slowing consumption and causing a broader moderation in the economy.But so far, the job market has been very resilient to the Fed’s moves, with the lowest unemployment rate since 1969, rapid hiring and robust pay gains.Mr. Powell said wage growth — while it had moderated somewhat — remained too strong to be consistent with a return to 2 percent inflation. When companies are paying more, they are likely to charge more to cover their labor bills.“Strong wage growth is good for workers, but only if it is not eroded by inflation,” Mr. Powell said.Despite such explanations, some lawmakers grilled the Fed chair on Tuesday over what the central bank expected to do to the labor market with its policy adjustments.Senator Elizabeth Warren, Democrat of Massachusetts, suggested that the Fed was trying to “throw people out of work” and that millions of people stood to lose their jobs if unemployment rose as much as central bankers expected.“I would explain to people, more broadly, that inflation is extremely high, and that it is hurting the working people of this nation badly,” Mr. Powell said. “We are taking the only measures that we have to bring inflation down.”When Ms. Warren continued to press him on the Fed’s plan, Mr. Powell responded that the central bank was doing what policymakers believed was necessary.“Will working people be better off if we just walk away from our jobs and inflation remains 5, 6 percent?” Mr. Powell asked.He also underlined that the Fed does “not seek, and we don’t believe that we need to have,” a “very significant” downturn in the labor market, because there are many job openings, so it is possible that the labor market could cool quite a bit without outright job losses.“Other business cycles had quite different back stories than this one,” he said. “We’re going to have to find out whether that matters or not.”Joe Rennison More

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    Biden Budget Will Propose Tax Increase to Bolster Medicare

