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    The Austere Beauty of Egypt’s Long-Distance Hiking Trails

    Ben Hoffler has heard one sound more than any other during the past dozen years: that of footsteps — crunch, crunch, crunch — pressing into the sandy gravel that carpets the desert valleys of South Sinai, a seemingly endless landscape of granite mountains, colorful canyons and verdant oases.While on a 2008 climb to the summit of Mount Sinai, Mr. Hoffler, an Oxford-educated Englishman, was so moved by the power of Egypt’s mountains — believed to be where Moses received the Ten Commandments — that he went on to traverse some 7,000 miles of this high desert wilderness with its Bedouin inhabitants.He wrote a trekking guide to South Sinai in 2013, and shortly after began working with the area’s Bedouin tribes to create one of Egypt’s most extraordinary tourism projects: the Sinai Trail, the country’s first long-distance hiking path.“There’s something very special about the desert — very harsh and austere and beautiful in a way that I don’t find in lush, easy-to-survive-in landscapes,” Mr. Hoffler, who’s 39 and resembles a young Elton John, told me during a walk on the trail just months before the Covid-19 pandemic upended global tourism.The first parts of the Sinai Trail opened in 2015. In 2018, it was extended into a 350-mile loop across the bottom half of the triangular Sinai Peninsula. Along with the Red Sea Mountain Trail, another long-distance path on Egypt’s mainland that Mr. Hoffler helped the Maaza tribe open in 2019, the trail has put Egypt firmly in the ranks of a booming hiking movement in North Africa and the Middle East.A safari truck navigates through the Red Sea Mountains.Sima Diab for The New York TimesNew trails throughout the regionOver the past 15 years, new long-distance trails, some inspired by America’s Appalachian Trail, have been developed in Lebanon, Jordan, Egypt and the occupied West Bank, ranging between 300 and 400 miles in length. Those routes joined lengthy trails already established in Israel and Turkey in the 1990s. Other long-distance trails are currently under development in Saudi Arabia, as part of futuristic megaprojects being created by the kingdom in its western deserts, and in the autonomous Kurdistan Region of Iraq.And now, some of the key players in the hiking movement in the region are envisioning clusters or transnational trails that, for the first time, would physically or symbolically link these rediscovered ancient nomadic pathways and newly forged routes, traversing modern national borders.For the past three years, Mr. Hoffler has been working in southern Jordan with Bedouin tribes and Tony Howard, a hiking and climbing pioneer in the region, to create a sister trail to the Bedouin-governed routes in the Sinai and the Red Sea Mountains. There has long been talk, though nothing conclusive has come of it yet, of a route that would link the Nabatean archaeological sites at Petra, in Jordan, and the Al Ula sites in Saudi Arabia, some 300 miles to the southwest. And a new long-distance trail network is taking shape to unite the Jordan Trail, the Palestine Heritage Trail and the Lebanon Mountain Trail, in a partnership with European backers and a trail system in France. All of this echoes the efforts of the Abraham Path Initiative, an American nonprofit that has been promoting trail building and trail networks in the region since 2007, though its main focus now is funding and supporting work on the Kurdistan trail.Separately, what many of the trails have in common is a determination by their creators to bring tourists and jobs to distressed villages in the deserts and mountains. These creators are also intent on preserving — and introducing to visitors, and their own citizens — long-overlooked natural wonders, and on using the trails to dispel negative perceptions of the historically turbulent region.Mohammed Muteer, a Bedouin guide, and Ben Hoffler start a fire and prepare tea.Sima Diab for The New York TimesAs a cluster, the embryonic network that includes the Jordan, Palestine and Lebanon routes could share best practices for the marking of trails, the establishment of emergency services and the cross-promotion of hiking, according to the organizers. Trekking exchanges, however, run into the reality of geographic and political impediments. Physically linking the trails in Jordan, Palestine and Lebanon, for example, is impossible, since Lebanon shares no border with the West Bank or Jordan. And the political obstacles seem equally insurmountable, since Israeli and Palestinian passport holders are barred from entering Lebanon.To Mr. Howard, who spearheaded the popularization of climbing and hiking in Wadi Rum, a valley in Jordan, in the mid 1980s, the orchestration of what he calls super trails in the region makes too much sense not to bring to fruition.“In itself, it’s an exciting thing — it sounds good, and it’s easy to promote, and people will walk it,” Mr. Howard said. But trails also benefit the areas they pass through by increasing tourism and helping to preserve both nature and culture. Before the trails were blazed, “there was very little realization in Jordan that people wanted to visit villages and walk hills,” he explained. “It started the need to protect some of these areas.”Mohamad, a Bedouin guide, leads a camel as it carries hikers’ belongings through a wadi along the Sinai Trail.Sima Diab for The New York TimesBedouin influences and originsAmong all the long-distance routes in the region, Egypt’s trails are unique in that they are owned and managed by Bedouins, whose nomadic ancestors, centuries ago, forged many of the pathways on foot and camelback. Unlike the self-guided trails in Lebanon, Israel and Jordan, the Sinai and Red Sea Mountain trails require Bedouin guides. And in contrast to the planned Neom megaproject in northwest Saudi Arabia, whose website promises 750 miles of trails in the coming years, features renderings of luxury chalets and boasts of “immersive digital experiences,” Egypt’s trails try to replicate how the nomads’ forebears moved through the wilderness. Hikers drink from wells, sleep fireside, under the stars (or in tents) and dine on flatbread baked in acacia coals and seasoned with mountain salt. The Bedouins are relying more on camels to haul the cooking and camping supplies and colorful woven rugs.The Sinai Trail was founded by Mr. Hoffler and three Bedouin tribes, whose members serve as guides, cameleers and cooks. And when it was extended in 2018, five more tribes joined the group. The tribes saw the trail as a way to create sustainable tourism while preserving ancient pathways and traditions that were fading in this era of smartphones and pickup trucks.The Bedouin guides on the trail say they find peace in the desert wilderness, feeling a strong connection to their tribes and lands. They know the way over sprawling passes and through mazelike gorges, which plants can be used to make soap and poultices, which animals leave behind what kinds of droppings and tracks. They also maintain the legends tied to the most prominent places on the route, like the tale of the sisters who tied their long locks of hair together and jumped to their deaths from Jebel El Banat, a mountain peak along the route, to escape arranged marriages.Clockwise from top left: etchings on a rock in the Red Sea Mountains near Wadi Nagaata; a hermit cell, also near Wadi Nagaata; a trail marker used by Bedouins to navigate difficult terrain; and a collection of pottery shards.An initial end-to-end hikeWhen I first met Mr. Hoffler in the autumn of 2019, I was joining a handful of trekkers on the first end-to-end hike of the Sinai’s western side — a 125-mile section reaching from Saint Catherine, a town and tourist hub in the center of the trail, to Serabit el Khadem, near the Gulf of Suez. We crunched along a high winding path of pea-size granite strewn with jagged boulders. To the left was a mountainside of crumpled dark granite; to the right was a soaring granite curtain in beige. Nearly 5,000 feet up, at the crest of the pass, called Naqb el Hawa, or Pass of the Wind, I almost expected to hear the swell of an orchestra as a far-off vista of sandy flats and striated peaks came into view.We were stepping on rock that dated back some 600 million years, on a footpath trod by nomads thousands of years ago and, around the sixth century specifically, by Christian settlers journeying from Cairo to Mount Sinai.