Evelyn Reynolds

Federal Reserve policymakers are going to try to slow down the economy and subdue inflation.
Higher rates make money costlier and borrowing less appealing. That, in turn, slows demand to catch up with supply, which has lagged badly throughout the pandemic.
Fed officials also have talked tough on inflation, in an effort to dampen future expectations.
Potential effects include lower wages, a halt or even a drop in home prices and a decline in stock market valuations.

A customer shops at at a grocery store on February 10, 2022 in Miami, Florida. The Labor Department announced that consumer prices jumped 7.5% last month compared with 12 months earlier, the steepest year-over-year increase since February 1982.
Joe Raedle | Getty Images

The view that higher interest rates help stamp out inflation is essentially an article of faith, based on long-held economic gospel of supply and demand.
But how does it really work? And will it work this time around, when bloated prices seem at least partially beyond the reach of conventional monetary policy?

It is this dilemma that has Wall Street confused and markets volatile.
In normal times, the Federal Reserve is seen as the cavalry coming into quell soaring prices. But this time, the central bank is going to need some help.
“Can the Fed bring down inflation on their own? I think the answer is ‘no,'” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “They certainly can help rein in the demand side by higher interest rates. But it’s not going to unload container ships, it’s not going to reopen production capacity in China, it’s not going to hire the long-haul truckers we need to get things across the country.”
Still, policymakers are going to try to slow down the economy and subdue inflation.
The approach is two-pronged: The central bank will raise benchmark short-term interest rates while also reducing the more than $8 trillion in bonds it has accumulated over the years to help keep money flowing through the economy.

Under the Fed blueprint, the transmission from those actions into lower inflation goes something like this:
The higher rates make money costlier and borrowing less appealing. That, in turn, slows demand to catch up with supply, which has lagged badly throughout the pandemic. Less demand means merchants will be under pressure to cut prices to lure people to buy their products.

Potential effects include lower wages, a halt or even a drop in soaring home prices and, yes, a decline in valuations for a stock market that has thus far held up fairly well in the face of soaring inflation and the fallout from the war in Ukraine.
“The Fed has been reasonably successful in convincing markets that they have their eye on the ball, and long-term inflation expectations have been held in check,” Baird said. “As we look forward, that will continue to be the primary focus. It’s something that we’re watching very closely, to make sure that investors don’t lose faith in [the central bank’s] ability to keep a lid on long-term inflation.”
Consumer inflation rose at a 7.9% annual pace in February and probably surged at an even faster pace in March. Gasoline prices jumped 38% during the 12-month period, while food rose 7.9% and shelter costs were up 4.7%, according to the Labor Department.

The expectations game

There’s also a psychological factor in the equation: Inflation is thought to be something of a self-fulfilling prophecy. When the public thinks the cost of living will be higher, they adjust their behavior accordingly. Businesses boost the prices they charge and workers demand better wages. That rinse-and-repeat cycle can potentially drive inflation even higher.
That’s why Fed officials not only have approved their first rate hike in more than three years, but they also have talked tough on inflation, in an effort to dampen future expectations.
In that vein, Fed Governor Lael Brainard — long a proponent of lower rates — delivered a speech Tuesday that stunned markets when she said policy needs to get a lot tighter.
It’s a combination of these approaches — tangible moves on policy rates, plus “forward guidance” on where things are headed — that the Fed hopes will bring down inflation.
“They do need to slow growth,” said Mark Zandi, chief economist at Moody’s Analytics. “If they take a little bit of the steam out of the equity market and credit spreads widen and underwriting standards get a little tighter and housing-price growth slows, all those things will contribute to a slowing in the growth in demand. That’s a key part of what they’re trying to do here, trying to get financial conditions to tighten up a bit so that demand growth slows and the economy will moderate.”
Financial conditions by historical standards are currently considered loose, though getting tighter.