    The president’s plan targets Americans earning more than $400,000 a year in an attempt to increase the program’s solvency by 25 years.WASHINGTON — President Biden, as part of his budget set for release on Thursday, will propose raising and expanding a tax on Americans earning more than $400,000 as part of a series of efforts to extend the solvency of Medicare by a quarter-century.In spotlighting his Medicare plans, Mr. Biden is seeking to sharpen a contrast with Republicans and cast himself as a protector of cherished retirement programs — both for his likely re-election campaign and for a looming congressional battle with House conservatives who are demanding steep cuts in federal spending in order to raise the nation’s borrowing limit.The early release of the Medicare proposals, detailed in a White House fact sheet on Tuesday, also underscored the degree to which Mr. Biden has fully embraced the political upside of taxing high earners. That is the case even though administration officials have conceded there is little chance those tax increases will pass Congress.The proposals would affect the so-called net investment income tax, which was enacted to help offset the cost of former President Barack Obama’s signature health care law. They would increase the tax rate to 5 percent from 3.8 percent for people earning above $400,000 a year and expand the income subject to it. Independent estimates from the Urban-Brookings Tax Policy Center and the Committee for a Responsible Federal Budget suggest the changes could raise at least $350 billion, and possibly as much as $600 billion over the course of a decade. White House estimates are even higher: $700 billion in net new revenue over a decade, all from high earners.Mr. Biden is also proposing new cost savings for the government stemming from more aggressive negotiation over prescription drug prices. Those plans are almost certain to be rejected by Republicans, who won control of the House in November and roundly oppose both tax increases and Mr. Biden’s efforts to reduce pharmaceutical prices through regulation.The president’s emphasis on so-called entitlement programs is part of a sustained effort to claim a high ground with voters on both Medicare and Social Security and put Republicans in a difficult position as he clashes with conservatives on spending, taxes and debt.Health Care in the United StatesInsulin Prices: After years of mounting pressure, the drugmaker Eli Lilly said that it would significantly reduce the prices of several of its lifesaving insulin products.The Cost of Miracle Drugs: A wave of innovative medicines promise to cure devastating diseases. But when prices are too high, patients have to hunt for other ways to pay.Medicare: The Biden administration announced a rule targeting Medicare private plans that overcharge the federal government. The change strengthens the ability to audit plans and recover overpayments.‘Hospital at Home’ Movement: In a time of strained capacity, some medical institutions are figuring out how to create an inpatient level of care outside of hospitals.Medicare’s trustees estimate its hospital trust fund will be insolvent by 2028 without congressional action.Many Republicans have long supported cuts to the programs or raising their retirement ages to shore up the program’s finances and reduce federal spending. But others, aware of the potential voter backlash from touching popular programs, have grown wary of embracing the types of changes to the programs that were part of the Republican mainstream a decade ago. Former President Donald J. Trump vowed to protect both Social Security and Medicare and has urged Republicans to follow suit.Speaker Kevin McCarthy recently said he would not seek cuts to the programs in discussions with Mr. Biden over raising the debt limit, though more conservative members of his party are still pushing for reductions.“This debate over entitlements tied to the need to raise the federal debt ceiling has tied the party in knots,” said Larry Levitt, an executive vice president at the Kaiser Family Foundation, a health research group. “And I think President Biden is happy to engage in this debate and put forward proposals to sustain Medicare without cutting benefits or eligibility.”.css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.Mr. Biden has refused to negotiate with Republicans over the debt limit, though he has said he is willing to discuss fiscal policy more broadly. He repeatedly attacked Republicans on Social Security and Medicare, vowing not to cut the programs and piling on when Republican lawmakers declared them off the table in budget talks.The president’s budget plan seeks to further that message, in part by employing accounting maneuvers to make Medicare appear more solvent by directly dedicating more federal revenues to its trust fund. The budget will dictate that both the new tax increases and the savings from spending on prescription drugs would be used to increase the trust fund that finances Medicare’s hospital benefits. It will also propose transferring the existing revenue stream from the net investment tax to feed Medicare’s trust fund.The White House anticipates that together the changes would total about $1.5 trillion over the next decade, ensuring the fund can pay Medicare’s hospital bills for an additional 25 years. The finances for the part of Medicare that pays for doctor’s visits, which is also projected to grow substantially in coming years, would be unaffected.“The budget I am releasing this week will make the Medicare trust fund solvent beyond 2050 without cutting a penny in benefits,” Mr. Biden wrote in an opinion piece for The New York Times on Tuesday. “In fact, we can get better value, making sure Americans receive better care for the money they pay into Medicare.”For the first time this year, Medicare will begin regulating the price of prescription drugs, using new powers Congress gave it in the Inflation Reduction Act, the tax, health and climate bill Mr. Biden signed late last summer. The president’s budget highlights the substantial savings that the reforms are expected to generate over time.The legislation allows Medicare to regulate the price of certain expensive drugs that have been on the market for several years. It also limits the amount all drugmakers can raise prices each year. Those reforms would save Medicare about $160 billion over a decade, according to the Congressional Budget Office.The changes to prescription drug prices accompanied changes to Medicare’s benefit that will also lower the costs of expensive drugs for its beneficiaries, by capping the total amount they can be asked to pay in a year for all their medicines and by limiting co-payments on insulin to $35 a month.Mr. Biden will propose expanding the drug negotiations by allowing the government to negotiate over a broader universe of medications. The White House estimates that those changes and other tweaks to the drug negotiation provision would save the government an additional $200 billion over 10 years, which it seeks to direct to the Medicare trust fund.The United States pays more than double the drug prices of other developed countries. But lowering those prices is projected to cause less investment in new drug technology. The Congressional Budget Office estimated that the drug price reforms that passed last year will mean about 13 fewer drugs in the next 30 years, about a 1 percent reduction. The budget proposal would likely have a larger effect.Democrats cheered the proposals. Senator Ron Wyden of Oregon, who chairs the finance committee, called them “proof positive that Medicare’s guarantee of quality health care for older Americans can be secured for the next generation without raising the eligibility age, cutting benefits or handing over the program to big insurance companies.”Mr. Biden did not propose other major new policies to reduce Medicare’s spending on health care in the coming years, according to the fact sheet. His proposal, like his previous budgets, omits a series of policies meant to reduce waste that were featured in budgets offered by Mr. Trump and Mr. Obama. The largest categories of Medicare spending — payments to doctors and hospitals — would be unchanged.Republicans are unlikely to go along. They have tried to overturn the entire Inflation Reduction Act, including the drug negotiations, which some members of the party say will hamper innovation in the pharmaceutical industry. They have also sought to roll back Mr. Biden’s tax increases on corporations and high earners.Mr. Biden’s plans drew mixed reactions from budget-focused groups in Washington on Tuesday. The Committee for a Responsible Federal Budget said it would “strongly support” the proposals but had reservations over shifting revenues from the government’s general fund to the Medicare trust fund. The National Taxpayers Union, which supports lower taxes and less federal spending, called those shifts “a gimmick, not a real reform.” More

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    Debt Default Would Cripple U.S. Economy, New Analysis Warns