“The desert has always been a place of insight, a place of transformation for people,” Mr. Hoffler said as we made our way down the pass. “All of the prophets, they’ve come out with very deep insights that have changed the course of human history.”The landscape continuously changes: from craggy olive hills to bulbous beige outcroppings, from charcoal gray peaks to rose-colored cliffs. Constants are the black veins of granite running through the mountains like arrows on a fever chart. Where two lines intersect near the base, the Bedouins tell us, there is certain to be water and a stand of flat-topped acacia trees.The ghost town of Um Bogma, along the northwest corner of the Sinai Trail.Sima Diab for The New York TimesShorter segmentsOf course, many visitors simply hike for a day or two on shorter sections of the trails, which feature dozens of desert valleys (known as wadis), sites of historic interest and named mountains.Atop my list of recommendations are hikes around Um Bogma, a ghost town atop rugged tablelands in the northwest corner of the trail, near the Suez Canal. An abandoned manganese mining camp run by the British in the 1900s during their occupation of Egypt, with breathtaking views of mountain ranges unfurling into the horizon, the tiered settlement of Um Bogma is frozen in time. Rusted steel cables stretch like ski lifts for miles down to the sea. Pitched-roof barracks have been stripped bare, as has a manager’s house with a wraparound porch overlooking a massive cliff that divides the Sinai.Members of the Hamada tribe, which oversees this section of the trail, extracted the manganese when the British occupied Egypt, until the 1950s. Egypt took over the Um Bogma mines for a number of years, but they were shut down, and the site abandoned, during the Israeli occupation of Sinai from 1967 to 1982.To some hikers, the scarred landscape is a legacy of colonial exploitation. To the Hamada, though, it was a source of jobs. And to Mr. Hoffler, it’s a rich opportunity for tourism. “I think this is just a jewel for the Hamada,” he told me.Julie Paterson, a trip organizer, and Jacobus Nederpelt, a hiker, at the summit of a 650-foot ascent through a mountain pass.Sima Diab for The New York TimesOther standout segments can be found in the Red Sea Mountains, a two-hour drive from the seaside city of Hurghada. Unlike in the Sinai, where you’re surrounded by mountains soon after landing in Sharm el Sheikh, the mountains in this section of mainland Egypt seem more jagged and imposing, clustered into massifs with fanglike peaks. Here, the government has not yet allowed overnight camping on the 100-mile Red Sea Mountain Trail, so the Bedouins can run only day hikes.The trail is contained within the territory of the Khushmaan clan of the Maaza tribe, and features Roman ruins and the mainland’s highest peak, Jebel Shayib el Banat, which rises to about 7,200 feet. The clan’s 1,500 families trace their origins to Arabia a few centuries ago, and most still live in the desert mountains, according to its leader, Sheikh Merayi Abu Musallem.At Wadi Abul Hassan, the hike starts up a steep slope blanketed by boulders and turns down into a secret enclosed wilderness — a narrow canyon lined with pink granite on one side and charcoal-colored granite on the other. Few outsiders have entered the wadi since the American academic Joseph J. Hobbs visited while researching his book “Bedouin Life in the Egyptian Wilderness,” in the early 1980s. The depth of perspective in the canyon is astonishing, especially when cottony white clouds in a sapphire sky and pyramid-shaped peaks in the distance add an extra dimension to the tableau.Elsewhere, the trek through Jebel Gattar and Wadi Nagaata is a strenuous climb up a series of massive granite shelves that reveal the historical origins of Christian monasticism. Atop the barren ledges are several hermit cells made of stacked rocks where, as early as the 300s, ascetics lived in extreme deprivation. Hikers can enter the silence of one of the small, semicircular chambers and imagine a contemplative looking out from the same entrance — toward a wall of beige granite honeycombed with scoop-like craters. On a nearby plateau stands a roofless, three-room stone building that was likely once a worship space, and a forerunner to the earliest monasteries, like Saint Catherine’s Monastery, built in the sixth century at the foot of Mount Sinai.Safety concernsDeveloping these trails was less about clearing new paths than it was about recovering existing routes that highlighted the myriad landscapes and legends. It was also about challenging the notion that the Sinai is a hostile and dangerous place. Egypt has been battling Islamist militants in North Sinai much of the past decade. The U.S. government advises against travel in Sinai. For the rest of Egypt, including the seaside resort of Sharm el Sheikh in South Sinai, the State Department advises citizens to “reconsider travel to Egypt due to terrorism.”According to the Sinai Trail’s website, “There has never been an attack on tourists in the interior Bedouin parts of South Sinai, where the Sinai Trail is.” Mr. Hoffler maintains that, in addition to Egyptian security forces across the peninsula, hikers have a safety net in an extensive Bedouin network that keeps tabs by camel, pickup and foot and shares information about visitors.One of our fellow hikers on the Sinai Trail’s western side, Leena El Samra, a 33-year-old from Cairo who works at a development bank, told me that some of her friends were worried about her taking the hike.Camels accompany hikers in places where support trucks can’t reach.Sima Diab for The New York Times“It’s a part of Egypt that’s ignored and we know nothing about, to some extent,” Ms. El Samra said, motoring through the gravelly sand. “This is a part of Egypt where you feel very safe with the people. It’s very nice, it’s pristine, it’s undiscovered. It’s very different than most of what we do all over Egypt. And I like building some muscles.”Ms. El Samra was among a small but growing circle of Egyptian adventure travelers and endurance athletes who turned to hiking, running and competing in triathlons after the failed revolution and subsequent military takeover early last decade. Many saw the activities as a way to release frustrations and exert their independence, or simply to discover their country.Hiking is still a niche activity in Egypt. The Sinai Trail hosted a few hundred hikers before the pandemic, which forced the trails closed for most of 2020. Numbers dwindled to the dozens in 2021 because of travel restrictions. But more hikers returned this year, including 70 people from around the world who arrived for a weekend hike in October tied to the United Nations annual climate conference, known as COP27, held the following month in Sharm el Sheikh. If all goes as planned, the Sinai Trail will host its first end-to-end hike of the 350-mile route next October.Returning to traditionsFor the Bedouins, the trails are a way to return to their roots and make a living in the mountains.During a drought in the 1990s, many Sinai Bedouins moved to coastal cities or farms in the Nile Valley for work, said Youssuf Barakat of the Alegat tribe, who spent two years with Mr. Hoffler mapping out the trail’s South Sinai routes and served as a guide during the COP27-related hike in October. Modernity and the collapse of tourism early in the last decade also pulled Sinai Bedouins away. Mr. Barakat, 36, returned to the mountains to work on the trail after working as a cook in his family’s restaurant in Abu Zenima on the west coast, he said.The Bedouins have been forced to change, Mr. Barakat told us after a dinner of grilled sheep and vegetable soup, which was followed by Mr. Barakat singing a traditional love song while thwacking a tabla drum.“We have internet, we have phones,” he said. Very quickly, he and his people have “become like the Egyptians,” he said.With the Sinai Trail, though, Mr. Barakat and his fellow tribespeople have an opportunity to return to their time-honored way of life.“We start step by step,” he said. “We hope in five, 10 years, the Bedouin life will come again.”A Bedouin guide makes tea and coffee over a campfire along the Sinai Trail.Sima Diab for The New York TimesPatrick Scott is a writer based in Thailand. You can follow his work on Instagram.Follow New York Times Travel on Instagram, Twitter and Facebook. And sign up for our weekly Travel Dispatch newsletter to receive expert tips on traveling smarter and inspiration for your next vacation. Dreaming up a future getaway or just armchair traveling? Check out our 52 Places for a Changed World for 2022. More

