Evelyn Reynolds

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    Bank of England raises rates to 1 percent amid recession worries.

    As prices for energy, food and commodities rise after Russia’s invasion of Ukraine, the impact is being felt sharply around the world. In Britain, the central bank pushed interest rates to their highest level in 13 years on Thursday, in an effort to arrest rapidly rising prices even as the risk of recession is growing.The bank predicted that inflation would rise to its highest level in four decades in the final quarter of this year, and that the British economy would shrink by nearly 1 percent.“Global inflationary pressures have intensified sharply in the buildup to and following the invasion,” Andrew Bailey, the governor of the Bank of England, said on Thursday. “This has led to a material deterioration in the outlook,” he added, for both the global and British economies. On an annual basis, the economy would also shrink next year.The Bank of England raised interest rates to 1 percent from 0.75 percent, their highest level since 2009. Three members of the nine-person rate-setting committee wanted to take a more aggressive step and raise rates by half a percentage point. The Bank of England has raised rates at every policy meeting since December.Prices rose 7 percent in Britain in March from a year earlier, the fastest pace since 1992. The central bank predicts the inflation rate will peak above 10 percent in the last quarter of the year, when household energy bills will increase again after the government’s energy price cap is reset in October. Ten percent would be the highest rate since 1982.The rapidly changing landscape was reflected in the prospects for economic growth. In 2023, the bank now predicts, the economy will shrink 0.25 percent instead of growing 1.25 percent, which it predicted three months ago.On Wednesday, policymakers at the U.S. Federal Reserve increased interest rates half a percentage point, the biggest jump in 22 years, in an effort to cool down the economy quickly as inflation runs at its fastest pace in four decades. The U.S. central bank also said it would begin shrinking its balance sheet, allowing bond holdings to mature without reinvestment.On Thursday, the Bank of England said its staff would begin planning to sell the government bonds it had purchased, but a decision on whether to commence these sales hasn’t been made. The bank stopped making new net purchases at the end of last year after buying 875 billion pounds ($1.1 trillion) in bonds. The bank said it would provide an update in August.The outlook for the global economy has been rocked by the war in Ukraine, which is pushing up the price of energy, food and other commodities such as metals and fertilizer. The Covid-19 pandemic continues to disrupt trade and supply chains, particularly from shutdowns stemming from China’s zero-Covid policy. Last month, the International Monetary Fund slashed its forecast for global economic growth this year to 3.6 percent from 4.4 percent, which was predicted in January.The challenge for policymakers in Britain is stark. The Bank of England has a mandate to achieve a 2 percent inflation rate. At the same time, there is evidence that the economy is already slowing down, consumer confidence is dropping and businesses are worried that price increases will depress consumer spending, a key driver of economic growth. With inflation at its highest level in three decades and wage growth unable to keep up, British households are facing a painful squeeze on their budgets.Household disposable income, adjusted for inflation, is expected to fall 1.75 percent this year, the second largest drop since records began in 1964, the bank said. The central bank’s challenge is to slow inflation to ease the pressure on households and businesses without cooling the economy too much and tipping it into a recession.“Monetary policy must, therefore, navigate a narrow path between the increased risks from elevated inflation and a tight labor market on one hand, and the further hit to activity from the reduction in real incomes on the other,” Mr. Bailey said on Thursday.Weighing that alternative, policymakers figured that pressures on costs for business and prices for consumers would persist unless they took action. Companies expect to strongly increase the selling prices for their goods and services in the near term, after the sharp rises in their expenses, the bank said. At the same time, inflation could become more entrenched because the unemployment rate is low, forcing companies to raise wages to meet their hiring needs. More

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    Regulators propose first major revamp to fair housing rules since 1995

    Federal regulators on Thursday proposed significant changes to the Community Reinvestment Act, which addresses fair housing practices.
    The changes look to offer clearer guidelines and public benchmarks for evaluation while allowing smaller banks to continue operating under the former rules.
    The proposal seeks public comment through Aug. 5.