    As President Biden prepares to release his latest budget proposal, a top economist warned lawmakers that Republicans’ refusal to raise the nation’s borrowing cap could put millions out of work.WASHINGTON — The U.S. economy could quickly shed a million jobs and fall into recession if lawmakers fail to raise the nation’s borrowing limit before the federal government exhausts its ability to pay its bills on time, the chief economist of Moody’s Analytics, Mark Zandi, warned a Senate panel on Tuesday.The damage could spiral to seven million jobs lost and a 2008-style financial crisis in the event of a prolonged breach of the debt limit, in which House Republicans refuse for months to join Democrats in voting to raise the cap, Mr. Zandi and his colleagues Cristian deRitis and Bernard Yaros wrote in an analysis prepared for the Senate Banking Committee’s Subcommittee on Economic Policy.Senator Elizabeth Warren, Democrat of Massachusetts, held the subcommittee hearing on the debt limit, and its economic and financial consequences, at a moment of fiscal brinkmanship. House Republicans are demanding deep spending cuts from President Biden in exchange for voting to raise the debt limit, which caps how much money the government can borrow.That debate is likely to escalate when Mr. Biden releases his latest budget proposal on Thursday. The president is expected to propose reducing America’s reliance on borrowed money by raising taxes on high earners and corporations. But he almost certainly will not match the level of spending cuts that will satisfy Republican demands to balance the budget in a decade.The report also warns of stark economic damage if Mr. Biden, in an attempt to avert a default, agrees to those demands. In that scenario, the “dramatic” spending cuts that would be needed to balance the budget would push the economy into recession in 2024, cost the economy 2.6 million jobs and effectively destroy a year’s worth of economic growth over the next decade, Mr. Zandi and his colleagues wrote.The U.S. economy could quickly shed a million jobs and fall into recession if lawmakers fail to raise the nation’s borrowing limit.Michelle V. Agins/The New York Times“The only real option,” Mr. Zandi said in an interview before his testimony, “is for lawmakers to come to terms and increase the debt limit in a timely way. Any other scenario results in significant economic damage.”Understand the U.S. Debt CeilingCard 1 of 5What is the debt ceiling? More

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    Why the Federal Reserve Won’t Commit

    Facing huge economic uncertainty, the Fed is keeping its options open. Jerome H. Powell, its chair, will most likely continue that approach on Tuesday.Mark Carney, the former Bank of England governor, was once labeled the United Kingdom’s “unreliable boyfriend” because his institution had left markets confused about its intentions. Jerome H. Powell’s Federal Reserve circa 2023 could be accused of a related rap: fear of commitment.Mr. Powell’s Fed is in the process of raising interest rates to slow the economy and bring rapid inflation under control, and investors and households alike are trying to guess what the central bank will do in the months ahead, during a confusing economic moment. Growth, which was moderating, has recently shown signs of strength.Mr. Powell and his colleagues have been fuzzy about how they will respond. They have shown little appetite for speeding up rate increases again but have not fully ruled out the possibility of doing so. They have avoided laying out clear criteria for when the Fed will know it has raised interest rates to a sufficiently high level. And while they say rates will need to stay elevated for some time, they have been ambiguous about what factors will tell them how long is long enough.As with anyone who’s reluctant to define the relationship, there is a method to the Fed’s wily ways. At a vastly uncertain moment in the American economy, central bankers want to keep their options open.Strong consumer spending and inflation data have surprised economists.Hiroko Masuike/The New York TimesFed officials got burned in 2021. They communicated firm plans to leave interest rates low to bolster the economy for a long time, only to have the world change with the onset of rapid and wholly unexpected inflation. Policymakers couldn’t rapidly reverse course without causing upheaval — breakups take time, in monetary policy as in life. Thanks to the delay, the Fed spent 2022 racing to catch up with its new reality.This year, policymakers are retaining room to maneuver. That has become especially important in recent weeks, as strong consumer spending and inflation data have surprised economists and created a big, unanswered question: Is the pickup a blip being caused by unusually mild winter weather that has encouraged activities like shopping and construction, or is the economy reaccelerating in a way that will force the Fed to react?Mr. Powell will have a chance to explain how the central bank is thinking about the latest data, and how it might respond, when he testifies on Tuesday before the Senate Banking Committee and on Wednesday before the House Financial Services Committee. But while he will most likely face questions on the speed and scope of the Fed’s future policy changes, economists think he is unlikely to clearly commit to any one path.“The Fed is very much in data-dependent mode,” said Subadra Rajappa, the head of U.S. rates strategy at Société Générale. “We really don’t have a lot of clarity on the inflation dynamics.”Data dependence is a common central bank practice at fraught economic moments: Officials move carefully on a meeting-by-meeting basis to avoid making a mistake, like raising rates by more than is necessary and precipitating a painful recession. It’s the approach the Bank of England was embracing in 2014 when a member of Parliament likened it to a fickle date, “one day hot, one day cold.”Inflation F.A.Q.Card 1 of 5What is inflation? More

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    How China’s shifting growth picture could hit global markets

    Veteran investment strategist David Roche told CNBC’s “Squawk Box Europe” on Tuesday that “things have changed” permanently with regards to China’s role in the global economy.
    At its National People’s Congress on Sunday, the Chinese government announced a target of “around 5%” growth in gross domestic product in 2023 — the country’s lowest for more than three decades.

