Evelyn Reynolds

Mary Daly, president of the Federal Reserve Bank of San Francisco, wanted to withdraw economic help slowly. Now, she might support a rate increase as soon as March.SAN FRANCISCO — Mary C. Daly was in line behind a woman in her neighborhood Walgreens in Oakland, Calif., this fall when she witnessed an upsetting consequence of inflation. The shopper, who was older, was shuffling uncomfortably as the clerk rang up her items.“She starts ruffling in her pockets, and in her purse,” Ms. Daly said in an interview. “And she says: This is a lot more expensive than it usually is. I buy these things — these are my monthly purchases.”The woman had to put something back — she chose potato chips — because she couldn’t afford everything in her basket.It would have been sobering to watch for anyone, but the moment hit especially hard for Ms. Daly, who is president of the Federal Reserve Bank of San Francisco. As one of the Fed’s 18 top officials, she is one of the people who sets economic policy to help to ensure a strong job market and to keep prices for goods and services stable.Like many of her colleagues, Ms. Daly initially expected inflation to fade relatively quickly in 2021 as the economy reopened and got back to normal. But continued waves of virus that have interrupted and complicated the recovery and increasingly broad price increases have made central bankers nervous that rapid inflation and pandemic-caused labor shortages might linger.Those risks have prompted the Fed to speed up its plans to pull back policies meant to stimulate the economy. Officials had previously suggested that they would keep interest rates low for a long time to allow more people who lost or quit their jobs during the pandemic to return to the job market. But in recent weeks, they announced a plan to more rapidly scale back their other main policy to boost the economy — large-scale bond purchases that have kept long-term borrowing costs low and kept money flowing around the financial system. Concluding that program promptly could put them in position to raise interest rates as soon as March.Ms. Daly, who spoke to The New York Times in two interviews in November and December, has shifted her tone particularly dramatically in recent weeks. How she came to change her mind highlights how policymakers have been caught off guard by the persistence of high inflation and are now struggling to strike the right balance between addressing it while not harming the labor market.As recently as mid-November, she had argued that the Fed should be patient in removing its support, avoiding an overreaction to inflation that might prove temporary and risk unnecessarily slowing the recovery of the labor market. But incoming data have confirmed that employers are still struggling to hire even as consumer prices are rising at the fastest clip in nearly 40 years. Rising rents and tangled supply chains could continue to push up inflation. And she’s running into more people like that woman in Walgreens.“My community members are telling me they’re worried about inflation,” Ms. Daly said last week. “What influenced me quite a lot was recognizing that the very communities we’re trying to serve when we talk about people sidelined” from the labor market “are the very communities that are paying the largest toll of rising food prices, transportation prices and housing prices.”Ms. Daly said she supported ending bond buying quickly so that officials were in a position to begin raising interest rates. A higher Fed policy rate would percolate through the economy, lifting the costs of mortgages, car loans and even credit cards and cooling off consumer and business demand. That would eventually tamp down inflation, while also likely slowing job growth.Ms. Daly said it was too early to know when the first rate increase would be warranted, but suggested she could be open to having the Fed begin raising rates as soon as March.“I’m comfortable with saying that I expect us to need to raise rates next year,” Ms. Daly said last week. “But exactly how many will it be — two or three — and when will that be — March, June, or in the fall? For me it’s just too early to know, and I don’t see the advantage of a declaration.”Many investors and economists now expect the Fed to lift rates from their current near-zero level in March, and Christopher Waller, a Fed governor, suggested last week that he could support a move then.That higher rates could be coming so soon is a big change from what officials were signaling — and what people who watch the Fed closely were expecting — until very recently.Fed officials have long said they want the economy to return to full employment before they lift interest rates. Early in the pandemic, many policymakers suggested that they would like to see the number of people with jobs rebound to levels approaching those that prevailed in early 2020, suggesting a long period of low rates would be needed.But increasingly, officials have argued that the economy is close to achieving their employment target by focusing on the overall unemployment rate and the rates for different racial groups.The jobless rate has fallen to 4.2 percent, and Fed officials expect it to drop to 3.5 percent next year. That would match the rate that prevailed before the pandemic, and would be a marked improvement from a pandemic high of 14.8 percent in April 2020. Black unemployment is dropping swiftly, too.“The economy has been making rapid progress toward maximum employment,” Jerome H. Powell, the Fed chair, said during a news conference this month.Yet that unemployment rate tells just part of the story, because it counts only people who are actively applying for jobs. The share of people in their prime employment ages, between 25 and 54, who are either working or looking for work has dropped notably, and is only starting to recover. Ms. Daly said she was thinking about the Fed’s full employment target in terms of what is achievable in the short term, as the coronavirus keeps many workers at home, and in the longer term, when more employees may be able to return because the virus is more under control.“There’s the labor market we can get eventually, after Covid,” she said. “And there’s the labor market that we have to deal with today.”For now, job openings far exceed the number of people applying for positions, and wages are climbing briskly, two signs that suggest that workers are — at least temporarily — scarce.It may be the case that “in the short run, this is all the workers we have,” Ms. Daly said. “But in the long run, we expect more workers to come.”Retailers in her area are cutting hours on busy shopping days because they can’t hire enough staff. Production lines are shuttered. And with virus infections rising again and the new Omicron variant spreading rapidly, there is no immediate end in sight.“If we get past Covid, inflation comes down, the labor supply recovers — then definitely we want more patience, because we want time for that to work itself through,” she said. “But we have Covid, and it won’t go away.” More