Indeed, there are a lot of moving parts, and policymakers’ biggest fear is that in tamping down inflation they don’t bring the rest of the economy down at the same time.
“They need a little bit of luck here. If they get it I think they’ll be able to pull it off,” Zandi said. “If they do, inflation will moderate as supply-side problems abate and demand growth slows. If they’re unable to keep inflation expectations tethered, then no, we’re going into a stagflation scenario and they’re going to need to pull the economy into a recession.”
(Worth noting: Some at the Fed don’t believe expectations matter. This widely discussed white paper by one of the central bank’s own economists in 2021 expressed doubt about the impact, saying the belief rests on “extremely shaky foundations.”)

Shades of Volcker

People around during the last serious bout of stagflation, in the late 1970s and early 1980s, remember that impact well. Faced with runaway prices, then-Fed Chair Paul Volcker spearheaded an effort to jack up the fed funds rate to nearly 20%, plunging the economy into a recession before taming the inflation beast.
Needless to say, Fed officials want to avoid a Volcker-like scenario. But after months of insisting that inflation was “transitory,” a late-to-the-party central bank is forced now to tighten quickly.
“Whether or not what they’ve got plotted out is enough, we will find out in time,” Paul McCulley, former chief economist at bond giant Pimco and now a senior fellow at Cornell, told CNBC in a Wednesday interview. “What they’re telling us is, if it’s not enough we will do more, which is implicitly recognizing that they will increase downside risks for the economy. But they are having their Volcker moment.”

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To be sure, odds of a recession appear low for now, even with the momentary yield curve inversion that often portends downturns.
One of the most widely held beliefs is that employment, and specifically the demand for workers, is just too strong to generate a recession. There are about 5 million more job openings now than there is available labor, according to the Labor Department, reflecting one of the tightest jobs markets in history.
But that situation is contributing to surging wages, which were up 5.6% from a year ago in March. Goldman Sachs economists say the jobs gap is a situation the Fed must address or risk persistent inflation. The firm said the Fed may need to take gross domestic product growth down to the 1%-1.5% annual range to slow the jobs market, which implies an even higher policy rate than the markets are currency pricing — and less wiggle room for the economy to tip into at least a shallow downturn.

‘That’s where you get recession’

So it’s a delicate balance for the Fed as it tries to use its monetary arsenal to bring down prices.
Joseph LaVorgna, chief economist for the Americas at Natixis, is worried that a wobbly growth picture now could test the Fed’s resolve.
“Outside of recession, you’re not going to get inflation down,” said LaVorgna, who was chief economist at the National Economic Council under former President Donald Trump. “It’s very easy for the Fed to talk tough now. But if you go a few more hikes and all of a sudden the employment picture shows weakness, is the Fed really going to keep talking tough?”
LaVorgna is watching the steady growth of prices that are not subject to economic cycles and are rising just as quickly as cyclical products. They also may not be as subject to the pressure from interest rates and are rising for reasons not tied to loose policy.
“If you think about inflation, you have to slow demand,” he said. “Now we’ve got a supply component to it. They can’t do anything about supply, that’s why they may have to compress demand more than they normally would. That’s where you get recession.”