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    Why It’s Hard to Predict What the Economy Will Look Like in 2023

    Historical data has always been critical to those who make economic predictions. But three years into the pandemic, America is suffering through an economic whiplash of sorts — and the past is proving anything but a reliable guide.Forecasts have been upended repeatedly. The economy’s rebound from the hit it incurred at the onset of the coronavirus was faster and stronger than expected. Shortages of goods then collided with strong demand to fuel a burst in inflation, one that has been both more extreme and more stubborn than anticipated.Now, after a year in which the Federal Reserve raised interest rates at the fastest pace since the 1980s to slow growth and bring those rapid price increases back under control, central bankers, Wall Street economists and Biden administration officials are all trying to guess what might lie ahead for the economy in 2023. Will the Fed’s policies spur a recession? Or will the economy gently cool down, taming high inflation in the process?With typical patterns still out of whack across big parts of the economy — including housing, cars and the labor market — the answer is far from certain, and past experience is almost sure to serve as a poor map.“I don’t think anyone knows whether we’re going to have a recession or not, and if we do, whether it’s going to be a deep one or not,” Jerome H. Powell, the Fed chair, said during a news conference last week. “It’s not knowable.”Doubt about what comes next is one reason the Fed is reorienting its monetary policy approach. Officials are now nudging borrowing costs up more gradually, giving them time to see how their policies are affecting the economy and how much more is needed to ensure that inflation returns to a slow and steady pace.As policymakers try to guess what lies ahead, the markets that have been most disrupted in recent years illustrate how big changes — some spurred by the pandemic, others tied to demographic shifts — continue to ricochet through the economy and make forecasting an exercise in uncertainty.Housing is strange.The pandemic era has repeatedly upended the housing market. The virus’s onset sent urbanites rushing for more space in suburban and small-city homes, a trend that was reinforced by rock-bottom mortgage rates.Then, reopenings from lockdown pulled people back toward cities. That helped push up rents in major metropolitan areas — which make up a big chunk of inflation — and, paired with the Fed’s rate increases, it has helped to sharply slow home buying in many markets.The question is what happens next. When it comes to the rental market, new lease data from Zillow and Apartment List suggests that conditions are cooling. The supply of available apartments and homes is also expected to climb in 2023 as long-awaited new residential buildings are finished.The Biden PresidencyHere’s where the president stands after the midterm elections.A New Primary Calendar: President Biden’s push to reorder the early presidential nominating states is likely to reward candidates who connect with the party’s most loyal voters.A Defining Issue: The shape of Russia’s war in Ukraine, and its effects on global markets, in the months and years to come could determine Mr. Biden’s political fate.Beating the Odds: Mr. Biden had the best midterms of any president in 20 years, but he still faces the sobering reality of a Republican-controlled House for the next two years.2024 Questions: Mr. Biden feels buoyant after the better-than-expected midterms, but as he turns 80, he confronts a decision on whether to run again that has some Democrats uncomfortable.“The frame I would put on 2023 is that we’re really going to enter the year back in a demand-constrained environment,” said Igor Popov, chief economist at Apartment List. “We’re going to see more apartments competing for fewer renters.”Mr. Popov expects “small growth” in rents in 2023, but he said that outlook is uncertain and hinges on the state of the labor market. If unemployment soars, rents could fall. If workers do really well, rents could rise more quickly.At the same time, existing leases are still catching up to the big run-up that has happened over the past year as tenants renew at higher rates. It is hard to guess both how much official inflation will converge with market-based rent data, and how long the trend will take to fully play out.“It could resolve in months, or it could take a year,” said Adam Ozimek, the chief economist at the Economic Innovation Group.Then there’s the market for owned housing, which does not count into inflation but does matter for the pace of overall economic growth. New home sales have fallen off a cliff as surging mortgage costs and the recent price run-up has put purchasing a house out of reach for many families. Even so, new mortgage applications have ticked up at the slightest sign of relief in recent months, evidence that would-be buyers are waiting on the sidelines.Demographics explain that underlying demand. Many millennials, the roughly 26- to 41-year-olds who are America’s largest generation, were entering peak home-buying ages right around the onset of the pandemic, and many are still in the market — which could put a floor under how much home prices will moderate.Plus, “sellers don’t have to sell,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association, who expects home prices to be “flattish” next year as demand wanes but supply, which was already sharply limited after a decade of under-building following the 2007 housing crash, further pulls back.Given all the moving parts, many analysts are either much more optimistic or very pessimistic.“It’s almost comical to see the house price growth forecasts,” Mr. Popov said. “It’s either 3 percent growth or double-digit declines, with almost nothing in between.”The car market remains weird, too.The car market, a major driver of America’s initial inflation burst, is another economic puzzle. Years of too little supply have unleashed pent-up demand that is spurring unusual consumer and company behavior.Used cars were in especially short supply early in the pandemic, but are finally more widely available. The wholesale prices that dealers pay to stock their lots have plummeted in recent months.But car sellers are taking longer to pass those steep declines along to consumers than many economists had expected. Wholesale prices are down about 14.2 percent from a year ago, while consumer prices for used cars and trucks have declined only 3.3 percent. Many experts think that means bigger markdowns are coming, but there’s uncertainty about how soon and how steep.The new car market is even stranger. It remains undersupplied amid a parts shortages, though that is beginning to change as supply chain issues ease and production recovers. But both dealers and auto companies have made big profits during the low-supply, high-price era, and some have floated the idea of maintaining leaner production and inventories to keep their returns high.Jonathan Smoke, chief economist at Cox Automotive, thinks the normal laws of supply and demand will eventually reassert themselves as companies fight to retain customers. But getting back to normal will be a gradual, and perhaps halting, process.Still, “we’re at an inflection point,” Mr. Smoke said. “I think new vehicles are going to be less and less inflationary.”Labor markets are the most important question mark.Perhaps the most critical economic mystery is what will happen next in America’s labor market — and that is hard to game out.Part of the problem is that it’s not entirely clear what is happening in the labor market right now. Most signs suggest that hiring has been strong, job openings are plentiful, and wages are climbing at the fastest pace in decades. But there is a huge divergence between different data series: The Labor Department’s survey of households shows much weaker hiring growth than its survey of employers. Adding to the confusion, recent research has suggested that revisions could make today’s labor growth look much more lackluster.“It’s a huge mystery,” said Mr. Ozimek from the Economic Innovation Group. “You have to figure out which data are wrong.”That confusion makes guessing what comes next even more difficult. If, like most economists, one accepts that the labor market is hot right now, Fed policy is clearly poised to cool it down: The central bank has raised interest rates from near zero to about 4.4 percent this year, and expects to lift them to 5.1 percent in 2023.Those moves are explicitly aimed at slowing down hiring and wage growth, because central bankers believe that inflation for many types of services will remain elevated if pay gains remain as strong as they are now. Dentist offices and restaurants will, in theory, try to pass climbing labor costs along to consumers to protect their profits. But it is unclear how much the job market needs to slow to bring pay gains back to the more normal levels the Fed is looking for, and whether it can decelerate sufficiently without plunging America into a painful recession.Companies seem to be facing major labor shortages, partly as a wave of baby boomers retires, and Fed officials hope that will make firms more inclined to hang onto their workers even if the broader economy slows drastically. Some policymakers have suggested that such “labor hoarding” could help them achieve a soft landing that bucks historical precedent: Unemployment could rise notably without spiraling higher, cooling the economy without tipping it into a painful downturn.Typically, when the unemployment rate rises by more than 0.5 percentage points, like the Fed forecasts it will do next year, the jobless rate keeps rising. Loss of economic momentum feeds on itself, and the nation plunges into a recession. That pattern is so established it has a name: the Sahm Rule, for the economist Claudia Sahm.Yet Ms. Sahm herself said that if the axiom were to break down, this wacky economic moment would be the time. Consumers are sitting on unusual savings piles that could help sustain middle-class spending even through some job losses, preventing a downward spiral.“The thing that has never happened would have to happen,” she said. “But hey, things that have never happened have been happening left and right.” More

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    What Comes Next for the Most Empty Downtown in America

