Evelyn Reynolds

The ban on Russian oil imports announced by President Biden on Tuesday could have meaningful consequences for the U.S. economy, pushing prices at the gas pump higher when inflation is already rapid, although how long-lasting that impact might be remains uncertain.“We’re banning all imports of Russian oil and gas and energy,” Mr. Biden said, speaking at a White House briefing. He said the plan would target the “main artery” of the Russian economy. While he acknowledged that the move would likely push gas prices up, he blamed Russian aggression for that reality.The ban applies to imports of Russian oil, liquefied natural gas and coal. It also prohibits new U.S. investments in Russia’s energy sector. And it blocks Americans from financing or enabling foreign companies that are making investments to produce energy in Russia.Europe imports far more of its supply from Russia than the United States, but energy markets are global, and the mere threat of a ban has pushed commodity prices higher in recent days.“Things have been so volatile,” said Omair Sharif, founder of Inflation Insights, noting that it was difficult to tell how much of the rise in oil prices in recent days traces back to this specific ban. But the conflict in Ukraine is clearly pushing commodity gas prices higher — so much so that the national average gas price could rise to nearly $4.50 this month, he said, “assuming we don’t move any more.”While the oil and gas ban is almost sure to push inflation higher in the United States, economists have said that the scale of the economic consequences would depend in large part on how it was structured. For instance, it would likely make a big difference globally and in markets if Europeans also ban Russian oil and gas imports, and it is not yet clear whether or to what extent that will happen.A ban across many countries “would severely reduce and disrupt energy supply on a global scale and already high commodity prices would rise,” Caroline Bain, an economist at Capital Economics, wrote in a research note ahead of the announcement, estimating that the price of the global oil benchmark, Brent crude, would settle in at about $160 per barrel in that case.The Brent crude price jumped by about 6 percent to roughly $130 per barrel by the middle of the day Tuesday. By comparison, it was about $78 per barrel at the end of 2021.The 10 Largest Oil Producers in 2020

Source: Energy Information AdministrationBy The New York TimesIt is not yet clear how many countries will adopt a similar ban: The White House signaled this week that the United States could act separately in blocking imports of Russian oil, noting that countries in Europe are more reliant on Russian energy, something Mr. Biden also alluded to on Tuesday.“Many of our European allies and partners may not be in a position to join us,” he said, but added that allies “remain united in our purpose” to inflict pain on Russia’s war effort. That includes efforts by the European Union to lessen its dependence on Russian energy.Britain indicated on Tuesday that it would take its own steps to ban imports of Russian energy products. Kwasi Kwarteng, the country’s business and energy secretary, said that it would phase out imports of Russian oil and oil products by the end of 2022.Other European countries are under increasing pressure to follow suit.“Everything’s on the table,” Franck Riester, the French minister for foreign trade, told the franceinfo radio station on Monday, adding that France had to look at potential bans on oil and gas imports from Russia with regard to “consequences in terms of pressure on Russia and in terms of economic, financial and social impacts in Europe.”The office of President Emmanuel Macron of France said on Tuesday evening that the country had to coordinate with the European Union before taking any further steps, but acknowledged Europe’s need to reduce its reliance on Russia.“The United States is not dependent on Russian oil and gas, but the European partners are,” Mr. Macron’s office said in a statement. “We have a long-term policy of getting rid of the dependence on Russian oil and gas, but in the immediate future we need to discuss this with our European partners.”While Italy is very dependent on Russian gas, the nation’s government has said that if the European Union decided to cut off its consumption of Russian gas and oil, Italy would not oppose the effort.The direct U.S. economic impact from the loss of Russian oil is likely to be notable, though less severe than what would happen in Europe. According to the International Energy Agency, the United States imported less than 700,000 barrels of oil per day from Russia in 2021. That represents less than 10 percent of what the United States imports globally.Higher global oil and gas commodity prices and rising prices at the pump will add to the inflationary pain that is already dogging consumers. Prices are climbing at the fastest pace in 40 years, and data this week is expected to show that the annual increase climbed higher in February.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