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Starbucks workers have added to the momentum of a union campaign that went public in late August and has upended decades of union-free labor at the company’s corporate-owned stores.On Thursday and Friday, workers at six stores in upstate New York voted to unionize, according to the National Labor Relations Board, bringing the total number of company-owned stores where workers have backed a union to 16. The union, Workers United, was also leading by a wide margin at a store in Kansas whose votes were tallied Friday, but the number of challenged ballots leaves the outcome officially in doubt until their status can be resolved.The union has lost only a single election so far, but it is formally challenging the outcome.Since the union secured its first two victories in elections that concluded in December, workers at more than 175 other stores across at least 25 states have filed for union elections, out of roughly 9,000 corporate-owned stores in the United States. The labor board will count ballots in at least three more stores next week.The organizing success at Starbucks appears to reflect a growing interest among workers in unionizing, including the efforts at Amazon, where workers last week voted to unionize a Staten Island warehouse by a significant margin.On Wednesday, the general counsel of the labor board, Jennifer Abruzzo, announced that union election filings were up more than 50 percent during the previous six months versus the same period one year earlier. Ms. Abruzzo expressed concern that funding and staff shortages were making it difficult for the agency to keep up with the activity, saying in a statement that the board “needs a significant increase of funds to fully effectuate the mission of the agency.”Starbucks has sought to persuade workers not to unionize by holding anti-union meetings with workers and conversations between managers and individual employees, but some employees say the meetings have only galvanized their support for organizing.In some cases, Starbucks has also sent a number of senior officials to stores from out of town, a move the company says is intended to address operational issues like staffing and training but which some union supporters have said they find intimidating.The union has accused Starbucks of seeking to cut back hours nationally as a way to encourage longtime employees to leave the company and replace them with workers who are more skeptical about unionizing. And the union argues that Starbucks has retaliated against workers for supporting the union by disciplining or firing them. Last month, the labor board issued a formal complaint against Starbucks for retaliating against two Arizona employees, a step it takes after finding merit in accusations against employers or unions.The company has denied that it has cut hours to prompt employees to leave, saying it schedules workers in response to customer demand, and it has rejected accusations of anti-union activity.As the union campaign accelerated in March, the company announced that Kevin Johnson, who had served as chief executive since 2017, would be replaced on an interim basis by Howard Schultz, who had led the company twice before and remained one of its largest investors.Some investors who had warned Mr. Johnson that the company’s anti-union tactics could damage its reputation expressed optimism that the leadership change might bring about a shift in Starbucks’s posture toward the union. But the company soon announced that it would not agree to stay neutral in union elections, as the union has requested, dampening those hopes.On Monday, the same day that Mr. Schultz returned as chief executive, the company fired Laila Dalton, one of the two Arizona workers the N.L.R.B. had accused Starbucks of retaliating against in March. The company said that Ms. Dalton had violated company rules by recording co-workers’ conversations without their permission.“A partner’s interest in a union does not exempt them from the standards we have always held,” Reggie Borges, a company spokesman, said in a statement, using the company’s term for an employee. More