    Lumber at the site of a house under construction in the Cielo at Sand Creek by Century Communities housing development in Antioch, California, U.S., on Thursday, March 31, 2022.
    David Paul Morris | Bloomberg | Getty Images

    Bank regulators on Thursday proposed the first sweeping changes in more than 25 years to a controversial law aimed at increasing lending to low- and moderate-income communities.
    The changes would tailor the Community Reinvestment Act’s approach to making sure banks are not engaging in “redlining,” or refusing to put money in areas often populated by minorities and lower wage earners.

    Passed in 1977, the act has been a sore spot among some banks, particularly larger lenders, who complain about the costs and reporting burdens. However, affordable housing advocates say the CRA has been pivotal in providing equal housing opportunities.
    “The CRA is one of our most important tools to improve financial inclusion in communities across America, so it is critical to get reform right,” said Lael Brainard, the Federal Reserve vice chair. “It evaluates bank engagement across geographies and activities in order to ensure the CRA is effective in supporting a robust and inclusive financial services industry.”
    Since the last CRA revisions, online and mobile banking has become a major part of the finance industry without more specific guidelines for how they will be evaluated under fair housing guidelines.
    The changes look to offer clearer public benchmarks for evaluation while allowing smaller banks to continue operating under the former rules.
    Larger lenders have pushed back against the CRA expansion, saying the rules would add to their costs and are overreaching.

    Fed governor Michelle Bowman said she generally supports the opportunity for revisions but expressed hesitation about the ramifications in the new proposal.
    For instance, she noted that banks with assets greater than $10 billion would be subject to a raft of new disclosure requirements involving car loans, mobile and online banking services and community development funding.
    “While I support issuing the proposed rule for public comment, there are significant unanswered issues posed by the proposal,” Bowman said. “Fundamentally, we do not know if the costs imposed under the proposal will be greater than the benefits.”
    The proposal seeks public comment through Aug. 5, with anticipation that it would take effect a few months after publication in the Federal Register.

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    Fed raises rates by half a percentage point — the biggest hike in two decades — to fight inflation

    The Federal Reserve increased its benchmark interest rate by half a percentage point, in line with market expectations.
    In addition, the central bank outlined a program in which it eventually will reduce its bond holdings by $95 billion a month.
    The rate move is the largest since 2000 and is in response to burgeoning inflation pressures.
    Fed Chairman Jerome Powell underlined the commitment to bringing inflation down but indicated that raising rates by 75 basis points at a time “is not something the committee is actively considering.”

    WASHINGTON — The Federal Reserve on Wednesday raised its benchmark interest rate by half a percentage point, the most aggressive step yet in its fight against a 40-year high in inflation.
    “Inflation is much too high and we understand the hardship it is causing. We’re moving expeditiously to bring it back down,” Fed Chairman Jerome Powell said during a news conference, which he opened with an unusual direct address to “the American people.” He noted the burden of inflation on lower-income people, saying, “we’re strongly committed to restoring price stability.”

    That likely will mean, according to the chairman’s comments, multiple 50-basis point rate hikes ahead, though likely nothing more aggressive than that.

    The federal funds rate sets how much banks charge each other for short-term lending, but also is tied to a variety of adjustable-rate consumer debt.
    Along with the move higher in rates, the central bank indicated it will begin reducing asset holdings on its $9 trillion balance sheet. The Fed had been buying bonds to keep interest rates low and money flowing through the economy during the pandemic, but the surge in prices has forced a dramatic rethink in monetary policy.
    Markets were prepared for both moves but nonetheless have been volatile throughout the year. Investors have relied on the Fed as an active partner in making sure markets function well, but the inflation surge has necessitated tightening.

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    Wednesday’s rate hike will push the federal funds rate to a range of 0.75%-1%, and current market pricing has the rate rising to 2.75%-3% by year’s end, according to CME Group data.

    Stocks leaped higher following the announcement while Treasury yields backed off their earlier highs.
    Markets now expect the central bank to continue raising rates aggressively in the coming months. Powell, said only that moves of 50 basis points “should be on the table at the next couple of meetings” but he seemed to discount the likelihood of the Fed getting more hawkish.
    “Seventy-five basis points is not something the committee is actively considering,” Powell said, despite market pricing that had leaned heavily towards the Fed hiking by three-quarters of a percentage point in June.
    “The American economy is very strong and well-positioned to handle tighter monetary policy,” he said, adding that he foresees a “soft or softish” landing for the economy despite tighter monetary policy.

