Evelyn Reynolds

A major competitiveness bill passed the Senate last year with bipartisan support, only to stall. Democrats hope to revive it in the House, but first they will have to bridge big differences.WASHINGTON — Biden administration officials and Democrats in Congress are pushing to revive stalled legislation that would pour billions of dollars into scientific research and development and shore up domestic manufacturing, amid deep differences on Capitol Hill about the best way to counter China and confront persistent supply chain woes.House Democrats unveiled a 2,900-page bill on Tuesday evening that would authorize $45 billion in grants and loans to support supply chain resilience and American manufacturing, along with providing billions of dollars in new funding for scientific research. Speaker Nancy Pelosi said in a statement that she hoped lawmakers would quickly begin negotiations with the Senate, which passed its own version of the bill last June, to settle on compromise legislation that could be sent to President Biden for his signature.But the effort faces obstacles in Congress, where attempts to sink significant federal resources into scientific research and development to bolster competitiveness with China and combat a shortage of semiconductors have faltered. The Senate-passed measure fizzled last year amid ideological disputes with the House and a focus on efforts to pass Mr. Biden’s infrastructure and social policy bills. For months, the competitiveness measure was rarely even mentioned, except perhaps by Senator Chuck Schumer, Democrat of New York and the majority leader, who has personally championed it.But facing a disruptive semiconductor shortage that has broken down supply chains and helped fuel inflation, Democrats are now vigorously pressing ahead on the bill. With Mr. Biden’s domestic agenda sputtering, the party is eager for a legislative victory, and top administration officials and lawmakers have said they hope to send a compromise bill to the president’s desk in a matter of months.“We have no time to waste in improving American competitiveness, strengthening our lead in global innovation and addressing supply chain challenges, including in the semiconductor industry,” Mr. Schumer said.Both the House bill and the one that passed the Senate last year would send a lifeline to the semiconductor industry during a global chip shortage that has shut auto plants and rippled through the economy. The bills would offer chip companies $52 billion in grants and subsidies with few restrictions.The measures would also pour billions more into scientific research and development pipelines in the United States, create grants and foster agreements between companies and research universities to encourage breakthroughs in new technologies, and establish new manufacturing jobs and apprenticeships.“The proposals laid out by the House and Senate represent the sort of transformational investments in our industrial base and research and development that helped power the United States to lead the global economy in the 20th century,” Mr. Biden said in a statement. “They’ll help bring manufacturing jobs back to the United States, and they’re squarely focused on easing the sort of supply chain bottlenecks like semiconductors that have led to higher prices for the middle class.”The semiconductor shortage has disrupted the economy, broken down supply chains and helped fuel inflation.Sarahbeth Maney/The New York TimesLawmakers will still need to overcome differing views in the House and Senate over how best to take on China and, perhaps more crucially, how to fund the nation’s scientific research.“There are disagreements, legitimate disagreements,” Gina Raimondo, the commerce secretary, said in an interview. “How do we do this? How do we get it right? There doesn’t seem to be much disagreement over the core $52 billion appropriation for chips. There is disagreement around how we make investments in research and development in basic science.”One major difference is that while the Senate bill invests heavily in specific fields of cutting-edge technology, such as artificial intelligence and quantum computing, the House bill places few stipulations on the new round of funding, other than to say that it should go toward fundamental research.In a memo on the legislation, House aides wrote that their measure was “focusing on solutions first, not tech buzzwords.”Some experts argue that approach lacks urgency. Stephen Ezell, the vice president for global innovation policy at the Information Technology and Innovation Foundation, a policy group that receives funding from telecommunications and tech companies, called the House bill “not sufficient to enable the United States to win the advanced technology competition with China.” He argued that the focus on advanced technology in the Senate-passed bill would do more to increase American competitiveness.How the Supply Chain Crisis UnfoldedCard 1 of 9The pandemic sparked the problem. More