Officials said President Biden had struggled for days over the move amid deep concerns about accelerating the already rapid rise in the price of gasoline.WASHINGTON — President Biden on Tuesday banned imports of Russian oil, gas and coal in response to what he called President Vladimir V. Putin’s “vicious war of choice” in Ukraine, but warned Americans that the decision to inflict economic pain on Russia would inevitably mean higher gas prices at home.“Defending freedom is going to cost,” Mr. Biden said in televised remarks announcing the ban at the White House.The president’s move immediately shut off a relatively small flow of oil into the United States, but it was quickly followed by a British pledge to phase out imports of Russian oil by the end of the year and a declaration from the European Commission — the executive arm of the European Union, which is heavily dependent on Russian oil and gas — to make itself independent of that supply in the coming years.The impact of the decisions quickly rippled across the global energy market amid fears that the supply of oil would shrink. In the United States, the national average price of a gallon of regular gasoline, which had already surged in recent weeks, reached $4.173, not adjusted for inflation, a new high and an average increase of about 72 cents from only a month ago, according to AAA.“If we do not respond to Putin’s assault on global peace and stability today, the cost of freedom and to the American people will be even greater tomorrow,” Mr. Biden said.He vowed to “do everything I can to minimize Putin’s price hike here at home.”Under intense, bipartisan pressure from lawmakers to deny Russia any more oil revenue from Americans, Mr. Biden acted without the unity among allies that has characterized most of the response to Russia’s aggression during the past several months.The moves by Britain and the E.U. fell short of Mr. Biden’s ban. Franck Riester, the French minister for foreign trade, told the Franceinfo radio station on Monday that “everything’s on the table,” but that officials would need to consider “consequences” from an energy ban. In Italy, which imports more than 40 percent of its energy as Russian gas, Prime Minister Mario Draghi has said the overdependence on Russian gas is a strategic weakness for the country.Even as Mr. Biden spoke, describing his ban as “another powerful blow to Putin’s war machine,” a new wave of major corporations across the world began shutting down their operations in Russia on Tuesday.Shell, Europe’s largest oil company, said it would begin withdrawing from its involvement “in all Russian hydrocarbons,” including an immediate halt to all spot purchases of Russian crude and the shuttering of its service stations in the country. McDonald’s, Coca-Cola, Pepsico and Starbucks announced that they would temporarily close all restaurants and pause all operations in Russia in response to the invasion in Ukraine. Amazon stopped letting customers in Russia and Belarus open new cloud computing accounts.An oil refinery in Omsk, Russia. About 12 percent of the world’s oil and 17 percent of its natural gas comes from Russia, according to estimates from J.P. Morgan.Alexey Malgavko/ReutersOfficials said Mr. Biden had struggled for days over whether to cut off Russian oil amid fears of accelerating the already rapid rise in the price of gasoline. It is a potent political issue for Americans in an election year and a test of how much voters are willing to sacrifice in defense of Ukraine.Even into the weekend, as a bipartisan group of lawmakers in the House tried to finalize legislation to impose a ban on Russian oil, the White House expressed deep concerns, according to officials monitoring the discussions, who said the administration appeared wary of letting Congress take the lead on enacting a ban.A vote on the House bill, which is supported by Speaker Nancy Pelosi of California, was delayed late Tuesday.The president and his aides have discussed a series of additional moves to blunt the impact of the ban, including additional releases from strategic oil reserves. Last week, the United States committed to releasing 30 million barrels of oil, joining 30 other nations for a total release of 60 million barrels.Administration officials have also held diplomatic conversations with other oil-producing nations, including Venezuela, about increasing the flow of oil to keep prices stable. Jen Psaki, the White House press secretary, on Monday confirmed discussions with Venezuela about “energy security” and other issues, but declined to elaborate.Any barrels the United States imports to replace Russian oil will come from a global market that is already stretched. Unless and until Russia finds alternative buyers, the constraint on available supplies is likely to keep prices high.U.S. consumers are already feeling the squeeze. In California, prices for some types of gas has hovered around $6 in recent days; on Tuesday the state average was well over $5.Republicans on Tuesday largely backed Mr. Biden’s decision to cut off Russian oil, giving the president a rare moment of bipartisan support. But even as they did so, many Republicans once again seized on high prices at the pump to criticize him and his party.“Democrats want to blame surging prices on Russia,” Representative Kevin McCarthy of California, the House Republican leader, said on Tuesday. “But the truth is, their out-of-touch policies are why we are here in the first place.”In his remarks, Mr. Biden cast the decision as a moral one, aimed at further crippling Mr. Putin’s economy as Russian forces continued their brutal bombardment of civilians in several of Ukraine’s cities and suburbs after two grueling weeks of war in Europe.“Ukrainian people have inspired the world and I mean that in the literal sense,” Mr. Biden said. “They’ve inspired the world with their bravery, their patriotism, their defiant determination to live free. Putin’s war has caused enormous suffering and needless loss of life of women, children, and everyone in Ukraine.”He added: “Putin seems determined to continue on his murderous path, no matter the cost.”Battles continued to rage across Ukraine on Tuesday as humanitarian officials reported that two million refugees have fled the country seeking safety. But casualties increased as evacuations though supposed “green corridors” continued to come under fire.About 2,000 civilians were able to escape Irpin, a suburb just northwest of Kyiv, Ukraine’s capital, which has spent days without water, power and heat because of the heavy fighting in the area. In the war-battered city of Sumy, east of Kyiv, one humanitarian corridor lasted long enough to allow hundreds of civilians to escape in a convoy of buses led by the Red Cross.Civilians were evacuated from Irpin, Ukraine on Tuesday.Lynsey Addario for The New York TimesBut hundreds of thousands of Ukrainians remain trapped in the besieged southern city of Mariupol.The Ukrainian military claimed to have shot down three Russian fighter jets and a cruise missile early Tuesday, an assertion that appeared to be backed up by several loud explosions over Kyiv, a potential sign that Ukraine’s air defense systems and air force are still functioning.President Volodymyr Zelensky of Ukraine taunted Mr. Putin on Tuesday with a video showing him in his office in Kyiv and saying: “I’m not hiding. And I’m not afraid