    The coffee rush. The lunch rush. The columns of headphone-equipped tech workers rushing in and out of train stations. The lanyard-wearing visitors who crowded the sidewalks when a big conference was in town.There was a time three years ago when a walk through downtown San Francisco was a picture of what it meant for a city to be economically successful. Take the five-minute jaunt from the office building at 140 New Montgomery Street to a line-out-the-door salad shop nearby.The 26-story building, an Art Deco landmark that was once the tallest in the city, began its life as the headquarters for the Pacific Telephone & Telegraph Company. Decades later, it served as the home of the local search company Yelp. The nearby salad store was part of a fast-growing chain called Mixt.Yelp and Mixt had little more than proximity in common, which at that time was enough. Yelp was an idea that became billions of dollars in value on the internet. Mixt was a booming business serving lunchtime salads to the workers who traveled on electrified trains and skateboards to their jobs in downtown cubicles.Their virtuous cycle of nearness, of new ideas becoming new companies, feeding other ideas that become other companies, was the template for urban growth.Businesses like Yelp took root in the high-energy, high-density city; chains like Mixt flourished alongside them as their workers ventured out for lunch. As downtowns have emptied out, their once-symbiotic relationship is coming undone.“This area was always packed with people,” recalled Maria Cerros-Mercado, a Mixt manager who built her career in food service downtown. “People would get off the BART, buy coffee, buy this, buy that. There was always just so much walking.”Today San Francisco has what is perhaps the most deserted major downtown in America. On any given week, office buildings are at about 40 percent of their prepandemic occupancy, while the vacancy rate has jumped to 24 percent from 5 percent since 2019. Occupancy of the city’s offices is roughly 7 percentage points below that of those in the average major American city, according to Kastle, the building security firm.Yelp had its offices in this 26-story building at 140 New Montgomery Street in San Francisco but left after the pandemic began.More ominous for the city is that its downtown business district — the bedrock of its economy and tax base — revolves around a technology industry that is uniquely equipped and enthusiastic about letting workers stay home indefinitely. In the space of a few months, Jeremy Stoppelman, the chief executive of Yelp, went from running a company that was rooted in the city to vacating Yelp’s longtime headquarters and allowing its roughly 4,400 employees to work from anywhere in their country.“I feel like I’ve seen the future,” he said.Decisions like that, played out across thousands of remote and hybrid work arrangements, have forced office owners and the businesses that rely on them to figure out what’s next. This has made the San Francisco area something of a test case in the multibillion-dollar question of what the nation’s central business districts will look like when an increased amount of business is done at home.“Imagine a forest where an entire species suddenly disappears,” said Tracy Hadden Loh, a fellow at the Brookings Institution who studies urban real estate. “It disrupts the whole ecosystem and produces a lot of chaos. The same thing is happening in downtowns.”The city’s chief economist, Ted Egan, has warned about a looming loss of tax revenue as vacancies pile up. Brokers have tried to counter that narrative by talking up a “flight to quality” in which companies upgrade to higher-end space. Business groups and city leaders hope to recast the urban core as a more residential neighborhood built around people as well as businesses but leave out that office rents would probably have to plunge for those plans to be viable.Below the surface of spin is a downtown that is trying to adapt to what amounts to a three-day workweek. During a recent lunch at a Mixt location in the financial district, the company’s chief executive, Leslie Silverglide, pointed to the line of badge-holding workers and competition for outdoor tables. It was also, she noted, a Wednesday — what passes for rush hour. On Wednesdays, offices in San Francisco are at roughly 50 percent of their prepandemic levels; on Fridays, they’re not even at 30 percent.A park in downtown San Francisco. On any given week, office buildings are at about 40 percent of their prepandemic occupancy.The lunchtime business downtown is not, and may never, be what it used to be. But if workers aren’t going to return to buying their $17 salads downtown, Mixt will follow them home.Which is why on a recent Wednesday morning, one of Mixt’s managers, Ms. Cerros-Mercado, 35, stood on a mostly empty sidewalk waiting for an Uber (another company that told most of its employees they can work half their time from home).More on CaliforniaBan on Flavored Tobacco: The Supreme Court refused to block a California law banning flavored tobacco, clearing the way for the ban to take effect.L.A.’s New Mayor: Vice President Kamala Harris swore in Karen Bass as the first female mayor of the nation’s second-largest city in a ceremony that celebrated her historic win but also underscored the obstacles ahead.Employee Strike: Postdoctoral students and academic researchers at the University of California said that they would return to work, partly ending a weekslong strike to demand higher pay. Some 36,000 workers remain on strike.A Piece of Black History Destroyed: Lincoln Heights — a historically Black community in a predominantly white, rural county in Northern California — endured for decades. Then came the Mill fire.Ms. Cerros-Mercado lives in San Francisco and used to walk downtown for work but now manages a Mixt branch in Mill Valley, a Marin County suburb that has 14,000 people and $2 million starter homes.Many of the former office workers who live there have yet to return downtown en masse, but their purchases over the past three years have shown that they still want downtown perks and services like a freshly prepared lunch. Mixt opened the Mill Valley location this year as part of a push to generate more business in residential neighborhoods and suburbs.Just before 7:30 a.m. on that recent Wednesday, Ms. Cerros-Mercado watched her Uber pull up outside a downtown Whole Foods so she could start her commute to the suburbs. It proceeded along the sleepy streets where she used to work — past coffee-shops and dim sum restaurants, past the glass towers and the boarded-up storefronts — and sped across the Golden Gate Bridge toward Marin.The Creative ClassAs it happens, Yelp was inspired by a flu.Mr. Stoppelman, 45, contracted the virus shortly after returning to the Bay Area from business school. This was in 2004, back when the internet had enough information that you could find something about anything, yet was also still new enough that the information was rarely more detailed than what you could find in the Yellow Pages. When Mr. Stoppelman went online to find a doctor and was confronted by a bunch of phone and suite numbers but little about the actual physicians, it gave him an idea.Jeremy Stoppelman, chief executive of Yelp, decided to allow its 4,400 employees to work from anywhere in the country.Aaron Wojack for The New York TimesYelp began as a word-of-mouth email service before morphing into the local review and directory site that is now worth about $2 billion. That he had a good idea was less important to the company’s success than the Bay Area’s tech ecosystem — the experience and social connections Mr. Stoppelman gained from his previous job at PayPal helped him procure $1 million in start-up funding.Another factor, Mr. Stoppelman said, was a crucial decision, unusual at the time, to locate the company in a San Francisco office building instead of a Silicon Valley office park.“I’m not sure that Yelp would have succeeded if we weren’t in the city,” he said. “When you’re in a city, there’s lots of places you might go, and an efficient way to sort through the possibilities is important. Yelp was a killer app for the city.”San Francisco is about 40 miles from the heart of Silicon Valley, which for the most part consists of low-slung suburban cities that sit along U.S. 101 and have sprawling office campuses surrounded by acres of parking. Until fairly recently, however, the city was considered a subpar place for start-ups.The downtown business district had historically revolved around banks and insurance companies. And the wave of tech companies that sprouted up in San Francisco during the dot-com boom of the late 1990s became symbols of that period’s delusions when they went out of business during the dot-com bust. Mr. Stoppelman said the surplus of fly-by-night companies gave credence to a joke that circulated around PayPal: Start-ups do better in the suburbs because their workers have less to do outside the office.But the bust provided an opportunity in the form of cheap office space that proliferated through the city’s South of Market neighborhood, which sits next to the financial district. Besides, for a new generation of start-up founders like Mr. Stoppelman, who was in his 20s and single when Yelp started, the city just seemed more fun.In San Francisco, and around the country, a growing preference for urban living was showing up in surveys, condo prices and pour-over coffee shops. Economists like Edward Glaeser at Harvard and Richard Florida at the University of Toronto distilled this movement into a sort of new urban theory that said cities were benefiting from several converging trends, including a more tech-driven economy, plunging crime rates and the bubble of young millennials entering the work force.Downtown San Francisco in December. Until 2020, the area was packed with people.In his 2002 book, “Rise of the Creative Class,” Mr. Florida posited that instead of seeking lower taxes and operating costs or locating near suburban enclaves with good schools, companies like Yelp were sprouting in cities rich with the design and engineering workers their businesses needed to grow. He parlayed the book’s success into a consulting firm, the Creative Class Group, which advises cities on strategies for attracting young workers.The advice — find educated workers, create dense fun neighborhoods and embrace social liberalism — could be reduced, effectively, to “become more like San Francisco.”An irony of San Francisco’s emerging status as an economic bellwether was that until the Great Recession, when a plunge in tax revenue prompted the local government to go scrambling for ways to stimulate growth, the city had made no special effort to attract tech companies. In the wake of the downturn, however, the city altered its tax code to be more welcoming to start-ups, while office owners started offering the shorter leases start-ups desire and open floor plans that allow companies to cram more people together.Less than a decade later, a city that was never more than a Silicon Valley satellite was the epicenter of a new boom, with companies like Twitter, Lyft, Uber, Dropbox, Reddit and Airbnb all setting up inside the city limits. And the employees who worked there needed lunch.Ms. Cerros-Mercado, who grew up in the city, watched this unfold while building her career at Specialty’s, a local cafe and sandwich chain known for its giant cookies. She started working there for about $10 an hour and regarded it as a stopping off point that would help support her children as she went through college, with the hopes that she would later go to nursing school.But she came to like it and rose from being a cashier to a kitchen manager and then general manager who made $80,000 with time off, along with dental and health benefits. The main location where she worked was downtown, next to a Mixt restaurant whose lines spilled onto the street.The Creative Class and Its DiscontentsEmpty seats at a restaurant in downtown San Francisco, perhaps the most deserted business district in America.For the optimized office worker looking for the trifecta of fast, healthy and filling, few meals are more efficient than a pile of veggies and some dressing swirled with tofu or grilled chicken. Unfortunately, the aspirations of a salad are often dashed by the difficulty of making one that is actually good. The ingredients come from every corner of the supermarket, and if they aren’t