Federal Reserve officials signaled on Wednesday that they were on track to raise interest rates in March, given that inflation has been running far above policymakers’ target and that labor market data suggests employees are in short supply.Central bankers left rates unchanged at near-zero — where they have been set since March 2020 — but the statement after their two-day policy meeting laid the groundwork for higher borrowing costs “soon.” Jerome H. Powell, the Fed chair, said officials no longer thought America’s rapidly healing economy needed so much support, and he confirmed that a rate increase was likely at the central bank’s next meeting.“I would say that the committee is of a mind to raise the federal funds rate at the March meeting, assuming that the conditions are appropriate for doing so,” Mr. Powell said.While he declined to say how many rate increases officials expected to make this year, he noted that this economic expansion was very different from past ones, with “higher inflation, higher growth, a much stronger economy — and I think those differences are likely to be reflected in the policy that we implement.”The Fed was already slowing a bond-buying program it had been using to bolster the economy, and that program remains on track to end in March. The Fed’s post-meeting statements and Mr. Powell’s remarks signaled that central bankers could begin to shrink their balance sheet holdings of government-backed debt soon after they begin to raise interest rates, a move that would further remove support from markets and the economy.Investors have been nervously eyeing the Fed’s next steps, worried that its policy changes will hurt stock and other asset prices and rapidly slow down the economy. Stocks on Wall Street gave up their gains and yields on government bonds rose as Mr. Powell spoke. The S&P 500 ended with a loss of 0.2 percent after earlier rising as much as 2.2 percent. The yield on 10-year Treasury notes, a proxy for investor expectations for interest rates, jumped as high as 1.87 percent.The Fed has pivoted sharply from boosting growth to preparing to cool it down as businesses report widespread labor shortages and as prices across the economy — for rent, cars and couches — soar. Consumer prices are rising at the fastest pace since 1982, eating away at paychecks and creating a political liability for President Biden and Democrats. It is the Fed’s job to keep inflation under control and to set the stage for a strong job market.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: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.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.“The Fed has completed its pivot from being patient to panicked on inflation,” Diane Swonk, the chief economist at Grant Thornton, wrote in a research note to clients after the meeting. “Its next move will be to raise rates.”The Fed’s withdrawal of policy support could temper consumer and corporate demand as borrowing money to buy a car, a boat, a house or a business becomes more expensive. Slower demand could give supply chains, which have fallen behind during the pandemic, room to catch up. By slowing down hiring, the Fed’s moves could also limit wage growth, which might otherwise feed into inflation if employers raised prices to cover higher labor costs.Investors nudged up their expectations for rate increases following the meeting and now project the Fed to raise rates five times this year, based on market pricing, and for the Fed’s policy rate to end the year between 1.25 and 1.5 percent. And economists increasingly warn that it is possible central bankers could move quickly — perhaps lifting borrowing costs at each consecutive meeting instead of leaving gaps, or in half-percentage point increases instead of the quarter-point moves that are more typical.But Mr. Powell demurred when asked about the pace of rate increases, saying that it was important to be “humble and nimble” and that “we’re going to be led by the incoming data and the evolving outlook.”“He went out of his way not to commit to a preset course,” said Subadra Rajappa, the head of U.S. rates strategy at Société Générale. The lack of clarity over what happens next “is a setup for a volatile market.”While interest rates are expected to rise over the coming years, most economists and investors do not expect them to return to anything like the double-digit levels that prevailed in the early 1980s. The Fed anticipates that its longer-run interest rate might hover around 2.5 percent.Investors also have been eagerly watching to see how quickly the Fed will shrink its balance sheet of asset holdings. The Fed’s policy committee released a statement of principles for that process on Wednesday, setting out plans to “significantly” reduce its holdings “in a predictable manner” and “primarily” by adjusting how much it reinvests as assets expire.“They are trying, I think, to reduce market uncertainty around the balance sheet — but they’re telling us it’s happening,” said Priya Misra, the global head of rates strategy at TD Securities, adding that the release suggested that the process would begin within a few months.Mr. Powell noted during his news conference that both of the areas the Fed is responsible for — fostering price stability and maximum employment — had prodded the central bank to “move steadily away” from helping the economy so much.“There are many millions more job openings than there are unemployed people,” Mr. Powell said. “I think there’s quite a bit of room to raise interest rates without threatening the labor market.”The unemployment rate has fallen to 3.9 percent, down from its peak of 14.7 percent at the worst economic point in the pandemic and near its February 2020 level of 3.5 percent. Wages are growing at the fastest pace in decades.Inflation F.A.Q.Card 1 of 6What is inflation? More

