Evelyn Reynolds

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    Inflation and recession fears are squeezing some industries more than others

    Shoppers are feeling the pressure as inflation pushes up prices for gas, groceries and a range of other goods and services.
    Airlines, movie theaters and specialty retailers are among the businesses that so far say they’ve been shielded from a slowing economy.
    Other companies like McDonald’s are seeing signs that consumer demand is weakening.

    A woman pushes a shopping cart through the grocery aisle at Target in Annapolis, Maryland, on May 16, 2022, as Americans brace for summer sticker shock as inflation continues to grow.
    Jim Watson | AFP | Getty Images

    People still appear willing to shell out to travel, go to the movies and have a drink or two, even as surging prices and fears of a recession have them pulling back in other areas.
    How people spend their money is shifting as the economy slows and inflation pushes prices higher everywhere including gas stations, grocery stores and luxury retail shops. The housing market, for example, is already feeling the pinch. Other industries have long been considered recession proof and may even be enjoying a bump as people start going out again after hunkering down during the pandemic.

    Still, shoppers everywhere are feeling pressured. In May, an inflation metric that tracks prices on a wide range of goods and services jumped 8.6% from a year ago, the biggest jump since 1981. Consumers’ optimism about their finances and the overall economy sentiment fell to 50.2% in June, its lowest recorded level, according to the University of Michigan’s monthly index.
    As gas and food prices climb, Brigette Engler, an artist based in New York City, said she’s driving to her second home upstate less often and cutting back on eating out.
    “Twenty dollars seems extravagant at this point for lunch,” she said.
    Here’s a look at how different sectors are faring in the slowing economy.

    Movies, experiences holding up

    Concerts, movies, travel and other experiences people missed during the height of the pandemic are among the industries enjoying strong demand.

    Live Nation Entertainment, which owns concert venues and Ticketmaster, hasn’t seen people’s interest in attending concerts wane yet, CEO Joe Berchtold said at the William Blair Growth Stock Conference earlier this month.
    In movie theaters, blockbusters like “Jurassic World: Dominion” and “Top Gun: Maverick” have also pulled in strong box office sales. The movie industry long been considered “recession proof,” since people who give up on pricier vacations or recurring Netflix subscriptions can often still afford movie tickets to escape for a few hours.
    Alcohol is another category that’s generally protected from economic downturns, and people are going out to bars again after drinking more at home during the early days of the pandemic. Even as brewers, distillers and winemakers raise prices, companies are betting that people are willing to pay more for better-quality alcohol.
    “Consumers continue to trade up, not down,” Molson Coors Beverage CEO Gavin Hattersley said on the company’s earnings call in early May. It might seem counterintuitive, but he said the trend is in line with recent economic downturns.
    Alcohol sales have also been shielded in part because prices haven’t been rising as quickly as prices for other goods. In May, alcohol prices were up roughly 4% from a year ago, compared with the 8.6% jump for overall consumer price index.
    Big airlines like Delta, American and United are also forecasting a return to profitability thanks to a surge in travel demand. Consumers have largely digested higher fares, helping airlines cover the soaring cost of fuel and other expenses, although domestic bookings have dipped in the last two months.
    It isn’t clear whether the race back to the skies will continue after the spring and summer travel rushes. Business travel usually picks up in the fall, but airlines might not be able to count on that as some companies look for ways to curb expenses and even announce layoffs.
    People’s desire to get out and socialize again is also boosting products like lipstick and high heels that were put away during the pandemic. That recently helped sales at retailers including Macy’s and Ulta Beauty, which last month boosted their full-year profit forecasts.
    Luxury brands such as Chanel and Gucci are also proving to be more resilient, with wealthier Americans not as affected by climbing prices in recent months. Their challenges have been more concentrated in China of late, where pandemic restrictions persist.
    But the fear is that this dynamic could change quickly, and these retailers’ short-term gains could evaporate. More than eight in 10 U.S consumers are planning to make changes to pull back on their spending in the next three to six months, according to a survey from NPD Group, a consumer research firm.
    “There is a tug-of-war between the consumer’s desire to buy what they want and the need to make concessions based on the higher prices hitting their wallets,” said Marshal Cohen, chief retail industry advisor for NPD.