of anyone.” Mr. Zelensky also spoke by video link to a packed meeting of Britain’s Parliament.The Pentagon on Tuesday rejected an offer by Poland to send its MiG-29 fighter planes to a U.S. air base in Germany to aid the Ukrainians, saying that for such jets to depart a U.S./NATO base “to fly into airspace that is contested with Russia over Ukraine raises serious concerns for the entire NATO alliance.”Separately, the Pentagon said it was sending two Patriot anti-missile batteries to Poland to protect U.S., Polish and other allied troops there, reflecting an increasing fear in Warsaw and in Washington that Russian missiles fired in neighboring Ukraine could end up in Poland, whether on purpose or by accident.White House officials said the president signed an executive order on Tuesday that prohibits anyone in the United States from importing “Russian crude oil and certain petroleum products, liquefied natural gas and coal.” It also bans new U.S. investment directly in Russia’s energy sector or in foreign companies that are investing in energy production in Russia, officials said.In announcing his decision, Mr. Biden acknowledged that some European countries, including Germany and France, would most likely not follow suit because they rely much more heavily on energy from Russia.“A united response to Putin’s aggression has been my overriding focus to keep all of NATO and all of the E.U. and our allies totally united,” Mr. Biden said. “We’re moving forward with this ban understanding that many of our European allies and partners may not be in a position to join us.”Russia-Ukraine War: Key Things to KnowCard 1 of 4Russian oil imports. 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After years of cultivating the Russian market, McDonald’s, Starbucks, PepsiCo and Coca-Cola said they would temporarily close locations or stop selling products there.When McDonald’s opened its doors in Moscow’s Pushkin Square in 1990, it was welcomed by more than 30,000 Russians who happily waited hours in line, eager to spend a sizable chunk of their daily wages for a taste of America.Through burgers and fries, a food diplomacy was forged, one that flourished over the past three decades as corporations like McDonald’s and PepsiCo, private investment firms, and individuals plunged billions of dollars into building factories and restaurants to bring food, culture and good-old American capitalism to Russia. It was perestroika and glasnost sandwiched between two buns.“McDonald’s was more than the opening of a simple restaurant,” Marc Carena, a former managing director of McDonald’s Russia, told Voice of America in 2020 when the Golden Arches celebrated the 30th anniversary of its first location in what was the Soviet Union. “It came to symbolize the entire opening of the U.S.S.R. to the West.”But Russia’s invasion of Ukraine has changed everything, and food companies and restaurant chains have struggled with how to respond. Amid mounting pressure to act, McDonald’s announced on Tuesday that it was temporarily closing its nearly 850 locations in Russia and halting operations in the country.“In the 30-plus years that McDonald’s has operated in Russia, we’ve become an essential part of the 850 communities in which we operate,” Chris Kempczinski, the company’s chief executive, said in a statement announcing the move. He noted that the company employed 62,000 people in the country.Soon after the McDonald’s announcement, other prominent food companies and restaurants followed. Starbucks said it, too, was closing all of its locations in Russia, where they are owned and operated by the Kuwaiti conglomerate Alshaya Group. Coca-Cola said it was halting sales there.And PepsiCo, whose products have been in Russia since the early 1970s, said it would no longer sell Pepsi and 7-Up there but would continue to produce dairy and baby food products in the country as a “humanitarian” effort and to keep tens of thousands manufacturing and farm workers employed.Investors, as well as social media users, have been applying pressure on businesses to pull out of Russia, especially fast-food chains, which have been criticized for lagging behind other companies with decisions about their Russia operations.For food companies that have spent decades cultivating the Russian market, the act of pausing or ceasing operations in the country is complex. It involves unwinding often byzantine local supply and manufacturing chains, addressing the fates of tens of thousands of Russian employees, and untangling close ties with Russian banks, investors and others that allowed them to flourish all these years.Russian operations make up only 3 percent of McDonald’s operating income but 9 percent of its revenue. Likewise, Russia accounts for $3.4 billion, or 4 percent, of PepsiCo’s annual revenue of $79.4 billion. The company says on its website that it is the largest food and beverage manufacturer in Russia. It owns more than 20 factories in the country.“PepsiCo has been there forever. PepsiCo was there under Nixon,” said Bruce W. Bean, a professor emeritus at Michigan State University’s law school who, as an American lawyer in Russia, worked with companies making investments there.“Obviously, PepsiCo can walk away from the business,” Mr. Bean added. “It will hurt them, but it will hurt the Russians who have picked up the business, the Russians that distribute its product — it hurts them more.”Some companies — like Yum Brands and Papa John’s, which have hundreds of restaurants bearing their names across Russia — most likely have less control over whether those restaurants close because many are owned by individuals or groups of investors through franchise agreements, franchise experts said.“It’s messy,” said Ben Lawrence, a professor of franchise entrepreneurship at Georgia State University. As long as the franchisees are meeting the requirements under their agreement and paying the royalty fees, it’s hard to tell them to shut down, he said.Yum, which owns KFC and Pizza Hut, said on Tuesday that it was suspending operations at 70 company-owned KFCs and all 50 franchise-owned Pizza Huts in Russia. (The vast majority of the 1,000 KFCs in Russia are franchise-owned and, at this time, not part of these suspensions.) Yum also said it would suspend all “investment and restaurant development” in Russia and divert any profits from the region to humanitarian efforts.McDonald’s, which has invested millions of dollars into building restaurants in Russia and is a symbol of American culture, has felt the impact of geopolitics before. In 2014, when the United States and other nations imposed economic sanctions on Russia over its annexation of Crimea, the authorities suddenly closed down a number of McDonald’s locations in Russia, including in Pushkin Square, citing sanitary conditions. The Pushkin Square location reopened 90 days later.The line of customers in Moscow when McDonald’s opened its first location in the Soviet Union in 1990.Vitaly Armand/Agence France-Presse — Getty ImagesFor the better part of the last two decades, Russia has been one of the fastest-growing markets for American brands, particularly fast-food chains. McDonald’s, KFC, Subway and others thrived not only because they were a midday glimpse of Western civilization but also because they were relatively cheap places to grab a meal.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