Increased demand for the semiconductors that power cars, electronics and electrical grids have stoked inflation and could cause more factory shutdowns in the United States.WASHINGTON — The United States is facing an “alarming” shortage of semiconductors, a government survey of more than 150 companies that make and buy chips found; the situation is threatening American factory production and helping to fuel inflation, Gina M. Raimondo, the commerce secretary, said in an interview on Monday.She said the findings showed a critical need to support domestic manufacturing and called on Congress to pass legislation aimed at bolstering U.S. competitiveness with China by enabling more American production.“It’s alarming, really, the situation we’re in as a country, and how urgently we need to move to increase our domestic capacity,” Ms. Raimondo said.The findings show demand for the chips that power cars, electronics, medical devices and other products far outstripping supply, even as global chip makers approach their maximum production capacity.While demand for semiconductors increased 17 percent from 2019 to 2021, there was no commensurate increase in supply. A vast majority of semiconductor fabrication plants are using about 90 percent of their capacity to manufacture chips, meaning they have little immediate ability to increase their output, according to the data that the Commerce Department compiled.The need for chips is expected to increase, as technologies that use vast amounts of semiconductors, like 5G and electric vehicles, become more widespread.The combination of surging demand for consumer products that contain chips and pandemic-related disruptions in production has led to shortages and skyrocketing prices for semiconductors over the past two years.Chip shortages have forced some factories that rely on the components to make their products, like those of American carmakers, to slow or suspend production. That has dented U.S. economic growth and led to higher car prices, a big factor in the soaring inflation in the United States. The price of a used car grew 37 percent last year, helping to push inflation to a 40-year high in December.The Commerce Department sent out a request for information in September to global chip makers and consumers to gather information about inventories, production capacity and backlogs in an effort to understand where bottlenecks exist in the industry and how to alleviate them.The results of that survey, which the Commerce Department published Tuesday morning, reveal how scarce global supplies of chips have become.The median inventory among buyers had fallen to fewer than five days from 40 days before the pandemic, meaning that any hiccup in chip production — because of a winter storm, for example, or another coronavirus outbreak — could cause shortages that would shut down U.S. factories and again destabilize supply chains, Ms. Raimondo said.“We have no room for error,” she added.To help address the issue, Biden administration officials have coalesced behind a bill that the Senate passed in June as an answer to some of the nation’s supply chain woes.The bill, known in the Senate as the U.S. Innovation and Competition Act, would pour nearly a quarter-trillion dollars into scientific research and development to bolster competitiveness against China and prop up semiconductor makers by providing $52 billion in emergency subsidies.Momentum on the legislation stalled amid ideological disputes between the House and Senate over how to direct the funding. In June, House lawmakers passed a narrower bill, eschewing the Senate’s focus on technology development in favor of financing fundamental research.But administration officials, led by Ms. Raimondo, have begun prodding lawmakers behind the scenes in an effort to help bridge their differences to swiftly pass the bill, emphasizing the urgency of quickly signing solutions into law.“There’s no getting around this. There is no other solution,” Ms. Raimondo said. “We need more facilities.”On Tuesday evening, House Democrats unveiled a sweeping, 2,900-page bill that lawmakers said they hoped would be a starting point for negotiations with the Senate, in an effort to ultimately pass a manufacturing and supply chain bill into law. In a statement minutes after the bill text was made public, President Biden hailed both proposals and encouraged “quick action to get this to my desk as soon as possible.”Understand the Global Chip ShortageCard 1 of 7In short supply. More

CNBC Fed Survey

The Federal Reserve will hike rates in March and at least two more times this year, the CNBC Fed Survey predicts.
The central bank will begin shrinking its balance sheet in June, survey respondents expect.
At the Fed’s two-day meeting, which ends Wednesday, it is expected to give more clues as to when it will hike rates and begin shrinking the balance sheet.

Federal Reserve Chairman Jerome Powell testifies during a Senate Banking, Housing and Urban Affairs Committee hearing on the CARES Act, at the Hart Senate Office Building in Washington, DC, U.S., September 28, 2021.
Kevin Dietsch | Reuters

The CNBC Fed Survey shows market expectations have turned aggressive for Federal Reserve policy tightening this year and next, with respondents looking for multiple rate hikes and significant balance sheet reduction.
The first hike is now firmly seen coming in March, compared with a June expectation in the December survey. Respondents expect 3.5 rate hikes this year, showing that three are agreed but there is debate over whether there’s a fourth. Half of the 36 respondents see two or three hikes this year, and half see four or five.