    The plan outlined Wednesday will see the balance sheet reduction happen in phases, with the Fed allowing a capped level of proceeds from maturing bonds to roll off each month while reinvesting the rest. Starting June 1, the plan will see $30 billion of Treasurys and $17.5 billion on mortgage-backed securities roll off. After three months, the cap for Treasurys will increase to $60 billion and $35 billion for mortgages.
    Those numbers were mostly in line with discussions at the last Fed meeting, as described in minutes from the session, though there were some expectations that the increase in the caps would be more gradual.
    Wednesday’s statement noted that economic activity “edged down in the first quarter” but noted that “household spending and business fixed investment remained strong.” Inflation “remains elevated.”
    Finally, the statement addressed the Covid outbreak in China and the government’s attempts to address the situation.
    “In addition, Covid-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks,” the statement said.
    “No surprises on our end,” said Collin Martin, fixed income strategist at Charles Schwab. “We’re a little bit less aggressive on our expectations than the markets are. We do think another 50 basis point increase in June seems likely. … We think inflation is close to peaking. If that shows some signs of peaking and declines later in the year, that gives the Fed a little leeway to slow down on such an aggressive pace.”
    Though some Federal Open Market Committee members had pushed for bigger rate increases, Wednesday’s move received unanimous support.
    The 50-basis-point increase is the biggest increase the rate-setting FOMC has instituted since May 2000. Back then, the Fed was fighting the excesses of the early dotcom era and the internet bubble. This time around, the circumstances are quite a bit different.
    As the pandemic crisis hit in early 2020, the Fed slashed its benchmark funds rate to a range of 0%-0.25% and instituted an aggressive program of bond buying that more than doubled the size of its balance sheet. At the same time, Congress approved a series of bills that injected more than $5 trillion of fiscal spending into the economy.
    Those policy moves were followed by clogged supply chains and surging demand as economies reopened. Inflation over a 12-month period rose 8.5% in March, as gauged by the Bureau of Labor Statistics’ consumer price index.
    Fed officials for months dismissed the inflation surge as “transitory” then had to rethink that position as the price pressures did not relent.
    For the first time in more than three years, the FOMC in March approved a 25-basis-point increase, indicating then that the funds rate could rise to just 1.9% this year. Since then, though, multiple statements from central bankers pointed to a rate well north of that. Wednesday’s move marked the first time the Fed has boosted rates at consecutive meetings since June 2006.
    Stocks have tumbled through this year, with the Dow Jones Industrial Average off nearly 9% and bond prices falling sharply as well. The benchmark 10-year Treasury yield, which moves opposite price, was around 3% Wednesday, a level it hasn’t seen since late 2018.
    When the Fed was last this aggressive with rate hikes, it took the funds rate to 6.5% in early 2000, but was forced to retreat just seven months later. With the combination of a recession already underway plus the Sept. 11, 2001 terrorist attacks, the Fed rapidly cut, eventually slashing the funds rate all the way down to 1% by mid-2003, shortly after the Iraq invasion.
    Some economists worry the Fed could face the same predicament this time — failing to act on inflation when it was surging, then tightening in the face of slowing growth. GDP fell 1.4% in the first quarter, though it was held back by factors such as rising Covid cases and a slowing inventory build that are expected to ease through the year.

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    Fed Raises Interest Rate Half a Percentage Point, Largest Increase Since 2000

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    Private payrolls increased by 247,000 in April, well below the estimate, ADP says

    Private payrolls increased by just 247,000 for April, payrolls processing firm ADP reported.
    That was well below the estimate for 390,000 and a significant decline from March, which saw an upwardly revised gain of 479,000.
    The report serves as a precursor to Friday’s nonfarm payrolls count, though the two can differ by wide margins.

    A “We’re Hiring” sign hangs on the front door of a toy store in Greenvale, New York, on Sept. 30, 2021.
    John Paraskevas/Newsday RM via Getty Images

    Companies added far fewer jobs than expected in April as the struggle to find workers to fill open positions continued, payrolls processing firm ADP reported Wednesday.
    Private payrolls increased by just 247,000 for the month, well below the 390,000 Dow Jones estimate. That was a big decline from March, which saw an upwardly revised gain of 479,000.