The average price of a gallon of gasoline is up more than 10 percent in the last week, leading some consumers to rethink their routines and spending.After months of working from home, Caroline McNaney, 29, was excited about going back to work in an office, even if her new job in Trenton, N.J., meant commuting an hour each way.But when she spent $68 filling the tank of her blue Nissan Maxima this week, she felt a surge of regret about switching jobs.“Is this for real?” Ms. McNaney recalled thinking. “I took a job further from home to make more money, and now I feel like I didn’t do anything for myself because gas is so high.”The recent rise in gas prices — which the war in Ukraine has pushed even higher — has contributed to her sense of disappointment with President Biden. “I feel like he wants us to go out and spend money into the economy, but at the same time everything is being inflated,” she said.Americans everywhere are feeling the sting of rising gasoline, which reached a national average of $4.07 a gallon on Monday, up more than 10 percent from a week ago. The last time consumers dealt with such a period of sharp price increases was when the global economy came undone during the 2008 financial crisis. (At that time, the average price per gallon reached roughly $5.37 when adjusted for inflation.)How Gas Prices Have JumpedThe average price of regular gasoline on Monday, compared with a week ago, in select states. (See below for a full list of current averages by state.)

Source: AAABy The New York TimesThis time, the high gasoline prices are hitting during multiple crises, including Russia’s invasion of Ukraine, a pandemic that is receding but still not over, and the highest inflation levels in 40 years.Gas prices were already increasing before the invasion last month, as oil suppliers scrambled to keep up with rising demand from consumers and businesses recovering from Covid disruptions. But calls in recent days from U.S. lawmakers and others to ban Russian oil imports have spurred worries about another hit to global supplies. Prices at the pump, in turn, soared rapidly.The sticker shock is creating a conundrum for the Biden administration, which is trying to isolate Russia’s leader, Vladimir V. Putin, without squeezing the United States economy in the process.The extreme prices — which for some types of gas have hovered near $6 a gallon in parts of California — could be fleeting. Accelerating production in the shale oil fields of Texas and other regions is expected to begin replenishing supplies soon.Michael Feroli, chief U.S. economist at J.P. Morgan, said he expected consumer spending to slow over the next few months as Americans pay more to fill up their tanks. Some people will be able to draw on savings to partly cushion the blow, he said.“The long-term impact should be somewhat minimal,” Mr. Feroli said.Gasoline accounts for only a fairly small share of consumers’ overall spending, but because gas prices are so visible — posted in giant numbers alongside every highway in the country — they have an outsize influence on people’s perceptions of inflation and the economy.That perception is an increasingly dark one, according to drivers interviewed filling up on Monday. They said the higher prices had already caused them to cut back on expenses and small pleasures like going out to eat.For many, the high prices are another hurdle frustrating their efforts to return to normalcy after the pandemic.Since moving to the United States from Torreón, Mexico, in 2007, Jesús López, 36, was used to gas prices rising steadily for a few days, but eventually coming back down. Mr. López said this time felt different because he wasn’t seeing a stop to the climb when he filled up the tank of his 2008 Ford Expedition.Mr. López, who works as a school janitor in Dallas, said that if prices kept skyrocketing, he would have to cut back on leisure activities.“It’s sad that if I stop going to a restaurant, a toxic cycle will be created,” said Mr. López. “If I stop spending money on a restaurant, they’ll get less income and people could lose their jobs.”Mr. López said he empathized with Ukrainians, but lamented that the conflict overseas was also affecting working-class people in the United States.“If I have to spend more to go to work, then I’ll do it,” he said. “I’ll just have to administer and budget my money more if I want to keep having a decent lifestyle.”Sandy Ramos, 24, who lives in Cerritos, Calif., says much of the money she makes at her part-time job as a research and development engineering intern now goes to food and gas.She has looked into taking public transportation to work instead of driving, but that would add time to her already hourlong commute. Instead she is saving money in other ways, like cutting back spending on clothing.Ms. Ramos said she didn’t know where to direct her frustration over gas prices. “I don’t know who to blame or what to blame,” she said. “I feel like someone needs to be responsible for it.”The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