Arrows pointing outwards

CNBC Fed Survey

An additional three hikes are expected next year. That makes the forecast for a funds rate of just over 1% this year, compared to around zero now, 1.8% in 2023 and a terminal rate, or the end-point of the hiking cycle, at 2.4% reached in March 2024.
“The Fed has pivoted from patient to panicked on inflation in record time,” Diane Swonk, chief economist at Grant Thornton, wrote in response to the survey. “That ups the risk of a misstep in policy, especially in light of the complexity of inflation dynamics today.”
At the central bank’s two-day meeting, which ends Wednesday, it is expected to give more clues as to when it will hike rates and begin shrinking the balance sheet. Chairman Jerome Powell will also address the media.

Arrows pointing outwards

CNBC Fed Survey

The balance sheet runoff is seen beginning in July, much earlier than the last survey, which pegged the beginning in November. While the Fed has yet to formulate a plan for balance sheet runoff, here is a first look at how respondents believe it could happen: 

$380 billion to come off the $9 trillion balance sheet this year and $860 billion in 2023.
Monthly runoff pace of $73 billion eventually, far faster than the last runoff in 2018, but the Fed will phase in this monthly pace.
$2.8 trillion in total runoff or about a third of the balance sheet over 3 years.

Most support the Fed reducing the mortgage portfolio before Treasurys, letting short-term Treasurys run off before long-term ones and only reducing the balance sheet by not replacing securities that mature, rather than outright asset sales.

Arrows pointing outwards

CNBC Fed Survey

“Investors are under-appreciating risk in the financial system,” said Chad Morganlander, portfolio manager at Stifel Nicolaus. “The wave of liquidity and the zero-interest policy have distorted all markets. The Federal Reserve should have shifted policy a year ago.”
In the survey, 91% of respondents say the Fed is significantly or somewhat late in addressing inflation.
“The Fed should start by raising rates aggressively, that is, 50 bps initially, so it can throttle back later when/if supply chain issues start resolving themselves and inflation comes down as a result,” Joel L. Naroff, president of Naroff Economics LLC, wrote in response to the survey.
Respondents marked down their outlook for stocks but only modestly compared with how much they boosted their outlook for Fed rate hikes. The S&P 500 is seen ending the year at 4,658, or a 5.6% increase from the Monday close. That’s down from the December forecast of 4,752. The S&P is forecast to rise to 4,889 in 2023.
The CNBC Risk-Reward ratio, which gauges the probability of a 10% increase or decline in stocks over the next six months, fell to -14 from -11 in the last survey. There is an average 52% probability of a 10% decline in the next six months, compared with just a 38% probability of a 10% gain.
With an increase in the outlook for Fed tightening and the recent Covid omicron wave, respondents’ economic forecasts have come down. The forecast for GDP fell to 3.5% for this year, down from 3.9% in the December outlook, and 2.7% for 2023, down from 2.9%. The average CPI forecast was raised by about 0.4 percentage points this year to 4.4% and to 3.2% next year.
The unemployment rate is expected to fall to 3.6% this year, compared with the current rate of 3.9%. The chance of recession seen in the next year rose to 23% from 19% but remains about average. Inflation is seen as the No. 1 threat to the expansion, and 51% believe the Fed will have to raise rates above neutral to slow the economy.
“Assuming the pandemic continues to recede — each new wave of the virus is less disruptive than the previous one — the economy will be at full employment and inflation near the Fed’s target by this time next year,” wrote Mark Zandi, chief economist at Moody’s Analytics.
Correction: Due to an error in a response to the survey, an earlier version of this story reported that respondents’ GDP forecasts rose for 2022 and 2023. They actually declined to 3.5% from 3.9% in the December survey for 2023 and to 2.7% from 2.9% for 2023. More

Even as the housing market entered its traditionally slower season in November, home prices showed big gains from a year ago.
Prices rose 18.8% year over year on the S&P CoreLogic Case-Shiller National Home Price Index. Yet that was a slower rate than the October pace, which was a 19% annual gain.
The 10-city composite climbed 16.8% annually, down from 17.2% in the previous month. The 20-city composite grew 18.3%, down from 18.5% in October.