A key Democrat’s decision to pull support from the president’s sprawling climate and social agenda is rooted in the scope of the bill.WASHINGTON — Senator Joe Manchin III, the West Virginia Democrat, effectively killed President Biden’s signature domestic policy bill in its current form on Sunday, saying he was convinced the spending and tax cuts in the $2.2 trillion legislation will exacerbate already hot inflation.Economic evidence strongly suggests Mr. Manchin is wrong. A host of economists and independent analyses have concluded that the bill is not economic stimulus, and that it will not pump enough money into consumer pocketbooks next year to raise prices more than a modest amount.The reason has to do with the pace at which the bill spends money and how much it raises through tax increases that are intended to pay for that spending. The legislation spends funds over a decade, allowing the taxes it raises on wealthy Americans and businesses, which will siphon money out of the economy, to help counteract the boost from spending and tax cuts.The bill also does not provide the type of direct stimulus included in the $1.9 trillion pandemic aid package Mr. Biden signed in March — and which Mr. Manchin supported. Some of its provisions would give money directly to people, like a continued expanded child tax credit, but others would fund programs that would take time to ramp up, like universal prekindergarten.Economists say the net result is likely to be at most a tenth of a percentage point or two increase in the inflation rate. That would be a relatively small effect at a time when supply chain crunches, surging global oil demand and a pandemic shift among consumers away from travel and dining out and toward durable goods have combined to raise the annual inflation rate to 6.8 percent, its fastest pace in nearly 40 years.For months, Mr. Manchin has warned the president and congressional leaders that he was uncomfortable with the breadth of what had become a $2.2 trillion bill to fight climate change, continue monthly checks to parents, establish universal prekindergarten and invest in a wide range of spending and tax cuts targeting child care, affordable housing, home health care and more. He has cited both the risks of inflation and his fear that the package could further balloon the federal budget deficit, saying several programs that are now estimated to end in a few years would likely be made permanent.Over the past week, he has insisted that the bill shrink to fit the framework of less than $2 trillion that Mr. Biden announced this fall, and that — crucially — the legislation not use budget gimmicks to artificially lower the bill’s effect on the budget deficit.In a statement on Sunday, Mr. Manchin said Democrats “continue to camouflage the real cost of the intent behind this bill.”White House officials have tried to promote the idea that the bill would reduce price pressures right away — an outcome economists have not entirely bought into. But the general economic consensus finds little evidence to suggest the bill risks exacerbating rising food, gasoline and other prices.Today’s inflationary surge stems from a confluence of factors, many of them related to the pandemic. The coronavirus has caused factories to shutter and clogged ports, disrupting the supply of goods that Americans stuck at home have wanted to buy, like electronics, televisions and home furnishings.That high demand has been fueled in part by consumers who are flush with cash after months of lockdown and repeated government payments, including stimulus checks. Research from the Federal Reserve has shown that inflation is most likely getting a temporary increase from the coronavirus relief package in March, which included $1,400 direct checks to families and generous unemployment benefits. But Mr. Biden’s social policy bill would do relatively little to spur increased consumer spending next year and not enough to offset the loss of government stimulus to the economy as pandemic aid expires.White House aides have tried to make that case to Mr. Manchin — and the public — in recent weeks, pointing to a series of analyses that have dismissed inflationary fears pegged to the bill. That includes analysis from a pair of Democratic economists who warned about rising inflation earlier this year — Harvard’s Lawrence H. Summers and Jason Furman — and from the nonpartisan Penn Wharton Budget Model at the University of Pennsylvania. All of those analyses conclude that the bill would add little or nothing to inflation in the coming year.The disconnect between economic reality and Mr. Manchin’s stated concerns has exasperated the White House, which is struggling with voter discontent toward Mr. Biden over rising prices, as well as an unyielding pandemic.In a scathing statement about Mr. Manchin on Sunday, the White House press secretary, Jen Psaki, noted that the Penn Wharton analysis found Mr. Biden’s bill “will have virtually no impact on inflation in the short term, and in the long run, the policies it includes will ease inflationary pressures.”White House officials, who along with party leaders have spent weeks trying to bring Mr. Manchin to a place of comfort with Mr. Biden’s bill, registered a sense of betrayal after the senator’s declaration.Ms. Psaki said Mr. Manchin had last week personally submitted to the president an outline for a bill “that was the same size and scope as the president’s framework, and covered many of the same priorities.” He had also promised to continue discussions toward an agreement, she said.Republicans celebrated Mr. Manchin’s statement as evidence that the bill, which Democrats were attempting to pass along party lines, was full of inflationary policies that even the president’s own party could not get behind.Biden’s ​​Social Policy and Climate Bill at a GlanceCard 1 of 7The centerpiece of Biden’s domestic agenda. More