Global stocks dipped on Monday as U.S. officials discussed an oil cutoff, and gas prices hit a national average above $4, up more than 10 percent in a week.WASHINGTON — President Biden came under pressure on Monday to ban Russian oil imports into the United States, forcing the administration to consider action that could further punish President Vladimir V. Putin of Russia but exacerbate high gas prices that are hurting consumers at home.On Monday, a bipartisan group of American lawmakers agreed to move ahead with legislation that would ban Russian energy imports in the United States and suspend normal trade relations with Russia and Belarus. Some European countries, which are highly dependent on Russian energy, have expressed a willingness to reduce their reliance on those imports.Jen Psaki, the White House press secretary, said that “no decision has been made at this point by the president about a ban on importing oil from Russia,” adding that discussions were “ongoing internally” and with European allies.“I would note what the president is most focused on is ensuring we are continuing to take steps to deliver punishing economic consequences while taking all actions necessary to limit the impact of prices at the gas pump,” she said.Global stocks slid on Monday amid worries of an oil ban and escalating Russian attacks on Ukraine. It was Wall Street’s worst day in more than a year.The S&P 500 fell 3 percent, its sharpest daily decline since October 2020. The Nasdaq composite dropped 3.6 percent and is now 20 percent off its November record, entering territory known on Wall Street as a bear market, denoting a serious downturn.The Biden administration, along with its global allies, has already imposed sweeping financial, trade and technology sanctions on Russia, but Western countries have deliberately carved out its energy sector, with top U.S. officials saying it would be unwise to disrupt global supplies given how heavily Europe relies on Russian oil and gas. Some officials also view the move as potentially enriching Mr. Putin by driving up gas prices. The average price in the United States reached a national average of $4.07 per gallon on Monday, up more than 10 percent from a week ago.At his State of the Union speech last week, Mr. Biden talked about the economy’s strength but noted that high gas prices, along with rapid inflation, are hurting consumers. Those dynamics pose a political problem for the president, whose approval rating has suffered amid voter concerns about his handling of the economy.Mr. Biden spoke with the leaders of Britain, France and Germany by video on Monday, and the four “affirmed their determination to continue raising the costs on Russia for its unprovoked and unjustified invasion of Ukraine,” according to a White House statement.But that cross-border cooperation could stop with oil. Chancellor Olaf Scholz of Germany said his country could not simply turn off the spigot.“Europe has deliberately exempted energy supplies from Russia from sanctions,” he said in a statement on Monday. “At the moment, Europe’s supply of energy for heat generation, mobility, power supply and industry cannot be secured in any other way.”Biden administration officials say the immediate discussions over Russian energy are focused on banning domestic oil imports rather than carrying out wider sanctions that would cut off purchases by other countries. That could lessen the economic shock to oil markets given the United States does not import much Russian crude.Last fall, it imported about 700,000 barrels per day from Russia, less than 10 percent of its total oil imports, U.S. officials said. By contrast, Europe imported 4.5 million barrels per day from Russia, about one-third of its total imports. The United States can easily find a way to make up for any loss of Russian oil, while Europe would have a harder time doing so, analysts said.But any disruption in the flow of oil could further rattle global markets, including oil prices, which have surged because of the uncertainty over Mr. Putin’s invasion of Ukraine. Brent crude, the global benchmark, ended Monday up about 4.3 percent to $123.21 a barrel, but earlier it had climbed as high as $139 a barrel. The price of oil has soared about 26 percent over the past week as the conflict has intensified.In a sign of how concerned the administration is about the uncertainties around global energy flow, American officials have been discussing the possibility of increasing supply or distribution with their counterparts in oil-producing nations, including Saudi Arabia and Venezuela, which is a partner of Russia and has been subject to broad U.S. sanctions for years.On Feb. 15, more than one week before Mr. Putin’s invasion of Ukraine, Mr. Biden said in a speech that a conflict involving Russia could affect American consumers. “I will not pretend this will be painless,” he said. “There could be impact on our energy prices, so we are taking active steps to alleviate the pressure on our own energy markets and offset rising prices.”It is unclear how much pain an import ban would actually inflict on Russia. Moscow could try to make up for import bans by arranging to sell more oil to other customers, including China.China is Russia’s most powerful strategic partner, and it has supported Moscow’s grievances against the United States and NATO during the war in Ukraine. On Monday, the Chinese foreign minister, Wang Yi, said at a news conference in Beijing that “no matter how perilous the international landscape, we will maintain our strategic focus and promote the development of a comprehensive China-Russia partnership in the new era.”Customers like China would have leverage to bargain down the purchase price, so Russia might still face a shortfall in revenue.Russia-Ukraine War: Key Things to KnowCard 1 of 4A humanitarian crisis. More

In a first pass at gauging the economic impact from the Ukraine invasion, forecasters say the U.S. will grow more slowly with higher inflation, Europe’s economy will flirt near recession and Russia will plunge into a deep, double-digit decline.
The CNBC Rapid Update, the average of 14 forecasts for the U.S. economy, sees GDP rising by 3.2% this year, a modest 0.3% markdown from the February forecast, but still above-trend growth as the US continues to bounce back from the Omicron slowdown. Inflation for personal consumption expenditures, the Fed’s preferred indicator, is seen rising by 4.3% this year, 0.7 percentage points higher than the prior survey in February.