combined in the right proportions, or if they are made too far in advance, every bite is a drag.Ms. Silverglide, 42, the chief executive of Mixt, tried to solve this problem with a setup in which customers proceeded down a counter and called out ingredients like grilled chicken and roasted brussels sprouts while stipulating exactly how much dressing they wanted. She said the naysayers of the time told her that there weren’t enough salad eaters to sustain her company, or that only women would eat there.Instead, lines extended down the block, and Yelp’s users gave the business three and a half stars. People like Mike Ghaffary discovered a healthier kind of lunch in a restaurant where customization was encouraged.Mr. Ghaffary is a former Yelp executive and serial optimizer who went to Mixt in search of a vegan meal that was high in protein and low in sugar. The salad he came up with paired lentils, chickpeas and quinoa with greens and a cilantro jalapeño vinaigrette.Over the next several years, as Yelp grew and went public, Mixt thrived alongside it, adding a dozen locations through downtown and other city neighborhoods. Mr. Ghaffary became something of a Mixt evangelist (“He was very proud of the beany salad he came up with,” Mr. Stoppelman said) and ordered his vegetal concoction so frequently that the salad was added to the permanent menu and still sits on the board under the name “Be Well.”In the city, however, well-being was taking a hit.The tech companies that San Francisco had tried so hard to attract were now the target of regular protests, including some by demonstrators who at the end of 2013 began blocking commuter buses from Google and other companies to show their rage at rents that now sit at a median of $3,600. This was an opening gesture in what would become an ongoing debate about gentrification and the effect of tech companies on the city — a debate that played out in arguments over homeless camps, votes to stop development and countless more protests.All of this was rooted in the cost of housing, which had been expensive for decades but had morphed into a disaster. A local government that had all but begged tech companies to set up shop there was now pushing a raft of new taxes to deal with its spiraling affordable housing and homelessness problems. In 2017, the year the Salesforce Tower eclipsed the Transamerica Pyramid as the city’s tallest skyscraper, Mr. Florida published another book. It was called “The New Urban Crisis.”Ramps to the Salesforce Transit center in San Francisco. The vacancy rate for downtown offices has risen to 24 percent from 5 percent since 2019.An axiom of the post-Covid economy is that the pandemic didn’t create new trends so much as it accelerated trends already in place. Such is the case with Yelp, which long ago started moving employees in response to San Francisco’s rising cost of living, opening sales offices around the country and new engineering hubs in London and Toronto.Still, it was hard to see how that might pose any kind of threat to the city, whose greatest challenge seemed to be dealing with the too many jobs it already had.Expansions aside, Yelp was still ensconced in its headquarters at 140 New Montgomery, and by early 2020, it had every intention of signing a new lease. The company’s ties to San Francisco, the hold of the creative class and all that, were too strong to imagine anything in its place.Headquartered in the Cloud“Have you heard about Covid?”Ms. Cerros-Mercado remembers asking a regional manager at Specialty’s that question sometime in February or early March of 2020. The virus had been in the news for weeks, but it didn’t seem like more than a seasonal bug until her 19-year-old daughter’s school trip to Spain was canceled. The manager she asked wasn’t so sure.“He’s like, ‘Oh, it’s just a flulike virus; it will go away,” she said. “And I’m looking at him and telling him, ‘No, this is actually really serious.’”Ms. Cerros-Mercado described the following weeks as a blur of plunging sales and eerie moments like standing in a coffee shop with no customers or hearing from a janitor that the offices above them were clearing out. By May, Specialty’s had filed for Chapter 7 bankruptcy after a conference call in which she and other managers were thanked for their service and told they would be employed for three more days, during which they would deliver the news they had just received to the people who worked for them.“One of the hardest conversations was having to talk to my team,” she said. “I had some team members that were crying because they weren’t sure where their income was going to come from.”In that moment, the question was when life would return to how it was. But as Mr. Stoppelman discovered that he could run a publicly traded company from his home with no loss of business, he decided that for his company, anyway, the new normal was better. Yelp abandoned its headquarters when the lease at 140 New Montgomery lapsed, joining a growing list of tech companies that had replaced free cafeterias and Ping-Pong breakrooms — which for more than a decade had been rationalized by a belief that a social company was a more innovative company — with slogans like “headquartered in the cloud.”Yelp ended up adding back about 50,000 feet for employees who want an occasional desk, but for the city that figure is even smaller than it seems. The new offices are one-third of its former footprint; Yelp subleased the space from Salesforce — the city’s largest private employer, which is also cutting back on local offices.The emptying of American downtowns after Covid was followed by a boom in exurban housing and in cities like Austin and Spokane, trends reflected in where Yelp’s work force has landed. Cortney Ward, 41, a Yelp product designer, bought a home in Austin after leaving her one-bedroom apartment in San Francisco’s Nob Hill. Yelp workers also invented new habits and left holes in the businesses that relied on them. When Diego Waxemberg, 30, a software engineer, left the Bay Area for Charlotte, N.C., he started lunching on leftovers instead of sometimes buying a $17 Mixt salad with tri-tip steak. Mackenzie Bise, 30, who works in user operations, moved to the Sacramento area, and during a recent online search discovered that her favorite San Francisco lunch spot had gone out of business.Maria Cerros-Mercado preparing the Mixt salad shop in Mill Valley to open for the day.During the height of the pandemic, Ms. Cerros-Mercado went through a spell of unemployment before landing at another restaurant chain and later at Mixt. But downtown business was still somewhere between lagging and nonexistent. Mixt laid off hundreds of workers, closed most downtown stores for more than a year and subsisted on business from neighborhood and suburban stores.“If we didn’t have the neighborhood restaurants, we wouldn’t have survived — point blank,” Ms. Silverglide said.But for all the daily rhythms that were upended by home offices, the desire for a specially prepared lunch seems to have endured. Consider Mr. Ghaffary, creator of the Be Well salad, who used the pandemic as a challenge to recreate Mixt’s setup in the kitchen of his Marin County home. He started with fresh ingredients but got tired of his frequent trips to the grocery store and shifted to preparing them in bulk.“I’d make like four or five days of Tupperware,” he said. “First I tried making the whole salad, and then it would get soggy. Then I made half the salad and would finish the rest at the end.”“I was very proud of my streamlined production methods,” he continued. “And then I was kind of like, ‘I don’t want to be making these salads.’”Mr. Ghaffary told this story over salad at Mixt’s Mill Valley store, the one Ms. Cerros-Mercado manages, which opened in July and had lines of customers in athleisure. Operations are slightly more difficult because some employees commute an hour or more to get there, most relying on buses and one sometimes trying to catch a ride in Ms. Cerros-Mercado’s Uber. When a worker misses the bus, Ms. Cerros-Mercado spends her morning trying to cover for holes in the setup line.But the business was steady, and according to Ms. Silverglide it extends until 9 at night, catering to families and a growing salad-for-dinner segment that pairs plates of greens with the various wines and craft beers recently added to the menu. She is fairly confident that Mixt’s “neighborhood locations,” like the Mill Valley one, will drive the business’s expansion. Business in downtown San Francisco has been picking up — but it’s unclear how long that will last, or how close to prepandemic traffic it will ever reach. The offices, after all, haven’t even hit 50 percent.Better TogetherThe building at 140 New Montgomery Street is empty but still an Art Deco landmark.A wood reception desk that used to greet Yelp’s visitors sits empty in its former office. The mounted iPad where visitors once checked in is gone, along with the bright jars of candy and the rows of desks that sat beyond them. But there are still views.“You can see that you get good natural light all around,” said Stacey Spurr, a regional director for Pembroke, which owns 140 New Montgomery, during a recent tour of the quiet and empty but still quite gorgeous building.Ms. Spurr began the tour by pointing out the gold ceilings in the lobby before proceeding to the basement, where there are showers and bike racks. The empty floors upstairs are layered with boastful stickers like the one about the building’s A-plus air filtration system.The nearly 160,000 square feet that Yelp left empty is about half of the building’s space, and about half of that has been re-leased. The good news for Pembroke seems less good for the city. Some of the new tenants are finance and venture capital firms that have clung to the gravitas of a physical office for client meetings and the occasional conference but are unlikely to contribute regular foot traffic, according to building owners across the city.In a typical downturn, the turnaround is a fairly simple equation of rents falling far enough to attract new tenants and the economy improving fast enough to stimulate new demand. But now there’s a more existential question of what the point of a city’s downtown even is.Downtown San Francisco is trying to adapt to what amounts to a three-day workweek. On Wednesdays, offices are at 50 percent of their prepandemic levels; on Fridays, they’re not even at 30 percent.The city, and business groups like Advance SF, are trying to reframe the urban core as a more residential and entertainment district that draws from throughout the region and may in the future involve the conversion of office buildings to residential use. The motto is “Better Together,” and Advance SF recently hosted a forum with a guest economist to discuss new ideas for downtown. The guest was Richard Florida.“When I started with the creative class, places didn’t care about young people, they were only trying to attract a family with children to the lovely suburbs, and I’m saying, ‘No, no, no, no, no,’” Mr. Florida said in an interview. “Twenty years later, people forgot about the families. And now here’s a whole generation leaving cities again, for metropolitan or virtual suburbs.”The more businesses invest with that new reality in mind, the more likely that reality becomes self-fulfilling.A year after being consumed by bankruptcy, Specialty’s, the cafe chain where Ms. Cerros-Mercado began her career, was reincarnated. The first new store sits in the Silicon Valley town of Mountain View, and as the company plots its next expansion it is eschewing the office-adjacent locations on which the original company was built for a more delivery-centric business that has a world of half-empty buildings in mind.Back at 140 New Montgomery, the owners are experimenting with new ideas to get office workers to come in. The building has been hosting gatherings like an Oktoberfest celebration that included a raffle to win a beer stein with the building’s logo.On the afternoon of the Oktoberfest party, a cluster of workers from a software company stood around eating sausages and soft pretzels.“We hear a lot of buzz about this building,” said Veronica Arvizu, a senior property manager at the real estate company CBRE. “We hear it’s the busiest in the city.”A few feet away from her, another group of young workers was playing Jenga. One by one, they took blocks away from the structure, making way for the inevitable collapse. More