The Treasury Department’s deputy secretary, Wally Adeyemo, has been leading the effort to crack down on evasion and to coordinate with Europe.WASHINGTON — When Russia imposed retaliatory sanctions on top American officials last month, its government targeted President Biden and his top national security advisers, along with Wally Adeyemo, the deputy Treasury secretary, whose agency has been crafting the punitive measures aimed at crippling Russia’s economy.Russia’s move, while wholly symbolic, underscored the central role that the Treasury Department has been playing in designing and enforcing the most expansive financial restrictions that the United States has ever imposed on a major economic power.Those restrictions amount to an economic war against Russia, which is entering a critical phase as the toll of fighting in Ukraine continues to escalate and as the Russian government tries to find ways to evade or mitigate fallout from Western sanctions.In an attempt to prevent Russia from skirting the penalties, Mr. Adeyemo, a 40-year-old former Obama administration official, spent last week crisscrossing Europe to coordinate a crackdown on Russia’s evasion tactics and to plot future sanctions. In meetings with counterparts, Mr. Adeyemo discussed plans by European governments to target the supply chains of Russian defense companies, some of which the U.S. placed under sanctions last week, and he talked about ways the United States could help provide more energy to Europe so European countries could scale back purchases of Russian oil and gas, a Treasury official said.On Wednesday, five days after Mr. Adeyemo returned, the Biden administration announced additional sanctions on Russian banks, state-owned enterprises and the adult daughters of President Vladimir V. Putin.Still, it remains to be seen whether the sweeping penalties aimed at neutering Russia’s economic power are working.Over the past six weeks, the United States and its allies in Europe and Asia have imposed sanctions on large financial institutions in Russia, its central bank, its military-industrial supply chain and Mr. Putin’s allies, seizing their yachts and planes. Imports of Russian oil to the United States have been banned, and Europe is developing plans to wean itself off Russian gas and coal, albeit slowly. This week, the Treasury Department prohibited Russia from making sovereign debt payments with dollars held at American banks, potentially pushing Russia toward its first foreign currency debt default in a century.But thus far Russia has kept paying its debts. Currency controls imposed by Mr. Putin’s central bank, which restricted Russians from using rubles to buy dollars or other hard currencies, along with continuing energy exports to Europe and elsewhere have allowed the ruble to stabilize and are replenishing Russia’s coffers with more dollars and euros. That has raised questions about whether the measures have been effective.“I think we’re grappling with the aftershocks of the shock and awe of the sanctions that were put in place and the recognition that sanctions take time to fully impact an economy,” said Juan C. Zarate, a former assistant secretary of the Treasury for terrorist financing and financial crimes. “It’s asking too much of sanctions to actually turn back the tanks, especially when sanctions have been implemented after the invasion.”At a speech in London last week, Mr. Adeyemo promoted the ability of sanctions to change behavior, describing the measures as a part of the equation that adversaries such as Russia need to consider when they violate international norms.“The idea that you can violate the sovereignty of another country and enjoy the privileges of integration into the global economy is one our allies and partners will not tolerate,” Mr. Adeyemo said at Chatham House, a think tank.Yet even the United States, which is not reliant on Russian energy, has wrestled with how far to go with its penalties.Within the Treasury Department, officials have been in a debate about how far to push the sanctions without creating unintended consequences that would rattle the financial system and inflame inflation, which is soaring across much of the world.The impact on the U.S. economy has been a top priority, and Janet L. Yellen, the Treasury secretary, has expressed concern about measures that would amplify inflation. The sanctions on Russia have already led to higher prices for gasoline, and officials are wary that they could bring spikes in food and car prices as Russian wheat and mineral exports are disrupted.“Our goal from the outset has been to impose maximum pain on Russia, while to the best of our ability shielding the United States and our partners from undue economic harm,” Ms. Yellen told lawmakers on Wednesday.As officials considered how to target the ruble, Ms. Yellen, a former Federal Reserve chair, argued against just imposing a ban on foreign exchange transactions, which would prevent Russia from buying dollars. She suggested instead that immobilizing Russia’s foreign reserves — savings that are held in U.S. dollars, euros and other liquid assets — while creating exemptions for Russia to accept payment for certain energy transactions would be the most effective way to inflict pain on Russia’s economy while minimizing the impact on the United States and its allies.At a congressional hearing this week, Republicans criticized those carve-outs for being giant loopholes that allow Russia to earn hundreds of millions of dollars per day through oil and gas sales.Treasury Department officials have been tracking measures that Russia has been using to prop up its economy, such as buying stocks and bonds, and monitoring signs of a growing black market for rubles, which indicates the currency’s actual diminished value. The Biden administration has watched with concern as the value of the ruble has rebounded in recent weeks, undercutting pronouncements made by Mr. Biden that sanctions reduced the Russian currency to “rubble.”“Of course that means that, having said that, when the ruble rebounds for reasons that do not necessarily indicate weakness of sanctions, people will say, ‘Well, see, they failed,’” said Daniel Fried, a former U.S. ambassador to Poland and assistant secretary of state for Europe.A Treasury official said the United States was also keeping a private list of oligarchs whose financial transactions were under surveillance in preparation for sanctions so they could gain a better understanding of the networks of people that helped those individuals conceal their money. The United States has yet to impose sanctions on Roman Abramovich, a Russian billionaire who is already subject to European Union sanctions.Economists at the Institute of International Finance wrote in a research note this week that Russia’s domestic markets appeared to be stabilizing as a result of tight monetary policy, severe capital controls and its current account surplus.Russia-Ukraine War: Key DevelopmentsCard 1 of 4Missile attack. More