    Homes, big-ticket items squeezed

    The once red-hot housing market is among those clearly hurting from the slowdown.
    Rising interest rates have dampened mortgage demand, which is now roughly half of what it was a year ago. Homebuilder sentiment has dropped to the lowest level in two years after falling for six consecutive months. Real estate firms Redfin and Compass both announced layoffs earlier this week.
    “With May demand 17% below expectations, we don’t have enough work for our agents and support staff,” Redfin CEO Glenn Kelman wrote in an email to employees later posted on the company’s website.         
    For the retail sector more broadly, data from the Commerce Department also showed a surprising 0.3% drop in overall in May from the previous month. That included declines at online retailers and miscellaneous store retailers such as florists and office suppliers.
    And while demand for new and used cars remains strong, auto industry executives are starting to see signs of potential trouble. With the cost for new and used vehicles up by double digits over the last year, car and other motor vehicle dealers saw sales decline 4% decline in May from the previous month, according to the U.S. Department of Commerce.
    Ford Motor CFO John Lawler said this week that delinquencies on car loans are starting to tick up too. Although the increase could signal tough times ahead, he said said it’s not yet a worry, since delinquencies had been low.
    “It seems like we’re reverting back more towards the mean,” Lawler said at a Deutsche Bank conference.
    The restaurant industry is also seeing signs of potential trouble, although how eateries are affected could vary.
    Fast-food chains have also traditionally fared better in economic downturns since they’re more affordable and draw diners with promotional deals. Some restaurant companies are also betting people will keep dining out as long as grocery prices rise faster.
    The cost of food away from home rose 7.4% over the 12 months ended in May, but prices for food at home climbed even faster, shooting up 11.9%, according to the Bureau of Labor Statistics. Restaurant Brands International CEO Jose Cil and Wendy’s CEO Todd Penegor are among the fast-food executives who have emphasized the gap as an advantage for the industry.
    But McDonald’s CEO Chris Kempczinski said in early May that low-income consumers have started ordering cheaper items or shrinking the size of their orders. As the largest U.S. restaurant chain by sales, it’s often seen as a bellwether for the industry.
    On top of that, traffic across the broader restaurant industry slowed to its lowest point of the year in the first week of June, according to market research firm Black Box Intelligence. That was after the number of visits also slowed in May, though sales ticked up 0.7% on higher spending per visit.
    Barclays analyst Jeffrey Bernstein also said in a research note on Friday that restaurants are accelerating discounting, a sign that they’re expecting same-store sales growth to slow. Among the chains that have introduced new deals to draw diners are Domino’s Pizza, which is offering half-price pizzas, and Wendy’s, which brought back its $5 Biggie Bag meal.
    Among those scrambling to adjust to a shift in shopper behavior are mass-merchant retailers like Target and Walmart, which issued cautious guidance for the year ahead.
    Target warned investors earlier this month that its fiscal second-quarter profits would take a hit as it discounts people bought up during the pandemic but no longer want, such as small appliances and electronics. The big-box retailer is trying to make room on its shelves for the products in demand now: beauty products, household essentials and back-to-school supplies.
    CEO Brian Cornell told CNBC that the company’s stores and website are still seeing strong traffic and “a very resilient customer” overall, despite the shift in their buying preferences. Rival Walmart has also been discounting less-desired items like apparel, although the retail giant said it’s been gaining share in grocery as shoppers look to save.
    — Leslie Josephs, Lauren Thomas, Michael Wayland, John Rosevear, Sarah Whitten and Melissa Repko contributed reporting.

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    Here are the three things the Fed has done wrong, and what it still isn't getting right

    The Federal Reserve suddenly finds itself second-guessed as it tries to navigate the economy through inflation and away from recession.
    Complaints center on three themes: That the Fed didn’t act quickly enough to tame inflation, that it isn’t acting aggressively enough now, and that it should have been better at seeing the current crisis coming.
    “The Fed is going to have to raise rates much higher than they are now,” said Lewis Black, CEO of Almonty Industries, a Toronto-based global miner of tungsten

    The exterior of the Marriner S. Eccles Federal Reserve Board Building is seen in Washington, D.C., June 14, 2022.
    Sarah Silbiger | Reuters

    After years of being a beacon for financial markets, the Federal Reserve suddenly finds itself second-guessed as it tries to navigate the economy through a wicked bout of inflation and away from ever-darkening recession clouds.
    Complaints around the Fed have a familiar tone, with economists, market strategists and business leaders weighing in on what they feel is a series of policy mistakes.

    Essentially, the complaints center on three themes for actions past, present and future: That the Fed didn’t act quickly enough to tame inflation, that it isn’t acting aggressively enough now even with a series of rate increases, and that it should have been better at seeing the current crisis coming.
    “They should have known inflation was broadening and becoming more entrenched,” said Quincy Krosby, chief equity strategist at LPL Financial. “Why haven’t you seen this coming? This shouldn’t have been a shock. That, I think is a concern. I don’t know if it’s as stark a concern as ‘the emperor has no clothes.’ But it’s the man in the street vs. the PhDs.”
    Consumers in fact had been expressing worries over price increases well before the Fed started raising rates. The Fed, however, stuck to its “transitory” script on inflation for months before finally enacting a meager quarter-point rate hike in March.
    Then things accelerated suddenly earlier this week, when word leaked out that policymakers were getting more serious.