Arrows pointing outwards

CNBC Rapid Update

Forecasters cautioned, however, that much remains unknown about how the U.S. economy will respond to an oil shock that has seen crude prices surge quickly above $126 a barrel and the national average gasoline price over $4 per gallon. Most see risks to their forecasts skewed toward higher inflation and lower growth.
A complete removal of Russian oil from global supply could mean a far more grim outcome, economists said.
“…The consequences of a complete shut-off of Russia’s 4.3 (million barrels per day) of oil exports to the US and Europe would be dramatic,” JPMorgan wrote over the weekend. “To the extent that this disengagement gathers steam, the size and length of the disruption — and thus the shock to global growth— will build.”
The CNBC Rapid Update shows U.S. growth accelerating to 3.5% in the second quarter from 1.9% in the first. But that second quarter estimate is down 0.8 percentage points from the prior survey. So the economy is still seen bouncing back from the omicron wave, but not as strongly as inflation takes a bigger bite.
Inflation estimates are 1.7 percentage points higher for this quarter and 1.6 percentage points for next. Inflation is expected to decline from 4.3% this year to 2.4% by year-end.

Arrows pointing outwards

CNBC Rapid Update

Overall, U.S. economic growth is seen enduring.
“Energy prices are spiking, and they may remain higher persistently, but I expect much of the run-up seen in recent days to recede within a few months, which means mainly a short-term impact on growth and inflation,” said economist Stephen Stanley, with Amherst Pierpont. “Consumers have massive liquidity, income growth, and wealth to draw on.”
One factor that makes this price shock different from others is how much oil the U.S. produces. With U.S. production and demand in rough balance, money is transferred from consumers to producers inside the economy, rather than from the U.S. to foreigners. That will hit individual American families and certain regions of the country harder, but boost the profits of U.S. energy companies.

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Oil companies, in turn, will likely boost growth by using profits to increase drilling.
Still, some are pessimistic that the drag from higher prices will lead to a bigger drag on U.S. growth. “The US is on the cusp of a recessionary inflation, with energy and now food prices potentially soaring significantly further,” said Joseph Lavorgna of Natixis.

Europe to be hit harder

Most agree that effect will be worse in Europe.
Barclays marked down its growth forecast for Europe this year to 3.5% from 4.1% last month.
“Soaring commodity prices and risk aversion in financial markets are the main contagion channels, implying a global stagflationary shock, with Europe being the most exposed region” the investment bank said.

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JPMorgan took off nearly a full percentage from European growth this year, and now forecasts GDP will increase by 3.2%. But the second quarter has been filled in at zero.
Russia is forecast to get hit hardest of all. JPMorgan forecasts a 12.5% decline in GDP as the country’s economy buckles under the weight of unprecedented sanctions that have frozen its $630 billion in foreign exchange reserves and cut its economy off from the rest of the world.
The Institute for International Finance sees a 15% contraction, double the decline from global financial crisis. “We see risks as tilted to the downside. Russia will never be the same again” wrote IIF’s Chief Economist Robin Brooks.