    A drop-off in small business hiring was the primary culprit for the disappointment, as companies with fewer than 50 workers saw a decline of 120,000. The issue was particularly acute in those with fewer than 20 employees, which lost 96,000 workers on the month.
    “In April, the labor market recovery showed signs of slowing as the economy approaches full employment,” said ADP’s chief economist, Nela Richardson. “While hiring demand remains strong, labor supply shortages caused job gains to soften for both goods producers and services providers.”
    Big businesses with 500 or more workers compensated for some of the decline, adding 321,000.
    Leisure and hospitality businesses led job creation with 77,000 additions. Professional and business services grew by 50,000 and education and health services contributed 48,000 to the total.
    Information services was the only sector to report a decline, losing 2,000 workers.

    In all, services-related industries comprised 202,000 of the total while goods producers added 46,000, led by manufacturing’s 25,000, while construction grew by 16,000. (The totals are rounded.)
    The ADP report serves as a precursor to Friday’s more closely watched nonfarm payrolls count from the Bureau of Labor Statistics.
    That report is expected to show growth of 400,000 and a decline in the unemployment rate to 3.5%. If that forecast for the jobless rate is correct, it will match the pre-pandemic level, which was the lowest since December 1969. Payrolls increased by 431,000 in March
    March ended with a gap of 5.6 million between open positions and available workers. That has caused wages to spike, though they have still failed to keep up with inflation running at its fastest pace in more than 40 years.
    Correction: Payrolls increased by 431,000 in March. An earlier version misstated the month.

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    Weekly mortgage demand rose for the first time since early March last week, but it won't last

    The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 5.36% from 5.37% for loans with a 20% down payment.
    Refinance applications rose 0.2% for the week but were still 71% lower than a year ago.
    Mortgage applications to purchase a home rose 4% for the week but were still down 11% year over year.

    Real estate listings
    Adam Jeffery | CNBC

    A brief calm in the midst of a rising interest rate storm boosted weekly mortgage demand ever so slightly last week, but it is unlikely to be the start of a new trend. Rates have already moved sharply higher this week.
    Total mortgage application volume rose 2.5% for the week ended April 29 compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. That was because mortgage rates took a very slight step back, and the spring housing market entered its historically busiest time.

    The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 5.36% from 5.37%, with points falling to 0.63 from 0.67 (including the origination fee) for loans with a 20% down payment. That rate was 218 basis points lower the same week one year ago. Rates shot significantly higher at the start of this week.
    The few borrowers who would benefit from a refinance took their chance. Refinance applications rose 0.2% for the week but were still 71% lower than a year ago. Still the refinance share of mortgage activity decreased to 33.9% of total applications from 35.0% the previous week. Refinances made up a majority of mortgage activity last year.
    Mortgage applications to purchase a home rose 4% for the week but were still down 11% year over year. Homebuyers are now turning more to adjustable-rate mortgages which offer a substantially lower interest rate and can be fixed rate for up to 10 years. The ARM share of activity remained unchanged at 9.3% of total applications, but that is more than twice the share it was a year ago.
    “The purchase market remains challenged by low levels of housing inventory and rapid home-price gains, as well as the affordability hit from higher mortgage rates that are forcing prospective buyers to factor in higher monthly payments,” said Joel Kan, an MBA economist.
    Rates resumed their climb this week, which will make it harder for buyers to afford what few options there are on the market. Affordability is near record lows, and the supply of homes for sale has not increased enough to chill competition.

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    The Fed Wants to Fight Inflation Without a Recession. Is It Too Late?