    ‘Just doesn’t add up’

    The path to the three-quarter-point increase Wednesday was a peculiar one, particularly for a central bank that prides itself on clear communication.

    After officials for weeks had insisted that hiking 75 basis points was not on the table, a Wall Street Journal report Monday afternoon, with little sourcing, said that it was likely more aggressive action was coming than the planned 50-basis-point move. The report was followed with similar accounts from CNBC and other outlets. (A basis point is one-one hundredth of 1 percentage point.)
    Ostensibly, the move came about following a consumer sentiment survey Friday showing that expectations were ramping up for longer-run inflation. That followed a report that the consumer price index in May gained 8.6% over the past year, higher than Wall Street expectations.
    Addressing the notion that the Fed should have been more prescient about inflation, Krosby said it’s hard to believe the data points could have caught the central bankers so off guard.
    “You come to something that just doesn’t add up, that they didn’t see this before the blackout,” she said, referring to the period before Federal Open Market Committee meetings when members are prohibited from addressing the public.

    “You could applaud them for moving quickly, not waiting six weeks [until the next meeting]. But then you go back to, if it was that dire that you couldn’t wait six weeks, how is it that you didn’t see it before Friday?” Krosby added. “That’s the market’s assessment at this point.”
    Fed Chair Jerome Powell did himself no favors at Wednesday’s news conference when he insisted that there is “no sign of a broader slowdown that I can see in the economy.”
    On Friday, a New York Fed economic model in fact pointed to elevated inflation of 3.8% in 2022 and negative GDP growth in both 2022 and 2023, respectively at minus-0.6% and minus-0.5%.
    The market did not look kindly on the Fed’s actions, with the Dow Jones Industrial Average losing 4.8% for the week to fall below 30,000 for the first time since January 2021 and wiping out all the gains achieved since President Joe Biden took office.
    Why the market moves in a particular way in a particular week is generally anybody’s guess. But at least some of the damage seems to have come from impatience with the Fed.

    The need to be bold

    Though the 75 basis point move was the biggest one-meeting increase since 1994, there’s a feeling among investors and business leaders that the approach still smacks of incrementalism.
    After all, bond markets already have priced in hundreds of basis points of Fed tightening, with the 2-year yield rising about 2.4 percentage points to around its highest level since 2007. The fed funds rate, by contrast, is still only in a range between 1.5% and 1.75%, well behind even the six-month Treasury bill.
    So why not just go big?
    “The Fed is going to have to raise rates much higher than they are now,” said Lewis Black, CEO of Almonty Industries, a Toronto-based global miner of tungsten, a heavy metal used in a multitude of products. “They’re going to have to start getting up into the high single digits to nip this in the bud, because if they don’t, if this gets hold, really gets hold, it’s going to be very problematic, especially for those with the least.”
    Black sees inflation’s impact up close, beyond what it will cost his business for capital.
    He expects the workers in his mines, based largely in Spain, Portugal and South Korea, to start demanding more money. That’s because many of them took advantage of easily accessed mortgages in Europe and now will have higher housing costs as well as sharp increases in the daily cost of living.
    In retrospect, Black thinks the Fed should have started hiking last summer. But he sees pointing fingers as useless at this point.
    “Ultimately, we should stop looking for who is to blame. There was no choice. This was the best strategy they thought they had to deal with Covid,” he said. “They know what has to be done. I don’t think you can possibly say with the amount of money in circulation that they can just say, ‘let’s raise 75 basis points and see what happens.’ That’s not going to be sufficient, that’s not going to slow it down. What you need now is to avoid recession.”