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    Forget Stock Predictions for Next Year. Focus on the Next Decade.

    Wall Street’s market forecasts for 2023 are worthless, our columnist says. But the long view is much clearer.The Federal Reserve raised interest rates again on Wednesday, but by less than it has in previous rounds this year. A day earlier, the government reported that the annual rate of inflation, though still painfully high, dropped a bit in November, to 7.1 percent from 7.7 percent in October.If you want to know what these, and other economic developments, mean for the stock market in the year ahead, there are plenty of forecasts coming out of Wall Street.It is December, after all, when investment strategists gear up and produce earnest, specific forecasts for where the S&P 500 will be at the end of the next calendar year.With inflation soaring, the Fed raising interest rates, Russia’s war in Ukraine and China’s decision to drop its “zero Covid” policy, a recession all but certain in Europe and increasingly likely in the United States, clear maps of the future would be particularly welcome now.But that’s not what the one-year forecasts from Wall Street are providing.These attempts at clairvoyance are stymied by a fundamental problem: It’s simply impossible to forecast the path of the markets six months or a year ahead with accuracy and consistency, as many academic studies have shown. That the financial services industry continues to label these unreliable numbers as forecasts is a triumph of breathtaking chutzpah — a technical term for shameless audacity.It goes a long way in explaining why the vast majority of active investment managers can’t regularly and convincingly outperform the market — a failure I reported in a recent column about mutual funds. If you have no idea where stocks are going, it doesn’t make much sense to place specific bets on them, as active managers do.Accepting UncertaintyThese annual reports often contain impressive erudition. I pore through this stuff compulsively in search of nuggets that I can file away for some future column.Our Coverage of the Investment WorldThe decline of the stock and bond markets this year has been painful, and it remains difficult to predict what is in store for the future.Tech Stocks Sputter: Big Tech stocks have suffered staggering losses this year. But is this a good time to buy? Maybe, if you’re in it for the long term, our columnist says.Navigating Uncertainty: There seems to be growing acceptance that some kind of a recession might be coming. Here is how investors should approach the situation.A Bad Year for Bonds: This has been the most devastating time for bonds since at least 1926. But much of the damage is already behind us and the outlook for 2023 is better.Weathering the Storm: The rout in the stock and bond markets has been especially rough on people paying for college, retirement or a new home. Here is some advice.But with a high degree of confidence, I will repeat a prediction I’ve made before: The consensus forecast this year will be wrong.Read these things if you find them interesting, but don’t rely on them — or those who produce them — to guide your investing.Instead, embrace uncertainty.Accept that you need to invest without knowing what will happen to your money over the short term. So be sure, first, to put aside enough money in a safe place, like a bank account or money-market fund, to pay the bills in the months ahead.But because the stock market tends to rise over long periods, and because bonds are now generating reasonable income (as I explained last week), it’s wise to invest for a horizon of a decade or more in low-cost index funds that track the entire stock and bond markets.Don’t base your investments on specific predictions of where the stock market is heading over the short term, because nobody knows. Making bets on the basis of these forecasts is gambling, not investing.The History. Consider how bad Wall Street forecasts have been.In 2020, I noted that the median Wall Street forecast since 2000 had missed its target by an average 12.9 percentage points a year. That error over two decades was astonishing: more than double the actual average annual performance of the stock market!Imagine a weather forecast as bad as that. A meteorologist says the high temperature the next day will be 25 degrees Fahrenheit and it will snow, so you dress for a winter storm. Actually, the temperature turns out to be 60 degrees and the skies are clear. That’s about the level of accuracy for Wall Street strategists through 2020.They continued their errant ways the next year, issuing a median forecast of 3,800 for the closing level of the S&P 500 in 2021. But the index ended the year at 4,766.18, an error of about 25 percent. In a word, the forecast was horrible.The forecasts for 2022 look inaccurate, as usual, though we won’t know for sure until the end of this month. A year ago, the Wall Street consensus was that the S&P 500 would reach 4,825 at the end of 2022, a modest increase from 2021. But at the moment, the index is hovering around 4,000. In other words, a year ago, strategists were saying that 2022 would be just fine for stocks. It hasn’t been.The FutureAfter forecasts that were too low for 2021 and too high for 2022, Wall Street strategists are holding steady for 2023. The consensus is that the S&P 500 will end the year at 4,009, roughly around where it has traded in recent days.That could be right. Who knows? But if it does turn out to be correct, it will be an accident, not the result of uncanny knowledge about 2023.This inability to forecast the future goes way beyond Wall Street. Pandemics are part of human history and we know there will be more of them. But no one was capable of anticipating the specific Coronavirus pandemic that started in 2020, or the 6.6 million deaths, 646.2 million cases, and the complex economic and financial damage it continues to cause.Wall Street didn’t know that Vladimir Putin would order Russia’s invasion of Ukraine this year — or that fossil fuel companies would end up leading the stock market in 2022. The war in Ukraine and China’s attempt to shift from its Covid lockdown policy will both influence the stock market in the United States in the year ahead. But how, exactly? We can guess, but anyone who claims to know is delusional.No doubt, enormous changes that aren’t visible yet are coming in 2023. Inflation and interest rates preoccupy financial markets now, but there is no assurance that will be the case a year from now.Lack of specific knowledge about the future is a fact of life. Guessing, or betting wildly, isn’t a prudent solution.Instead, diversify. Hedge your bets so you are prepared whether specific markets move up or down, and be ready to ride out extended losses, like those of 2022. This strategy has been painful this year, though it has paid off over longer periods.A simple, classic investment strategy — a diversified portfolio made up of broad stock and bond index funds, with 60 percent allocated to stock and 40 percent to bonds, did terribly in 2022. The Vanguard Balanced Fund, which takes just this approach (though it is limited to U.S. and not global assets, which I’d favor), has lost nearly 14 percent this calendar year.But even including this year’s awful returns, this portfolio has gained more than 6 percent annualized, over the last 20 years. At that rate, it doubles in value every 11 or 12 years. There is no guarantee that it will continue to generate those returns in the future, but Vanguard said this week that it probably would.Vanguard doesn’t bother with year-ahead market forecasts because it recognizes that they are pointless. It does make estimates for market returns over a 10-year horizon. Stock market projections of longer duration have much greater accuracy than those for the next six months or a year, as Robert Shiller, the economist, demonstrated in the 1980s. He was recognized for that insight when he received the Nobel in economic science in 2013.At the moment, Vanguard’s 10-year outlook is fairly auspicious. The falling markets of the last year have led to better stock and bond valuations.It’s possible to be intelligently optimistic about financial markets over the next few decades, without knowing where the markets are heading over the next year. I wouldn’t bet on any single financial asset just because a Wall Street expert says it is about to rise.Using your money that way — whether you are buying stocks, bonds or far less solid assets like cryptocurrency — is gambling, not investing. But if you stay humble, invest in the total stock and bond markets and manage to hang in for decades, your chances of prospering are much greater. That prediction is reliable. More