    Federal Reserve officials took a while to recognize that inflation was lasting. The question is whether they can tame it gently now.The Federal Reserve is poised to set out a path to rapidly withdraw support from the economy at its meeting on Wednesday — and while it hopes it can contain inflation without causing a recession, that is far from guaranteed.Whether the central bank can gently land the economy is likely to serve as a referendum on its policy approach over the past two years, making this a tense moment for a Fed that has been criticized for being too slow to recognize that America’s 2021 price burst was turning into a more serious problem.The Fed chair, Jerome H. Powell, and his colleagues are expected to raise interest rates half a percentage point on Wednesday, which would be the largest increase since 2000. Officials have also signaled that they will release a plan for shrinking their $9 trillion balance sheet starting in June, a policy move that will further push up borrowing costs.That two-front push to cool off the economy is expected to continue throughout the year: Several policymakers have said they hope to get rates above 2 percent by the end of 2022. Taken together, the moves could prove to be the fastest withdrawal of monetary support in decades.The Fed’s response to hot inflation is already having visible effects: Climbing mortgage rates seem to be cooling some booming housing markets, and stock prices are wobbling. The months ahead could be volatile for both markets and the economy as the nation sees whether the Fed can slow rapid wage growth and price inflation without constraining them so much that unemployment jumps sharply and growth contracts.“The task that the Fed has to pull off a soft landing is formidable,” said Megan Greene, chief global economist at the Kroll Institute, a research arm of the Kroll consulting firm. “The trick is to cause a slowdown, and lean against inflation, without having unemployment tick up too much — that’s going to be difficult.”Optimists, including many at the Fed, point out that this is an unusual economy. Job openings are plentiful, consumers have built up savings buffers, and it seems possible that growth will be resilient even as business conditions slow somewhat.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: Times readers sent us their questions about rising prices. Top experts and economists weighed in.Interest Rates: As it seeks to curb inflation, the Federal Reserve announced that it was raising interest rates for the first time since 2018.How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.But many economists have said cooling price increases down when labor is in demand and wages are rising could require the Fed to take significant steam out of the job market. Otherwise, firms will continue to pass rising labor costs along to customers by raising prices, and households will maintain their ability to spend thanks to growing paychecks.“They need to engineer some kind of growth recession — something that raises the unemployment rate to take the pressure off the labor market,” said Donald Kohn, a former Fed vice chair who is now at the Brookings Institution. Doing that without spurring an outright downturn is “a narrow path.”Fed officials cut interest rates to near-zero in March 2020 as state and local economies locked down to slow the coronavirus’s spread at the start of the pandemic. They kept them there until March this year, when they raised rates a quarter point.But the Fed’s balance-sheet approach has been the more widely criticized policy. The Fed began buying government-backed debt in huge quantities at the outset of the pandemic to calm bond markets. Once conditions settled, it bought bonds at a pace of $120 billion, and continued making purchases even as it became clear that the economy was healing more swiftly than many had anticipated and inflation was high.Late-2021 and early-2022 bond purchases, which are what critics tend to focus on, came partly because Mr. Powell and his colleagues did not initially think that inflation would become longer lasting. They labeled it “transitory” and predicted that it would fade on its own — in line with what many private-sector forecasters expected at the time.When supply chain disruptions and labor shortages persisted into the fall, pushing up prices for months on end and driving wages higher, central bankers reassessed. But even after they pivoted, it took time to taper down bond buying, and the Fed made its final purchases in March. Because officials preferred to stop buying bonds before lifting rates, that delayed the whole tightening process.The central bank was trying to balance risks: It did not want to quickly withdraw support from a healing labor market in response to short-lived inflation earlier in 2021, and then officials did not want to roil markets and undermine their credibility by rapidly reversing course on their balance sheet policy. They did speed up the process in an attempt to be nimble.Under Jerome H. Powell, the Fed, which meets on Wednesday, is trying to walk a thin line.Nate Palmer for The New York Times“In hindsight, there’s a really good chance that the Fed should have started tightening earlier,” said Karen Dynan, an economist at the Harvard Kennedy School and a former Treasury Department chief economist. “It was really hard to judge in real time.”Nor was the Fed’s policy the only thing that mattered for inflation. Had the Fed begun to pull back policy support last year, it might have slowed the housing market more quickly and set the stage for slower demand, but it would not have fixed tangled supply chains or changed the fact that many consumers have more cash on hand than usual after repeated government relief checks and months spent at home early in the pandemic.Inflation F.A.Q.Card 1 of 6What is inflation? More