Human rights activists and others urged the Biden administration to cast a wide net to stop imports of products made with forced labor in Xinjiang.WASHINGTON — Human rights activists, labor leaders and others urged the Biden administration on Friday to put its weight behind a coming ban on products made with forced labor in the Xinjiang region of China, saying slavery and coercion taint company supply chains that run through the region and China more broadly.The law, the Uyghur Forced Labor Prevention Act, was signed by President Biden in December and is set to go into effect in June. It bans all goods made in Xinjiang or with ties to certain entities or programs that are under sanctions and transfer minority workers to job sites, unless the importer can demonstrate to the U.S. government that its supply chains are free of forced labor.It remains to be seen how stringently the law is applied, and if it ends up affecting a handful of companies or far more. A broad interpretation of the law could cast scrutiny on many products that the United States imports from China, which is home to more than a quarter of the world’s manufacturing. That could lead to more detentions of goods at the U.S. border, most likely delaying product deliveries and further fueling inflation.The law requires that a task force of Biden administration officials produce several lists of entities and products of concern in the coming months. It is unclear how many organizations the government will name, but trade experts said many businesses that relied on Chinese factories might realize that at least some part or raw material in their supply chains could be traced to Xinjiang.“I believe there are hundreds, perhaps thousands, of companies that fit the categories” of the law, John M. Foote, a partner in the international trade practice at Kelley Drye & Warren, said in an interview.The State Department estimates that the Chinese government has detained more than one million people in Xinjiang in the last five years — Uyghurs, Kazakhs, Hui and other groups — under the guise of combating terrorism.China denounces these claims as “the lie of the century.” But human rights groups, former detainees, participating companies and the Chinese government itself provide ample documentation showing that some minorities are forced or coerced into working in fields, factories and mines, in an attempt to subdue the population and bring about economic growth that the Chinese government sees as key to stability.Rushan Abbas, the founder and executive director of the nonprofit Campaign for Uyghurs, who has written about the detention of her sister in Xinjiang, said at a virtual hearing convened by the task force on Friday that forced labor had become a “profitable venture” for the Chinese Communist Party, and was meant to reduce the overall population in Xinjiang’s villages and towns.“The pervasiveness of the issue cannot be understated,” she said, adding that forced labor was made possible by “the complicity of industry.”Gulzira Auelkhan, an ethnic Kazakh who fled Xinjiang for Texas, said in the hearing that she had been imprisoned for 11 months in Xinjiang alongside ethnic Kazakhs and Uyghurs who were subject to torture and forced sterilization. She also spent two and a half months working in a textile factory making school uniforms for children and gloves, which her supervisors said were destined for the United States, Europe and Kazakhstan, she said through a translator.It is already illegal to import goods made with slave labor. But for products that touch on Xinjiang, the law will shift the burden of proof to companies, requiring them to provide evidence that their supply chains are free of forced labor before they are allowed to bring the goods into the country.Supply chains for solar products, textiles and tomatoes have already received much scrutiny, and companies in those sectors have been working for months to eliminate any exposure to forced labor. By some estimates, Xinjiang is the source of one-fifth of the world’s cotton and 45 percent of its polysilicon, a key material for solar panels.But Xinjiang is also a major provider of other products and raw materials, including coal, petroleum, gold and electronics, and other companies could face a reckoning as the law goes into effect.In the hearing on Friday, researchers and human rights activists presented allegations of links to forced labor programs for Chinese manufacturers of gloves, aluminum, car batteries, hot sauce and other goods.Horizon Advisory, a consultancy in Washington, claimed in a recent report based on open-source documents that the Chinese aluminum sector had numerous “indicators of forced labor,” like ties to labor transfer programs and the Xinjiang Production and Construction Corps, which has been a target of U.S. government sanctions for its role in Xinjiang abuses.Xinjiang accounts for about 9 percent of the global production of aluminum, which is used to produce electronics, automobiles, planes and packaging in other parts of China.The State Department estimates that China has detained more than one million people in Xinjiang in the last five years. The Urumqi No. 3 Detention Center has room for at least 10,000 people. Mark Schiefelbein/Associated Press“China is an industrial hub for the world,” Emily de La Bruyère, a co-founder of Horizon Advisory, said at the hearing.The Latest on China: Key Things to KnowCard 1 of 4Marriages and divorces. More