    What happens now

    Powell has repeatedly said he thinks the Fed can manage its way through the minefield, notably quipping in May that he thinks the economy can have a “soft or softish” landing.
    But with GDP teetering on a second consecutive quarter of negative growth, the market is having its doubts, and there’s some feeling the Fed should just acknowledge the painful path ahead.
    “Since we’re already in recession, the Fed might as well go for broke and give up on the soft landing. I think that’s what investors are expecting now for the short term,” said Mitchell Goldberg, president of ClientFirst Strategy.
    “We could argue that the Fed went too far. We could argue that too much money was handed out. It is what it is, and now we have to correct it. We have to look forward now,” he added. “The Fed is way behind the inflation curve. They have to move quickly and they have to move aggressively, and that’s what they’re doing.”
    While the S&P 500 and Nasdaq are in bear markets — down more than 20% from their last highs — Goldberg said investors shouldn’t despair too much.
    He said the current market run will end, and investors who keep their heads and stick to their longer-term goals will recover.
    “People just had this sense of invincibility, that the Fed would come to the rescue,” Goldberg said. “Every new bear market and recession seems like the worst one ever in history and that things will never be good again. Then we climb out of each one with a new set of stock market winners and a new set of winning sectors in the economy. It always happens.”

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    Starbucks Executive, Prominent in Push Against Union Drive, Will Leave

    Starbucks said Friday that an executive who played a key role in the company’s response to a growing union campaign would leave by the end of the month.In a letter to employees, whom Starbucks calls “partners,” the company’s chief operating officer said that Rossann Williams, the president of retail for North America, would be leaving after 17 years at the company. The letter said the decision was “preceded by discussion about a next opportunity for Rossann within the company, which she declined.”John Culver, the chief operating officer, added in the letter that Ms. Williams “has not only been a fierce advocate for our partners, but she has been a champion of our mission, our culture and operational excellence.”Since December, when a store in Buffalo became the only one of Starbucks roughly 9,000 corporate-owned stores with a union, the campaign has spread rapidly across the country.The union has won over 80 percent of the more than 175 elections in which the National Labor Relations Board has declared a winner, and workers have formally sought elections at more than 275 stores in all.After workers at three Buffalo-area stores filed for union elections in August, Ms. Williams went to the city and spent much of the fall there leading the company’s response to the campaign. She spent many hours in stores, asking employees about concerns they had at their workplaces and even pitching in on tasks like throwing out garbage.But some workers said the presence of such a high-ranking official in their stores was intimidating and even “surreal.”Labor experts also raised concerns that Ms. Williams and other Starbucks officials deployed to the stores could be violating labor laws by intimidating workers and effectively offering to improve working conditions if employees voted against unionizing.The National Labor Relations Board later issued a complaint against the company along these lines, after investigating and finding merit to the accusations.The company denied that it had violated the law and has long said that it is seeking to address operational issues like understaffing and inadequate training, efforts it said had preceded the organizing campaign.In response to a question about whether she or the company might be undermining the conditions for a fair union election, Ms. Williams said in an interview in October that she had no choice but to intervene.“If I went to a market and saw the condition some of these stores are in, and I didn’t do anything about it, it would be so against my job,” she said at the time. “There’s no way I could come here and say I’m not going to do anything.”Mr. Culver’s letter said that Ms. Williams would be replaced by Sara Trilling, who most recently oversaw the company’s operations in the Asia-Pacific region. More

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    Covid Vaccine and Fisheries Deals Close a ‘Roller Coaster’ W.T.O. Meeting