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A Biden administration report says collusion and other constraints on competition hold down pay and prospects in the labor market.The recent narrative is that there is a tight labor market that gives workers leverage. But a new report from the Biden administration argues that the deck is still stacked against workers, reducing their ability to move from one employer to another and hurting their pay.The report, released Monday by the Treasury Department, contends that employers often face little competition for their workers, allowing them to pay substantially less than they would otherwise.“There is a recognition that the idea of a competitive labor market is a fiction,” said Ben Harris, assistant Treasury secretary in the office of economic policy, which prepared the report. “This is a sea change in economics.”The report follows up on a promise made by President Biden last summer when he issued an executive order directing his administration to address excessive concentration in the market for work.Drawing from recent economic research, the report concludes that lack of competition in the job market costs workers, on average, 15 to 25 percent of what they might otherwise make. And it emphasizes that the administration will deploy the tools at its disposal to restore competition in the market for work.“This is the administration declaring where it is on the enforcement of antitrust in labor markets,” Tim Wu, a special assistant to the president for technology and competition policy on the National Economic Council, said in an interview in which he laid out the report’s findings. “It is sending a strong signal about the direction in which antitrust enforcement and policy is going.”Across the economy, wage gains generally come about when a worker changes jobs or has a credible offer from outside that will encourage the current employer to provide an increase, argues Betsey Stevenson, a professor of economics at the University of Michigan who was on President Barack Obama’s Council of Economic Advisers.The State of Jobs in the United StatesEmployment growth accelerated in February, as falling coronavirus cases brought customers back to businesses and workers back to the office.February Jobs Report: U.S. employers added 678,000 jobs and the unemployment rate fell to 3.8 percent ​​in the second month of 2022.Wages and Prices: A labor shortage is helping to push up workers’ pay. With inflation running hot, that could be a problem for the Federal Reserve.Service Workers:  Even as employers scramble to fill vacancies, service workers are seeing few gains. Part-time work is partly to blame.Unionization Efforts: The pandemic has fueled enthusiasm for organized labor. But the pushback has been brutal, especially in the private sector.New to the Work Force: Graduating college seniors will start their career without the memory of prepandemic work life. Here is what they expect.“Companies are well aware of this,” she said in an interview, so they rally around a simple solution: “If we just stop competing, it will be better for everybody.”The Treasury report lays out the many ways in which employers do this. There are noncompete agreements that bar workers from moving to a competitor, and nondisclosure agreements that keep them from sharing information about wages and working conditions — critical information for workers to understand their options. Some companies make no-poaching deals.“There is a long list of insidious efforts to take power out of the hands of workers and seize it for employers’ gain,” said Seth Harris, deputy director at the National Economic Council and deputy assistant to the president for labor and the economy.This is happening against a backdrop of broad economic changes that are hemming in the options of many workers, especially at the bottom end of the job market.The outsourcing of work to contractors — think of the janitors, cafeteria workers and security guards employed by enormous specialist companies, not by the companies they clean, feed and protect — reduces the options for low-wage workers, the report argues.The mergers and acquisitions that have consolidated hospitals, nursing homes, food processing companies and other industries have also reduced competition for workers, the study says, curtailing their ability to seek better jobs.The report notes, for instance, that mergers trimmed the number of hospitals in the United States to 6,093 in 2021, from 7,156 in 1975. It cites research into how some of these mergers have depressed the wage growth for nurses, pharmacy employees and other health workers.The Treasury’s document is drawn from a body of research that has been growing since the 1990s, when a seminal paper by David Card and Alan B. Krueger found that raising the minimum wage did not necessarily reduce employment and could even produce more jobs.The conclusion by Mr. Card and Mr. Krueger, which economists would consider impossible in a competitive labor market in which rising labor costs would reduce employer demand, started the discipline down a path to investigate the extent to which employers competed for workers. If a few employers had the power to hold wages below the competitive equilibrium, raising the wage floor might draw more workers in.Lack of competition, the Biden administration argues, goes a long way to explain why pay for a large share of the American work force is barely higher, after accounting for inflation, than it was a half-century ago. “The fact that workers are getting less than they used to is a longstanding problem,” Ms. Stevenson, who was not involved in the Treasury report, noted.Anticompetitive practices thrive when there are fewer competitors. If workers have many potential employers, they might still agree to sign a noncompete clause, but they could demand a pay increase to compensate.Even if there is no conclusive evidence that the labor market is less competitive than it used to be, the report says, researchers have concluded that there is, in fact, very little competition.Suresh Naidu, a professor of economics at Columbia University, argues, moreover, that institutions like the minimum wage and unions, which limited employers from fully exercising their market power, have weakened substantially over time. “The previously existing checks have fallen away,” Mr. Naidu said.Unions are virtually irrelevant across much of the labor market. Only 6 percent of workers in the private sector belong to one. The federal minimum wage of $7.25 an hour is so low that it matters little even for many low-wage workers. The Treasury report argues that an uncompetitive labor market is reducing the share of the nation’s income that goes to workers while increasing the slice that accrues to the owners of capital. Moreover, employers facing little competition for workers, it argues, are more likely to offer few benefits and impose dismal working conditions: unpredictable just-in-time schedules, intrusive on-the-job monitoring, poor safety, no breaks.The damage runs deeper, the report says, arguing that uncompetitive labor markets reduce overall employment. Productivity also suffers when workers have a hard time moving to new jobs that could offer a better fit for their skills. Noncompete clauses discourage business formation when they limit entrepreneurs’ ability to find workers for their ventures.Addressing the issues that the report singles out is likely to be an uphill task. The administration’s push to increase the federal minimum wage to $15 has been unsuccessful. In Congress, bills that would ease the path for workers to join a union face long odds. Going after noncompete clauses, no-poaching deals and other forms of anticompetitive behavior would be an easier task.Last year, the Justice Department’s antitrust division brought several cases challenging no-poaching and wage-setting agreements. In January, four managers of home health care agencies in Maine were indicted on federal charges of conspiring to suppress the wages and restrict the job mobility of essential workers during the pandemic.Still, deploying antitrust enforcement in the job market is somewhat new. It has been used mostly to ward off anticompetitive behavior that raises prices for consumers in product and service markets. Persuading courts to, say, prevent a merger because of its impact on wages might be tougher.A note by the law firm White & Case, for instance, complained that the move to block Penguin Random House’s attempt to buy Simon & Schuster on the grounds that it would reduce royalties to authors is “emblematic of the Biden administration’s and the new populist antitrust movement’s push to direct the purpose of antitrust away from consumer welfare price effects and towards other social harms.” More