When old rules of global commerce no longer seem to apply, masters of esoteric data — ocean shipping container times, anyone? — are thrust into the limelight.“Ship Happens: The Miniseries” is a podcast that would not exist if not for the pandemic, which prompted consumers to begin ordering couches and computer screens so voraciously that the world’s factories and ports could not keep up.But as furniture delays and car shortages began to dominate the headlines last year, Eytan Buchman and his colleagues at Freightos, a global shipping platform, saw an opportunity.“You never really pay attention to something until it’s broken,” said Mr. Buchman, chief marketing officer at the company. “Part of it was giddiness that, hey, people care.”Freightos, which started its podcast about supply chains in November, is among a spate of data providers whose wonks and once esoteric offerings have been catapulted into the spotlight by a pandemic that has rewritten the rules of global commerce and economics.Not that Mr. Buchman was happy that everything felt broken. But he saw that Freightos could help. He and his colleagues had a wealth of shipping data and expertise at their disposal, and they began to think of ways to share it with the world, producing an index of ocean container travel times, releasing the audio program and ramping up media appearances.What could have been a short moment of prominence has lasted well into 2022. Nothing — not shipping routes, not consumer spending, not the labor market and definitely not inflation — seems to be behaving the way it did before the coronavirus struck in early 2020.Inflation is running at its fastest rate in 40 years, and data next week is likely to show that prices climbed more than 8 percent over the year through March. Supply chains remain roiled, employers are desperate to fill open jobs, and Americans have surprised economists by spending right through the rapid price increases and rampant uncertainty.Researchers and policymakers are flying blind, and both they and ordinary people are turning to experts like Mr. Buchman as they try to sketch out a new map of a changed economic landscape. “A very select circle of enlightened individuals found supply chains interesting before, but it was not a widely shared passion,” said Phil Levy, chief economist at Flexport, a freight forwarding and customs brokerage company — displaying the sort of supply chain deadpan that bigger audiences, relatively speaking, are now enjoying.According to a profile kept by Bloomberg, Mr. Levy has racked up 26 unique media mentions so far this year, after 26 in all of 2021 and 15 in 2020. Suddenly, every economist and economics writer seems to be a trade analyst, trying to suss out what might happen to supplies and prices.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.“Normally, when one does forecasting, you look at past experiences,” Mr. Levy said. “That changed with the pandemic.”The revolution started in the toilet paper aisle. At the onset of the pandemic, consumers abruptly started to shop differently. Nobody needed coffee to go or manicures; everyone wanted new home-office furniture.As the government sent out repeated stimulus checks and offered more generous unemployment insurance and families spent more time at home, Americans spent the money on goods rather than the services that consumed a big chunk of their budgets before the pandemic. Even as the aid has faded and business has returned to something approaching normal, demand for things has remained unusually strong.The world’s ships, ports and factories fell behind early in the pandemic, and they have been unable to fully catch up. The situation has only been intensified by unanticipated disruptions like a giant cargo ship’s getting stuck in the Suez Canal. The Ever Given spent six immobile days, drawing global attention to the precariousness of supply chains and ocean commerce — and increasing demand for experts who could explain it.“That was a turning point in freight fame,” Mr. Buchman recalled fondly.For Mr. Levy and his colleagues, the situation was not funny, per se — the blockage was poised to cause problems for customers — but it did spark a flurry of memes in Flexport’s internal Slack messaging channels. (One that sticks in his memory was a photo of the stranded ship superimposed with the words “I told you not to listen to the Waze directions.”)Ever Given stands as a symbol of a larger phenomenon in the pandemic economy: Disruptions keep surfacing, throwing an already struggling system even further out of whack. The mismatch between supply and demand has stoked inflation, which has surprised policymakers both because it has been so rapid and because it has proved long-lasting.And the upheaval extends beyond the world of shipping.Companies cannot find enough workers, in part because the pandemic appears to have accelerated a demographic shift. Baby boomers, who were entering retirement age, left the labor market in large numbers — and it is unclear if they will return. Parents coping with unpredictable child care also left the work force. Employers are grappling with the possibility that workers are in the midst of a “Great Resignation,” possibly encouraged by savings amassed during the pandemic. The labor market shortages have given them a chance to ask for higher pay and better workplace conditions.As the coronavirus era enters its third year, the economic mysteries are many: Will those workers come back? Will America’s appetite for new couches ever be sated? Is there any price that consumers will not pay for cars?Fiona Greig doesn’t know all of the answers. But she has data that might allow her — and others — to come closer than they otherwise would.“I’m now receiving inbound requests from asset managers in Germany, from all walks — our own Federal Reserve Bank, the White House, et cetera,” said Ms. Greig, director of consumer research and co-president at the JPMorgan Chase Institute.The economic data amassed by Fiona Greig at the JPMorgan Chase Institute has become closely watched.Melissa Lyttle for The New York TimesEarly in the pandemic, the institute focused on one metric that was of great interest to a lot of people: what people could spend. The now widely cited graphic uses Chase data to show how much cash households in different income bands have in their checking accounts in near real time, and policymakers and Wall Street econometricians alike have been using it to gauge the spending power of different groups of consumers.Inflation F.A.Q.Card 1 of 6What is inflation? More