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    ECB hikes rates, sees significant increases ahead as it announces plan to shrink balance sheet

    The European Central Bank opted for a smaller rate hike at its Thursday meeting, taking its key rate from 1.5% to 2%.
    But the ECB said it would need to raise rates “significantly” further to tame inflation.

    President of the European Central Bank Christine Lagarde attends a hearing of the Committee on Economic and Monetary Affairs in the European Parliament on November 28, 2022 in Brussels, Belgium.
    Thierry Monasse | Getty Images News | Getty Images

    The European Central Bank opted for a smaller rate hike at its Thursday meeting, taking its key rate from 1.5% to 2%, but said it would need to raise rates “significantly” further to tame inflation.
    It also said that from the beginning of March 2023 it would begin to reduce its balance sheet by 15 billion euros ($15.9 billion) per month on average until the end of the second quarter of 2023.

    related investing news

    It said it would announce more details about the reduction of its asset purchase program (APP) holdings in February, and that it would regularly reassess the pace of decline to ensure it was consistent with its monetary policy strategy.
    The widely expected 50 basis point rate rise is the central bank’s fourth increase this year. A basis point is equivalent to 0.01%.
    It hiked by 75 basis points in October and September and by 50 basis points in July, bringing rates out of negative territory for the first time since 2014.
    “The Governing Council judges that interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target,” the ECB said in a statement.

    ‘We’re not pivoting’

    At a news conference following the announcement, ECB President Christine Lagarde said: “Anybody who thinks this is a pivot for the ECB is wrong. We’re not pivoting, we’re not wavering, we are showing determination and resilience in continuing a journey where we have. … If you compare with the Fed, we have more ground to cover. We have longer to go.”

    “We’re not slowing down. We’re in for the long game.”
    The central bank said it was working on euro zone inflation forecasts that had been “significantly revised up,” and sees inflation remaining above its 2% target until 2025.
    It now expects average inflation of 8.4% in 2022, 6.3% in 2023, 3.4% in 2024 and 2.3% in 2025.
    However, it sees a recession in the region being “relatively short-lived and shallow.”
    It comes after the latest inflation data for the euro zone showed a slight slowing in price rises in November, although the rate remains at 10% annually.
    Lagarde told CNBC’s Annette Weisbach, “One of the key messages, in addition to the hike, is the indication that not only will we raise interest rates further, which we had said before, but that today we judged that interest rates will still have to rise significantly, at a steady place.”
    “It is pretty much obvious that on the basis of the data that we have at the moment, significant rise at a steady pace means we should have to raise interest rates at a 50 basis point pace for a period of time,” she said.
    Regarding the announcement on quantitative tightening, she said the ECB wanted to follow the principles of being predictable and measured.
    Its decision to make average 15 billion euro reductions in its APP over four months represents roughly half the redemptions over that period of time, and was based on advice from its market team and all central banks and other officials involved in its decision-making, Lagarde said.
    “It seemed an appropriate number in order to normalize our balance sheet, bearing in mind that the key tool is the interest rate,” she added.
    The ECB will achieve the reduction by not reinvesting all of the principal payments from maturing securities in its 5 trillion euro bond portfolio.
    The euro rose from a 0.5% loss against the dollar to a 0.4% gain following the announcement, but European equities in the Stoxx 600 index dropped 2.4%.

    Hawkish message

    The U.S. Federal Reserve on Wednesday increased its main rate by 0.5 percentage point, as did the Bank of England and the Swiss National Bank on Thursday morning.
    “In contrast to the Bank of England, this is a hawkish hike, given the language on [quantitative tightening] and a definitive start date,” said analysts at BMO Capital Markets.
    However, they noted the ECB was lagging other central banks in reducing its balance sheet and that reinvestments under its pandemic emergency purchase program would continue.
    “The language in the statement has an operational feel to it, and the Bank is leaving the path of QT open-ended,” they wrote in a note.
    Antoine Bouvet, senior rates strategist at ING, also described the announcement as “hawkish.”
    “The main take away from this meeting was higher than expected inflation projections and so the need for the ECB to hike more than anticipated by the market,” he said by email.
    “Lagarde clearly guided the market to anticipate more 50 basis point hikes, in February and in March, and pushed back against the notion that it will be able to cut rates any time soon. The upshot as you might expect is a surge in front-end bond yields, but I think it is the whole curve that needs to move higher.”
    “The QT announcement was more specific than I would have expected with a size and an earlier start date. This also adds to upside in bond yields, especially peripheral bonds, but it is worth keeping in mind that most European bond markets see greater net supply next year after ECB intervention so this is relevant for all countries,” he said by email.

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    US Cracks Down on Chinese Companies for Security Concerns