A “For Sale” sign is seen outside a home in New York.
Shannon Stapleton | Reuters

Even as the housing market entered its traditionally slower season in November, home prices showed big gains from a year ago.
Prices rose 18.8% year over year on the S&P CoreLogic Case-Shiller National Home Price Index. Yet that was a slower rate than the October pace, which was a 19% annual gain.

The 10-city composite climbed 16.8% annually, down from 17.2% in the previous month. The 20-city composite grew 18.3%, down from 18.5% in October.
“Despite this deceleration, it’s important to remember that November’s 18.8% gain was the sixth-highest reading in the 34 years covered by our data (the top five were the months immediately preceding November),” noted Craig Lazzara, managing director at S&P DJI.
Some markets are posting some stunning gains. Phoenix, Tampa, Florida, and Miami saw the highest year-over-year gains among the 20 cities in November, with increases of 32.2%, 29.0% and 26.6%, respectively.
Chicago, Minneapolis and Washington, D.C., showed the smallest annual gains, although they were all still up around 11%.
Eleven of the 20 cities reported higher price increases in the year ended November 2021 versus the year ended October 2021.

Mortgage rates didn’t move much in October and November, holding between 3% and 3.25% for the average on the popular 30-year fixed. While that was slightly higher than the early summer levels, it was still historically low and considerably lower than where rates are now. Rates are now about 75 basis points above year-ago levels. Low rates over the last two years have given buyers more purchasing power and consequently fueled today’s sky-high prices.
“We should soon begin to see the impact of increasing mortgage rates on home prices,” added Lazzara.
A recent report from Realtor.com found that 14 out of the top 50 largest U.S. cities experienced listing price declines over the prior year in December.
Correction: Craig Lazzara is managing director at S&P DJI. An earlier version misspelled his name.

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The International Monetary Fund has downgraded its 2022 global growth forecast to 4.4%.
In its World Economic Outlook report, published Tuesday, the IMF said it expects global gross domestic product to grow 0.5 percentage points less than previously estimated.
The revised outlook is largely due to growth markdowns in the world’s two largest economies; the U.S. and China.

The seal for the International Monetary Fund is seen near the World Bank headquarters (R) in Washington, DC on January 10, 2022.
Stefani Reynolds | AFP | Getty Images

The International Monetary Fund has downgraded its global growth forecast for this year as rising Covid-19 cases, supply chain disruptions and higher inflation hamper economic recovery.
In its delayed World Economic Outlook report, published Tuesday, the IMF said it expects global gross domestic product to weaken from 5.9% in 2021 to 4.4% in 2022 — with this year’s figure being half a percentage point lower than previously estimated.

“The global economy enters 2022 in a weaker position than previously expected,” the report noted, highlighting “downside surprises” such as the emergence of the omicron Covid variant, and subsequent market volatility, since its October forecast.
The revised outlook is led by growth markdowns in the world’s two largest economies; the U.S. and China.
The U.S. is expected to grow 4.0% in 2022, 1.2 percentage points lower than previously forecast as the Federal Reserve moves to withdraw its monetary stimulus, even as supply chain disruptions weigh on the economy. The updated outlook also removed President Biden’s signature Build Back Better fiscal policy package from its baseline projection after failure to pass the original bill.
China, meanwhile, is predicted to grow 4.8% this year, down 0.8 percentage points from earlier estimates amid disruptions caused by its zero-Covid policy, as well as “projected financial stress” among its property developers.

Inflation in focus

Elsewhere, still surging Covid cases coupled with rising inflation and higher energy prices weighed on growth estimates globally, most notably in Brazil, Canada and Mexico.

The IMF said higher inflation is set to persist for longer than previously anticipated, but added that it should ease later this year, “as supply-demand imbalances wane in 2022 and monetary policy in major economies responds.”
Looking ahead, the report upgraded its 2023 growth forecast by 0.2 percentage points to 3.8%. However, it warned that the estimate precluded the emergence of a new Covid variant, and said any pickup would be dependent on equitable global access to vaccines and health care.
“The forecast is conditional on adverse health outcomes declining to low levels in most countries by end-2022, assuming vaccination rates improve worldwide and therapies become more effective,” it said.
“The emphasis on an effective global health strategy is more salient than ever,” it added.

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