St. Louis Fed President James Bullard said the central bank is “behind the curve” on interest rates, but it’s making progress.
Bullard said a rules-based approach suggests the central bank needs to hike its benchmark short-term borrowing rate to about 3.5%.
The comments come the day after minutes from the March FOMC meeting indicated officials were close to approving a 50-basis-point rate hike but settled on 25 points.

James Bullard
Olivia Michael | CNBC

The Federal Reserve needs to raise interest rates substantially to control inflation but may not be as “behind the curve” as it appears, St. Louis Fed President James Bullard said Thursday.
One of the Federal Open Market Committee’s most “hawkish” members in favor of tighter policy, Bullard said a rules-based approach suggests the central bank needs to hike its benchmark short-term borrowing rate to about 3.5%.

However, he said bond market adjustments to the Fed’s more aggressive policy, in which yields have surged higher, suggest rates are not that far askew.
“If you take account of [forward guidance], we don’t look so bad. Not all hope is lost. That is the basic gist of this story,” Bullard said in a speech at the University of Missouri.

“You’re still behind the curve, but not as much as it looks like,” he added. Markets are pricing in rates hitting the 3.5% rate in the summer of 2023, a bit slower than Bullard anticipates, according to CME Group data.
The comments come the day after minutes from the March FOMC meeting indicated officials were close to approving a 50-basis-point rate hike but settled on 25 points due to uncertainty around the war in Ukraine. A basis point equals 0.01%
In addition, members said they foresee the Fed starting to shed some assets on its nearly $9 trillion balance sheet, with the likely pace evolving to a maximum $95 billion a month.

Both moves are an effort to control inflation running at its fastest pace in more than 40 years.
Bullard, a voting member on the FOMC this year, said Thursday that “inflation is too high” and the Fed needs to act. In projections released in March, Bullard called for the highest rates among his committee peers. He has said he wants to see 100 basis points’ worth of hikes by June. The benchmark fed funds rate now is in a range targeted between 0.25%-0.5%.
“U.S. inflation is exceptionally high, and that doesn’t mean 2.1% or 2.2% or something. This means comparable to what we saw in the high inflation era in the 1970s and early 1980s,” he said. “Even if you’re very generous to the Fed in interpreting what the inflation rate really is today … you’d have to raise the policy rate a lot.”
The Fed uses “forward guidance,” such as its quarterly dot plot of individual members’ interest and economic expectations, in directing the market to where it thinks policy is going.
Judging by moves in Treasury yields, the market already has priced in aggressive Fed tightening. That makes the central bank not so far behind the curve in the inflation fight as it might appear, Bullard said.
“The difference between today and the 1970s is central bankers have a lot more credibility,” he said. “In the ’70s, no one believed the Fed would do anything about inflation. It was kind of a chaotic era. You really needed (former Fed Chair Paul) Volcker to come in … . He slayed the inflation dragon and established credibility. After that, people believed the central bank would bring inflation under control.”
Volcker’s rate hikes did bring down inflation in the early 1980s, but not without triggering a double-dip recession.