    The Biden administration placed severe restrictions on trade with dozens of Chinese entities, its latest step in a campaign to curtail access to technology with military applications.WASHINGTON — The Biden administration on Thursday stepped up its efforts to impede China’s development of advanced semiconductors, restricting another 36 companies and organizations from getting access to American technology.The action, announced by the Commerce Department, is the latest step in the administration’s campaign to clamp down on China’s access to technologies that could be used for military purposes and underscored how limiting the flow of technology to global rivals has become a prominent element of United States foreign policy.Administration officials say that China has increasingly blurred the lines between its military and civilian industries, prompting the United States to place restrictions on doing business with Chinese companies that may feed into Beijing’s military ambitions at a time of heightened geopolitical tensions, especially over Taiwan.In October, the administration announced sweeping limits on semiconductor exports to China, both from companies within the United States and in other countries that use American technology to make those products. It has also placed strict limits on technology exports to Russia in response to Moscow’s invasion of Ukraine.“Today we are building on the actions we took in October to protect U.S. national security by severely restricting the PRC’s ability to leverage artificial intelligence, advanced computing, and other powerful, commercially available technologies for military modernization and human rights abuses,” Alan Estevez, the under secretary of commerce for industry and security, said in a statement, referring to the People’s Republic of China.Among the most notable companies added to the list is Yangtze Memory Technologies Corporation, a company that was said to be in talks with Apple to potentially supply components for the iPhone 14.Congress has been preparing legislation that would prevent the U.S. government from purchasing or using semiconductors made by Y.M.T.C. and two other Chinese chip makers, Semiconductor Manufacturing International Corporation and ChangXin Memory Technologies, because of their reported links to Chinese state security and intelligence organizations.The Biden PresidencyHere’s where the president stands after the midterm elections.A New Primary Calendar: President Biden’s push to reorder the early presidential nominating states is likely to reward candidates who connect with the party’s most loyal voters.A Defining Issue: The shape of Russia’s war in Ukraine, and its effects on global markets, in the months and years to come could determine Mr. Biden’s political fate.Beating the Odds: Mr. Biden had the best midterms of any president in 20 years, but he still faces the sobering reality of a Republican-controlled House for the next two years.2024 Questions: Mr. Biden feels buoyant after the better-than-expected midterms, but as he turns 80, he confronts a decision on whether to run again that has some Democrats uncomfortable.The U.S. government added the companies to a so-called entity list that will severely restrict their access to certain products, software and technologies. The targeted companies are producers and sellers of technologies that could pose a significant security risk to the United States, like advanced chips that are used to power artificial intelligence and hypersonic weapons, and components for Iranian drones and ballistic missiles, the Commerce Department said.In an emailed statement, Liu Pengyu, the spokesman for the Chinese embassy in Washington, said that the United States “has been stretching the concept of national security, abusing export control measures, engaging in discriminatory and unfair treatment against enterprises of other countries, and politicizing and weaponizing economic and sci-tech issues. This is blatant economic coercion and bullying in the field of technology.”“China will resolutely safeguard the lawful rights and interests of Chinese companies and institutions,” he added.On Monday, China filed a formal challenge to the Biden administration’s chip controls at the World Trade Organization, criticizing the restrictions as a form of “trade protectionism.”The administration said that some companies, including Y.M.T.C. and its Japanese subsidiary, were added to the list because they posed a significant risk of transferring sensitive items to other companies sanctioned by the U.S. government, including Huawei Technologies and Hikvision.The Commerce Department said that another entity, Tianjin Tiandi Weiye Technologies, was added for its role in aiding China’s campaign of repression and surveillance of Uyghurs and other Muslim minority groups in the Xinjiang region of China, as well as providing U.S. products to Iran’s Islamic Revolutionary Guards Corps. U.S.-based firms will now be forbidden from shipping products to these companies without first obtaining a special license.Twenty-three of the entities — in particular, those supplying advanced chips used for artificial intelligence with close ties to the Chinese military and defense industry, and two Chinese companies that were found to be supporting the Russian military — were hit with even tougher restrictions.The companies will be subject to what is known as the foreign direct product rule, which will cut them off from buying products made anywhere in the world with the use of American technology or software, which would encompass most global technology companies.The administration also said it would lift restrictions on some companies that had successfully undergone U.S. government checks that ensured their products weren’t being used for purposes that the government deemed harmful to national security.As part of the restrictions unveiled in October, the Biden administration placed dozens of Chinese firms on a watch list that required them to work with the U.S. government to verify that their products were not being used for activities that would pose a security risk to the United States.A total of 25 entities completed those checks, in cooperation with the Chinese government, and thus have been removed from the list. Nine Russian parties that were unable to clear those checks were added to the entity list, the department said.A spokesperson for the Commerce Department said that the actions demonstrated that the United States would defend its national security but also stood ready to work in cooperation with companies and host governments to ensure compliance with U.S. export controls.In a separate announcement Thursday morning, a government board that oversees the audits of companies listed on stock exchanges to protect the interests of investors said that it had gained complete access for the first time in its history to inspect accounting firms headquartered in mainland China and Hong Kong.The agency, called the Public Company Accounting Oversight Board, said this was just an initial step in ensuring that Chinese companies are safe for U.S. investors. But the development marked a step toward a potential resolution of a yearslong standoff between the United States and China over financial checks into public companies. It also appeared to decrease the likelihood that major Chinese companies will be automatically delisted from U.S. exchanges in the years to come.Congress passed a law in 2020 that would have required Chinese companies to delist from U.S. stock exchanges if U.S. regulators were not able to inspect their audit reports for three consecutive years.Erica Y. Williams, the chair of the board, said the announcement should not be misconstrued as a “clean bill of health” for firms in China. Her staff had identified numerous potential deficiencies with the firms they inspected, she said, though that was not an unexpected outcome in a jurisdiction being examined for the first time.“I want to be clear: this is the beginning of our work to inspect and investigate firms in China, not the end,” Ms. Williams said. More

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    Retail Sales Fell 0.6% in November, Despite Black Friday

    Inflation changed the way U.S. shoppers approached the holiday season, while lower gas prices and a decline in car sales were also factors.Retail sales fell in November, with spending on even traditionally popular gift categories like clothing and sporting goods declining, a sign that high prices for necessities like food are affecting how people approach the holiday shopping season.U.S. retail sales fell 0.6 percent in November from October, the Department of Commerce said on Thursday. The figure does not account for price changes, and inflation did ease slightly during the month.Spending increased in some areas, including at grocery stores, health and personal care stores and restaurants and bars. But categories like motor vehicles, furniture, consumer electronics, clothing and sporting goods all declined. Gas prices also fell during the month, meaning consumers spent less money filling up their cars.“Overall, the demand patterns — not the most academic term — have been out of whack for the past few years and what we’re seeing is these disruptions coming back in these forms,” said Andrew Forman, who studies consumer behavior at Hofstra University’s Frank G. Zarb School of Business. “There are so many moving factors.”Inflation in November slowed to 7.1 percent through the year, down from 7.7 percent in October. Some analysts pointed out that lower prices affected the retail sales figure.“Less inflation is driving some of that decline from October to November, which wouldn’t be a bad thing,” David Silverman, a senior director at Fitch Ratings, said.In many ways, the report highlights how inflation, even if it has eased, has changed the way consumers are approaching the holiday season. Americans, for example, are whittling down the number of people they are giving gifts to, according to data from KPMG.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Retail sales fell 0.6% in November as consumers feel the pressure from inflation

    Retail sales for November declined 0.6%, even worse than the Dow Jones estimate for a 0.3% drop.
    Weekly jobless claims fell to 211,000, a decline of 20,000 from the previous period and well below the Dow Jones estimate for 232,000.
    Fed surveys from the New York and Philadelphia regions showed contraction in manufacturing activity in December.

    Consumers pulled back on spending in November, failing to keep up with even a muted level of inflation for the month, the Commerce Department reported Thursday.
    Retail sales for the month declined 0.6%, even worse than the Dow Jones estimate for a 0.3% drop. The number is not adjusted for inflation as gauged by the Labor Department’s consumer price index, which increased 0.1% in November, which also was below expectations.

    Measures that exclude autos and both autos and gas sales both showed 0.2% declines.
    Stocks fell sharply following a mostly disappointing round of economic data released Thursday morning. The Dow Jones Industrial Average was off nearly 500 points in early trading.
    The pullback was widespread across categories. Furniture and home furnishings stores reported a decrease of 2.6%, building materials and garden centers were off 2.5%, and motor vehicle and parts dealers dropped 2.3%.
    Even with declining gas prices, service stations sales were down just 0.1%.
    Online sales also decreased, falling 0.9%, while bars and restaurants increased 0.9%, and food and beverage stores rose 0.8%.

    On a year-over-year basis, retail sales increased 6.5%, compared with a CPI inflation rate of 7.1%.
    “With weak global growth and the strong dollar compounding the domestic drag from higher interest rates, we suspect this weakness is a sign of things to come,” Andrew Hunter, senior U.S. economist at Capital Economics, wrote of the retail report.
    In other economic news Thursday, the Labor Department said weekly jobless claims fell to 211,000, a decline of 20,000 from the previous period and well below the Dow Jones estimate for 232,000. Continuing claims, which run a week behind, nudged higher to 1.671 million.
    Also, separate surveys from regional Federal Reserve districts showed contraction in manufacturing activity in December.
    The Empire State Manufacturing Survey, which measures activity in the New York region, posted a reading of -11.2, against the estimate of -0.5.
    That represents the percentage difference between companies reporting expansion against contraction. This month’s reading represented a drop of some 16 points into contraction territory, owed in good part to a slide in the general business conditions index. Inventories in the region also fell, though price indexes were little changed.
    Similarly, the Philadelphia Fed survey rose 6 points but was still negative at -13.8, against the -12 estimate. Sharp negative readings for new orders, unfilled orders and delivery times weighed on the index. However, prices eased considerably for the region, with both the prices paid and received measures falling.
    “With exports now suffering from the strong dollar, and a global recession looming, we expect that further weakness in manufacturing lies in store,” Hunter said.

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