    Members of the global trade group were forced to scale back plans for more ambitious agreements, but they were ultimately able to reach several deals at a meeting in Geneva.WASHINGTON — Members of the World Trade Organization announced several agreements on Friday at the close of their first in-person ministerial conference in four years, pledging to rein in harmful government policies that have encouraged overfishing and relax some controls on intellectual property in an effort to make coronavirus vaccines more widely available.The agreements were hard fought, coming after several long nights of talks and extended periods when it appeared that the meeting would yield no major deals at all. Indeed, while the parties were able to reach a compromise on vaccine technology, the divide remained so deep that both sides criticized the outcome.“It was like a roller coaster, but in the end we got there,” Ngozi Okonjo-Iweala, the director general of the World Trade Organization, said at an early-morning news conference in Geneva after the group’s members approved the final package of agreements.The deals were an important success for an organization that has come under fire for being unwieldy, bureaucratic and mired in disagreement. But several of the government officials, business leaders and trade experts who descended on the trade body’s headquarters on the shore of Lake Geneva this week described the agreements as the bare minimum and said the trade organization, while still operational, was hardly thriving.Wendy Cutler, a vice president at the Asia Society Policy Institute and a former trade negotiator, wrote in an email that the deals, “when packaged together, are enough to claim success but by no means suggest that the W.T.O. has turned a corner.”Ministers ended up stripping out some of the most meaningful elements of a deal to combat harmful subsidies for fishers that have depleted global fish stocks, Ms. Cutler said, and the pandemic response was “too little, too late.”The outcomes “seem particularly meager in light of the grave challenges facing the global economy, ranging from sluggish growth to a serious food crisis to climate change,” she said.To address the growing food crisis around the world, which has been brought on by the pandemic and the war in Ukraine, the group’s members made a mutual declaration to encourage trade in food and try to avoid export bans that are exacerbating shortages.The trade organization also agreed to temporarily extend a ban on taxes or customs duties on electronic transmissions, including e-books, movies or research that might be sent digitally across borders. But the debate was difficult and protracted over an issue that many businesses and some government officials argued should be low-hanging fruit.“Ministers spent the entire week preventing the demise of the e-commerce moratorium, instead of looking ahead at how to strengthen the global economy,” said Jake Colvin, the president of the National Foreign Trade Council, which represents major multinational businesses.One of the trade body’s biggest accomplishments was reaching an agreement to help protect global fishing stocks that has been under negotiation for the last two decades.Governments spend $22 billion a year on subsidies for their fishing fleets, often encouraging industrial fishing operations to catch far more fish than is sustainable, according to the Pew Charitable Trusts. The agreement would create a global framework for sharing information and limiting subsidies for illegal and unregulated fishing operations, as well as for vessels that are depleting overfished stocks or operating on the unregulated high seas.In the organization’s over 25-year history, the deal was only the second agreement on adjusting trade rules to be signed by all of the body’s members. And it was the group’s first agreement centered on environmental and sustainability issues.Oceans advocates had mixed reactions.Isabel Jarrett, manager of the Pew Charitable Trusts’ project to reduce harmful fisheries subsidies, called the agreement “a turning point in addressing one of the key drivers of global overfishing.”“Curbing the subsidies that drive overfishing can help restore the health of fisheries and the communities that rely on them,” she said. “The W.T.O.’s new agreement is a step towards doing just that.”But others expressed disappointment. “Our oceans are the big loser today,” said Andrew Sharpless, the chief executive of Oceana, a nonprofit group focused on ocean conservation. “After 20 years of delay, the W.T.O. failed again to eliminate subsidized overfishing and in turn is allowing countries to pillage the world’s oceans.”As part of the agreement, negotiations will continue with the goal of making recommendations on additional provisions to be considered at next year’s ministerial conference.World Trade Organization members also agreed to loosen intellectual property rules to allow developing countries to manufacture patented Covid-19 vaccines under certain circumstances. Katherine Tai, the U.S. trade representative, said in a statement that the trade organization’s members “were able to bridge differences and achieve a concrete and meaningful outcome to get more safe and effective vaccines to those who need it most.”The issue of relaxing intellectual property rights for vaccines had become highly controversial. It pitted the pharmaceutical industry and developed countries that are home to their operations, particularly in Europe, against civil society organizations and delegations from India and South Africa.Stephen J. Ubl, the president and chief executive of the Pharmaceutical Research and Manufacturers of America, said the agreement had “failed the global population.” Global vaccine supplies are currently plentiful, he said, and the agreement did little to address “real issues affecting public health,” such as supply chain bottlenecks or border tariffs on medicines.Lori Wallach, the director of the Rethink Trade program at the American Economic Liberties Project, called the outcome “a dangerous public health fail” and “a vulgar display of multilateralism’s demise” in which a few rich countries and pharmaceutical companies blocked the will of more than 100 countries to improve access to medicines. The agreement did not loosen intellectual property rights for treatments or therapeutics, as civil society groups had wanted.Divisions between rich and poor countries and between big business and civil society groups were apparent in other negotiations, which were also overlaid with the geopolitical challenges of a global pandemic and the Russian invasion of Ukraine.The World Trade Organization requires consensus from all of its 164 members to reach agreements, and India emerged as a significant obstacle in several of the negotiations, including over e-commerce duties and fishery subsidies.Mr. Colvin said the requirement of unanimous consent had put severe limits on the trade body’s ability to produce meaningful outcomes. “The system is set up to reward hostage-taking and bad faith,” he said.Catrin Einhorn More

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    Fed promises 'unconditional' approach to taking down inflation in report to Congress

    Fed officials rolled out strong language Friday to describe their approach to inflation, promising a full-fledged effort to restore price stability.
    “The Committee’s commitment to restoring price stability — which is necessary for sustaining a strong labor market — is unconditional,” the Fed said in a report to Congress.

    U.S. Federal Reserve Board Chairman Jerome Powell takes questions after the Federal Reserve raised its target interest rate by three-quarters of a percentage point to stem a disruptive surge in inflation, during a news conference following a two-day meeting of the Federal Open Market Committee (FOMC) in Washington, June 15, 2022.
    Elizabeth Frantz | Reuters

    Federal Reserve officials rolled out strong language Friday to describe their approach to inflation, promising a full-fledged effort to restore price stability.
    In its annual report on monetary policy – a precursor to Chairman Jerome Powell’s appearance before Congress next week – the central bank promised it would launch a full effort to bring down inflation pressures running at their fastest pace in more than 40 years.