    A shopping mall in Qingzhou, Shandong province, broadcasts the opening ceremony of China’s National People’s Congress on Sunday, March 5, 2023.
    Future Publishing | Future Publishing | Getty Images

    China’s economy will be forced to recalibrate because of a “fractured” global order, and the new drivers of growth will “disappoint” global markets, according to David Roche, president of Independent Strategy.
    At its National People’s Congress on Sunday, the Chinese government announced a target of “around 5%” growth in gross domestic product in 2023 — the country’s lowest for more than three decades and below the 5.5% expected by economists. The administration also proposed a modest increase in fiscal support to the economy, expanding the budget deficit target from 2.8% in 2022 to 3% for this year.

    President Xi Jinping and other officials took aim at the West for constraining China’s growth prospects, as relations between Beijing and Washington continue to deteriorate. New Chinese Foreign Minister Qin Gang said Sino-U.S. relations had left a “rational path” and warned of conflict, if the U.S. doesn’t “hit the brake.”
    Veteran investment strategist Roche told CNBC’s “Squawk Box Europe” on Tuesday that “things have changed” permanently with regards to China’s role in the global economy, as Beijing will be forced to look inward to achieve its growth ambitions.
    “China now knows that if it’s going to achieve its growth, it has to achieve it domestically, which means reform which is not yet undertaken, and it means getting the consumer to spend pots of excess savings, which it is very hesitant to do,” he said.

    Roche also noted that the “hegemony of the U.S. is now fractured” in the global economic order, with Russia and China detaching from Western democracies. He highlighted that a third fragment has formed in the “big south,” including countries like Brazil and India, which he signaled are not overtly siding with authoritarian powers such as Russia, but are also prioritizing their own interests and resisting Western pressure to sever economic or military ties.
    In a research note last week, Moody’s said that the external environment will remain challenging for China, as the U.S. and other high-income countries reposition their technology investment and trade policies in light of growing geopolitical and security considerations.

    Roche said Beijing is well aware that the U.S. will look to curtail its global influence by growing the “technology gap,” which he expects to widen from five to 10 years at present to around 20 years. To do so, he anticipates Washington could use its might to monopolize trade with countries innovating in areas of technology that are capable of serving both missiles and cellphones — such as the semiconductor industry in the Netherlands.
    “Additional measures by Western countries to restrict investment flows to China, block access to technology, restrict market access for China’s firms, and promote diversification policies, could continue to weigh on foreign investors’ risk perception regarding doing business in China,” Moody’s said in last week’s note. “These measures also have the potential to weaken China’s economic outlook.”

    Mining stocks reacted with trepidation on Monday to the Chinese Communist Party’s cautious growth outlook, given the importance of Chinese operations in the sector. Roche argued that “what will disappoint in China is the way that growth is achieved,” as infrastructure using Australian or U.S. mineral imports will no longer be able to power the economy out of crises.
    “I think the way that China has to go now is to mobilize its own masses to spend their money, trust the government, and not accumulate excess savings, so it will all happen in travel and in shops and in restaurants, and much less in the heavy duty stuff, which we all want to see as the motor of the world economy, because it is the motor of the Chinese economy,” he said. “I think that model is dead as a duck.”
    Centralization and defense over economics
    While Beijing’s ambitious growth project has seemingly taken a backseat for now, leaders at the NPC focused heavily on national security and on the domestic political centralization of power.
    The government expects the defense budget to grow by 7.2% in 2023, up from 7.1% in 2022, but strategists at BCA Research suggested in a note Tuesday that the official figure is often an underestimation.
    “The Communist Party is also continuing the process of subordinating state institutions to its will, which reduces the autonomy of technocrats and civil service in favor of political leadership,” the Canadian investment research firm said.
    “These actions will reduce the already limited degree of checks and balances that existed between the party and the state, while signaling to the outside world that China continues to pursue centralization and national security over de-centralization and global economic integration.”
    Negative reactions and further investment restrictions are therefore likely, at least from the U.S., BCA Research strategists concluded.

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