If you’re thinking of traveling and you’ve got points or miles sitting in airline and credit card accounts, the time to cash in may have arrived. Here’s what you need to know.Frances Meredith of Raleigh, N.C. used a branded American Airlines credit card for everything from groceries to medical expenses during the pandemic, piling up points with nowhere to spend them. That meant she had plenty to redeem when her family of four decided it was time for a winter getaway to Miami. Although the seats were pricey at 50,000 points each, Dr. Meredith, an internist, was excited to save money by using her rewards balance. “It was easy. There were lots of seats,” she said.As travelers return to the skies, many, like Dr. Meredith, have amassed larger than usual totals in airline and credit card rewards programs. And they are starting to spend them. United Airlines’ Mileage Plus program has had multiple record-breaking days over the past few weeks as customers have flocked to redeem miles, said Michael Covey, the managing director of the United program. “The demand is hitting the books in ways we’ve never seen before,” he said.Several factors make now the time to cash in points.More flexibilityFlights booked with points on the major U.S. carriers are fully refundable. That means if you need to cancel the trip, all your points and any associated fees will be returned without any penalties. Tickets bought for cash, in contrast, typically offer a credit for a future flight rather than a refund and may charge fees, so your money is tied up with the airline. Refundable tickets can be purchased, but they are more expensive.This difference, between ending up with a credit or a refund, can loom large for expensive trips like a family vacation overseas. Some travelers are “still uncomfortable with international travel,” while conditions remain in flux because of the pandemic, so using points to book a flight to a foreign country can offer more peace of mind, said Jamie Larounis, who writes about loyalty programs on his travel website, the Forward Cabin. He is now also seeing some worry about flights near Eastern Europe because of the Russian invasion of Ukraine.Better now than laterMany travelers are sitting on larger than ever point balances, both because they haven’t been redeeming their points and because they’ve been adding to the pile over the last two years with credit card purchases tied to airline loyalty accounts. According to a study by ValuePenguin and OnPoint Loyalty, the five largest airline loyalty programs — Delta Air Lines’ SkyMiles, American Airlines’ AAdvantage, United Airlines’ MileagePlus, Southwest Airlines’ Rapid Rewards and JetBlue’s TrueBlue — ended 2020 with $27.5 billion in liabilities, up $2.9 billion from 2019. Customers earned about half as many points in 2020 as they did the previous year, and redeemed just 10 percent of their available points compared to 30 percent the previous year.The most important reason to use points now is that they may have less buying power over the coming years, Mr. Larounis said. Airline and hotel points are like currencies owned by companies, and those companies can value their currencies however they like by changing the cost of redemption. Helane Becker, an airline analyst at the investment bank, Cowen, said airlines have devalued points multiple times over the past few years and she expects that practice to continue.This is already evident in both the airline and hotel sectors. Alaska Airlines recently upped the cost to book some of its first class tickets. Hyatt Hotels recently increased the points necessary for some hotel stays when it implemented a new peak and off-peak pricing program.Companies know that “people are sitting on big piles of miles and have a lot of pent-up demand for travel,” said Mr. Larounis of the Forward Cabin website. “There is no downside to them raising the cost of award travel.” That is especially true of airplane seats in the premiere cabin, he said. Some leisure travelers, who may have been content in economy class seats, are now purchasing seats in the front of the plane where passengers are a little more spread out. “They see it as safer in regards to Covid,” Mr. Larounis said.Still, the airlines are mindful of those with fewer miles. “We have more seats available for less than 10,000 miles than ever,” said United’s Mr. Covey.Nudges from the airlinesAirlines are encouraging customers to use their points. Rewards tickets booked on Delta airlines through the end of this year will count toward elevating the customer’s loyalty program status. Previously, only flights paid with cash counted toward program status. United Airlines recently joined the list of airlines that allow customers to combine “money plus miles” to buy tickets, so “members can redeem miles sooner and not wait until they have a large total,” Mr. Covey said. United also had flash sales in February for tickets to London and Australia purchased with points, and now allows members to use points to buy food and beverages on flights.More places to goTravel itself is less daunting now with more countries eliminating Covid testing for vaccinated passengers. London, one of the most popular destinations for U.S. travelers, dropped its testing requirement on Feb. 11. Thailand, Vietnam, Australia, and other countries are opening up to tourists.Alison Carpentier, the director of guest loyalty at Alaska Airlines, which is part of the Oneworld alliance of 14 global airlines including Cathay Pacific and Qantas, said the availability of tickets purchased with points “has been good as international travel starts to open back up.”More seats availableAirlines want to fill as many seats as possible so many now make almost all of their seats available for purchase with points, instead of just a subset. The prices set by most airlines fluctuate, so it pays to check back periodically before the flight to see if the number of points needed has come down.Travel Trends That Will Define 2022Card 1 of 7Looking ahead. More