    “The Committee’s commitment to restoring price stability — which is necessary for sustaining a strong labor market — is unconditional,” the Fed said in a report to Congress.
    That marks the Fed’s strongest statement yet, affirming its commitment to continue raising interest rates and otherwise tightening policy to solve the economy’s paramount issue.

    The statement did not elaborate on what “unconditional” means.
    Earlier this week, the Fed raised its benchmark interest rate three quarters of a percentage point in a further effort to slow demand. Market participants worry that the Fed tightening could bring on a recession, though Powell said he still thinks that can be avoided.
    That rate hike came after a move in May to raise rates by half a point. This week’s move was the most aggressive since 1994.

    Along with rate hikes, the Fed also is reducing assets from its $9 trillion balance sheet by allowing some proceeds from bonds it holds to roll off.
    Earlier in the day, Powell himself made a similar vow, saying he and the rest of the Fed are “acutely focused” on bringing down inflation.

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    Powell vows that the Fed is 'acutely focused' on bringing down inflation

    Federal Reserve Chairman Jerome Powell on Friday reiterated the central bank’s commitment to bringing down inflation.
    In remarks to a conference on the U.S. dollar, he stressed that the Fed is “acutely focused on returning inflation to our 2 percent objective.”
    Earlier this week, the Fed raised rates three-quarters of a percentage point in an effort to bring down surging inflation.

    Federal Reserve Board Chairman Jerome Powell speaks to reporters after the Federal Reserve raised its target interest rate by three-quarters of a percentage point to stem a disruptive surge in inflation, during a news conference following a two-day meeting of the Federal Open Market Committee (FOMC) in Washington, U.S., June 15, 2022.
    Elizabeth Frantz | Reuters

    Federal Reserve Chairman Jerome Powell reiterated the central bank’s commitment to bringing down inflation, saying Friday it’s essential for the global financial system.
    “The Federal Reserve’s strong commitment to our price stability mandate contributes to the widespread confidence in the dollar as a store of value. To that end, my colleagues and I are acutely focused on returning inflation to our 2 percent objective,” Powell said in introductory remarks for a Fed-sponsored conference on the global role of the U.S. currency.

    Those comments come two days after the Federal Open Market Committee voted to raise the benchmark interest rate by three-quarters of a percentage point to a targeted range of 1.5%-1.75%. Banks use the rate to set borrowing costs for short-term loans they provide to each other, but it also feeds through to a multitude of consumer products like credit cards, home equity loans and auto financing.
    Inflation has been soaring over the past year, with the consumer price index in May posting an 8.6% increase over the past year.
    Fed officials target 2% inflation as healthy for a growing economy and have said they will continue raising rates until prices return to that range.
    While inflation hurts consumers through the prices they pay at the grocery store and gas pump as well as a multitude of other activities, Powell’s Friday remarks focused on its global financial importance.
    “Meeting our dual mandate also depends on maintaining financial stability,” Powell said. “The Fed’s commitment to both our dual mandate and financial stability encourages the international community to hold and use dollars.”

    In a addition to price stability, the Fed is charged with maintaining full employment.
    Powell cited the importance of the dollar in global financing, noting in particular the significance of vehicles such as the one the Fed put in place during the Covid pandemic that loaned greenbacks to global central banks in need of liquidity.
    He also noted coming changes to the global financial system, including the use of digital currencies and payments systems like FedNow, a service expected to come online in 2023.
    A digital currency, as has been discussed by Fed officials, could help support the dollar as the world’s reserve currency, he said.
    “Looking forward, rapid changes are taking place in the global monetary system that may affect the international role of the dollar in the future,” Powell added.