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The general counsel of the National Labor Relations Board issued a memo on Thursday arguing that the widespread employer practice of requiring workers to attend anti-union meetings is illegal under federal law, even though labor board precedent has allowed it.The general counsel, Jennifer Abruzzo, who enforces federal labor law by prosecuting violations, said her office would soon file a brief in a case before the labor board, which adjudicates such questions, asking the board to reverse its precedent on the meetings.“This license to coerce is an anomaly in labor law, inconsistent with the act’s protection of employees’ free choice,” Ms. Abruzzo said in a statement, referring to the National Labor Relations Act. “I believe that the N.L.R.B. case precedent, which has tolerated such meetings, is at odds with fundamental labor-law principles, our statutory language and our congressional mandate.”In recent months, high-profile employers like Amazon and Starbucks, which are facing growing union campaigns, have held hundreds of meetings in which they try to persuade workers not to unionize by arguing that unions are a “third party” that would come between management and workers.Amazon officials and consultants have repeatedly told workers in mandatory meetings that they “could end up with more wages and benefits than they had prior to the union, the same amount that they had or potentially could end up with less,” according to testimony from N.L.R.B. hearings about a union election in Alabama last year.The company spent more than $4 million last year on consultants who took part in such meetings and sought out workers on warehouse floors.But many workers and union officials complain that these claims are highly misleading. Unionized employees typically earn more than similar nonunion employees, and it is highly unusual for compensation to fall as a result of a union contract.Wilma B. Liebman, who headed the labor board under President Barack Obama, said it would probably be sympathetic to Ms. Abruzzo’s argument and could reverse its precedent. But Ms. Liebman said it was unclear what practical effect a reversal would have, since many employees may feel compelled to attend anti-union meetings even if they were no longer mandatory.“Those on the fence may be reluctant not to attend for fear of retaliation or being singled out,” she wrote by email.According to a spokeswoman, the board’s regional offices, which Ms. Abruzzo oversees, are also likely to issue complaints against employers over the meetings. One union, the Retail, Wholesale and Department Store Union, has brought such a case in Bessemer, Ala., where it recently helped organize workers seeking to unionize an Amazon warehouse. A vote count last week showed union supporters narrowly trailing union opponents in that election, but the outcome will hinge on several hundred challenged votes whose status will be determined in the coming weeks.The labor board spokeswoman said the outcome of the board’s “lead” case on the mandatory meetings would bind the other cases. The case is pending but has not been identified. More

Jobless claims totaled 166,000 last week, the lowest since late 1968.
The decline of 5,000 from a week ago reflected revisions in the way the Labor Department calculates the initial filings numbers.

The labor market tightened further last week, with initial jobless claims falling to their lowest level in more than 53 years, the Labor Department reported Thursday.
Initial filings for unemployment dropped to 166,000, well below the Dow Jones estimate of 200,000 and 5,000 under the previous week’s total, which was revised sharply lower. The department noted that it revised claims from 2017 to 2021 and changed the seasonal factors it is using to calculate the numbers.

Last week’s total was the lowest since November 1968.
The numbers nevertheless reflect a jobs market that is subject to a severe worker shortage. There are about 5 million more employment openings than there are available workers, a situation that has driven up wages and contributed to spiraling inflation.
Federal Reserve officials are raising interest rates to try to constrict outsized demand that comes amid ongoing struggles in supply chains.
Despite the economy’s various obstacles, hiring has remained brisk, with nonfarm payrolls climbing by nearly 1.7 million in the first quarter of 2022.
Continuing claims, however, rose, totaling 1.52 million, according to data that runs a week behind the headline number.

The total of those receiving benefits under all programs declined to 1.72 million. The number was 18.4 million a year ago, when the government was providing enhanced support to workers displaced by Covid. The pandemic’s renewed spread over the winter showed little impact on the overall jobs numbers.
Correction: Jobless claims totaled 166,000 for the week ended April 2. An earlier version misstated the number.

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