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    Inflation Expected to Remain High Even as Economy Slows and Layoffs Rise

    Kat Johnston didn’t expect the pandemic to make her less stressed about her finances. After all, she temporarily lost her job at the library where she worked full time. But, like many Americans, she found an unexpected reprieve from money worries: Months at home limited her spending, and she received expanded unemployment insurance and two one-time checks from the government.“When I first came back to work, I had probably $2,200 in savings — which I know is not much, but it’s more than I’d had in a while,” she said. But it was no match for the inflation that has come since. “That savings is pretty much gone now. As things have gotten so expensive, it’s been almost a paycheck-to-paycheck life.”Ms. Johnston, 31, lives in the Dallas area in a studio apartment and had hoped to upgrade to a one-bedroom — her cat will occasionally use her bed as a litter box, so being able to shut the door would be good. Yet rent is increasing enough that she is considering moving in with a roommate instead.Gas is so expensive that she is buying just a quarter of a tank at a time. Her $65,000 in student loans from undergraduate and graduate school were in forbearance before the pandemic because she was struggling to afford them on her roughly $40,000 annual income. She has been able to continue not paying them because of a government moratorium, but she knows that may not last forever.She’d like to find a better-paying job, but she’s unsure about leaving a secure position — and embarking on a draining job search — at a moment when economists and investors warn of an impending recession. “It does feel like whatever I was thinking I was going to do is on hold,” she said.Kat Johnston has returned to work full time but her savings are depleted and she is thinking about getting a roommate as rents in the Dallas area climb sharply.Dylan Hollingsworth for The New York TimesMillions of Americans are feeling similarly stuck as their savings run low and their cost of living runs high. Now, the economy appears poised to slow — potentially sharply — in ways that could limit wage growth and cause job losses even as prices remain elevated. But instead of rushing to the economy’s aid by giving Americans money, as they did in March 2020, policymakers are engineering this slowdown. Then, the problem was a global pandemic; now, it’s stubbornly high inflation, and the main way the government knows to solve that is by inflicting some economic pain.In other words, the long-predicted “cliff” may finally have arrived.When the first round of pandemic aid programs began to expire in the summer of 2020, economists warned of a looming cliff facing both Americans who still needed government help and the pandemic-addled economy that was not yet ready to stand on its own. They repeated those warnings last fall, when Congress allowed unemployment benefits to expire for millions of workers, and again in January, when monthly payments for families with children came to an end.The loss of those programs and others, including enhanced nutrition benefits, was painful for many families. But for the economy as a whole, the cliffs turned out to be more like potholes. Consumers kept on spending, in part because trillions in government aid had allowed many Americans to build up at least a small financial buffer — as Ms. Johnston did — and in part because a record-setting recovery in the job market gave workers an income boost that helped offset the loss in government aid.Now, as savings run dry and consumers struggle under the weight of higher prices and rising interest rates, early cracks are beginning to show — and are likely to widen from here.Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Greedflation: Some experts contend that big corporations are supercharging inflation by jacking up prices. We take a closer look at the issue. Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.For Investors: At last, interest rates for money market funds have started to rise. But inflation means that in real terms, you’re still losing money.Pay gains have been falling behind inflation for months. Credit card balances, which fell early in the pandemic, are rising toward a record high. Subprime borrowers — those with weak credit scores — are increasingly falling behind on payments on car loans in particular, credit bureau data show. Measures of hunger are rising, even with unemployment still low and the overall economy still strong.“It’s a grim picture already,” said Elizabeth Ananat, an economist at Barnard College who has studied the pandemic’s impact on low-income families. “Families are doing much worse than they were a few months ago.”Matrice Moore-Carr, a registrar at a public hospital in Nashville, Tenn., kept her job during the pandemic, and even managed to get a bit ahead, thanks to stimulus checks that helped her pay off her electric bill and stop worrying, at least for a little while, about whether she could afford gas for her car.When prices began to rise last year, Ms. Moore-Carr took on overtime shifts in the emergency room to make ends meet. When that wasn’t enough, she took a part-time job as a hotel receptionist. Now she is working seven days a week, often multiple jobs in one day, and still struggling to pay her bills.“That’s what’s been helping me keep the gas in the car and food on the table and the electricity going,” she said. “I’ve been making it work. I’m tired, I’ll tell you that. I’m so sleepy.”Ms. Moore-Carr, 52, owns her home, which she said is the only thing that allows her to keep living in Nashville, where both rents and home prices have soared in the pandemic. But the price of everything else has gone up — she joked about buying a horse to save on gas. On Tuesday, she stopped by the bank and turned in $47 in pennies.What she said she really worries about is the prospect of losing her overtime hours.“I don’t know what I’m going to do if anything gets any worse than it is now,” she said. “Am I going to have to cut my meals back? Am I going to have to eat once a day as opposed to three? I don’t know. It’s just tough.”Low-income households, at least on average, emerged from the first two years of the pandemic in remarkably strong financial shape. Trillions of dollars in government aid ensured that poverty fell in 2020, despite the loss of tens of millions of jobs. New rounds of assistance in 2021, including monthly payments through an expanded Child Tax Credit, led to a sharp drop in measures of childhood poverty and hunger. Those programs came from a very different economic moment, however. In 2020, and to a lesser degree in 2021, the needs of individual households and the needs of the broader economy were aligned: Stimulus checks and other forms of government aid helped jobless workers and their families avoid eviction, while at the same time helping businesses avoid bankruptcy, landlords avoid foreclosure, and cities and states avoid a collapse in their tax revenue.Today, that alignment has broken down. Giving people money now might help them pay their bills, but it could also make inflation worse by adding to demand as businesses are already failing to produce enough goods and hire enough workers.The Federal Reserve is instead trying to cool off the economy by raising interest rates, making it more expensive to borrow money to buy a house or expand a company. Weaker business activity will slow hiring, leading to slower wage growth and, most likely, more layoffs. It could also allow America’s goods and services — limited for more than a year by supply chain snarls and labor shortages — to catch up to demand, putting a damper on rising prices.Fed policymakers argue that this strategy is necessary to put the economy on a more sustainable path. But even as conditions take a turn for the worse, inflation will probably take a while to slow, and Fed officials themselves think it will still be elevated at the end of the year.“The transition is going to be very difficult,” said Seth Carpenter, global chief economist at Morgan Stanley and a former Fed economist. “At least historically, it takes a really long time for inflation to come down, even after the economy slows.”Even if the Fed can avoid causing a recession, a weakening labor market will bring hardship for many. Job losses can be devastating, often setting off a downward spiral of eviction and debt. Those who keep their jobs are likely to get fewer hours of work and to lose bargaining power.“Low-income workers, workers with low levels of education, Black and brown workers are the first to lose their jobs and the last to get them back,” said Diane Whitmore Schanzenbach, a Northwestern University economist who studies anti-poverty programs.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Everyone knows inflation is on fire. This is what's really fueling it

    The big three inputs to the consumer price index, the most widely followed inflation measure, are food, energy and shelter.
    But when it comes to breaking down where CPI inflation really comes from, the answer is more complicated. “Services less energy services” is actually the biggest component for the index.

    Meat is seen in a supermarket as rising inflation affects consumer prices in Los Angeles, California, June 13, 2022.
    Lucy Nicholson | Reuters

    Inflation doesn’t just happen at the gas pump and the grocery store. There are literally hundreds of avenues that filter into broader measures the government uses to gauge price increases.
    The big three inputs for the consumer price index, the most widely followed inflation measure, are food, energy and shelter.

    Combined, they make up about 54% of the CPI. More importantly, though, they are the main inputs into perceptions of inflation.
    Because going to the grocery store and filling up the gas tank are activities people do a lot, they tend to notice price fluctuations in them even more. That’s particularly true for gas prices, although they actually make up only a small part of the household budget.
    “Those are the basics,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets. “That’s what you have to spend money on. You have to spend money on shelter, you have to spend money on food, and most of us have to spend money on energy. [Inflation] represents a meaningful challenge for consumer spending.”

    But when it comes to breaking down where CPI inflation really comes from, the answer is more complicated.
    In fact, the biggest component is what the Bureau of Labor Statistics calls “services less energy services.” Think big-ticket items such as shelter but also more obscure ones such as lawn care companies, veterinarian bills and car rentals. Together, that group amounts to 57% of CPI and has risen 5.2% over the past 12 months.

    The next-biggest category: “commodities less food and energy commodities.” That’s household supplies, appliances and clothing, and that category makes up 21.4% of the index. and is up 8.5%.
    In fact, despite all the headlines that gas prices get, the two smallest weightings on the CPI both involve energy: Energy commodities, such as fuel oil and propane, make up 4.8%, while energy services, including electricity and piped gas, contribute 3.4% to CPI. However, those two categories are respectively up 50.3% and 16.2% this year, headline-grabbing numbers.
    The other major groups are food at home, up 11.9%, and food away from home, which has increased 7.4%.
    Economists, such as those at the Federal Reserve, will strip out food and energy costs and look at “core” inflation to get what they think is a better picture of inflation that excludes prices that fluctuate a lot. Core inflation in May rose 6% over the past year, while headline inflation was up 8.6%.
    Even Fed Chair Jerome Powell on Wednesday acknowledged that now is probably a good time to focus on the whole of inflation.
    “The public’s expectations, why would they be distinguishing between core inflation and headline inflation?” the central bank leader said at his post-meeting news conference. “Core inflation is something we think about because it is a better predictor of future inflation, but headline inflation is what people experience. They don’t know what core is. Why would they?”
    The Fed is trying to tame inflation by raising interest rates, but that hasn’t made much of a dent so far.

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