U.S. Senator Joe Manchin (D-WV) delivers remarks to reporters at the U.S. Capitol in Washington, D.C., November 1, 2021.
Jonathan Ernst | Reuters

The apparent failure of President Joe Biden’s “Build Back Better” plan means that economic growth could be weaker than expected next year, according to Goldman Sachs.
The plan hit a significant road block on Sunday when West Virginia Sen. Joe Manchin said he would not support the legislation, meaning that the bill does not have enough votes to pass the Senate.

Goldman Sachs Chief Economist Jan Hatzius said in a note to clients on Sunday that the failure of the bill — which includes significant spending on climate infrastructure and social programs — would slow economic growth in 2022.
“BBB enactment had already looked like a close call and in light of Manchin’s comments we are adjusting our forecast to remove the assumption that BBB will become law. While BBB in its current form looks unlikely, there is still a good chance that Congress enacts a much smaller set of fiscal proposals dealing with manufacturing incentives and supply chain issues,” the note said.
Goldman slightly lowered its real GDP growth forecast for each of the first three quarters in 2022. The firm now projects 2% growth in the first quarter, followed by 3% and 2.75% in the following two periods. Goldman previously expected growth of 3%, 3.5% and 3%.
“With headline CPI reaching as high as 7% in the next few months in our forecast before it begins to fall, the inflation concerns that Sen. Manchin and others have already expressed are likely to persist, making passage more difficult,” the firm also noted.
-CNBC’s Michael Bloom contributed to this report.

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On paper, the converted garage behind the Martinez family home in the Boyle Heights section of Los Angeles is a brand-new unit of housing, the product of statewide legislation that is encouraging homeowners to put small rental homes on their property and help California backfill its decades-old housing shortage. Two stories tall with 1,100 square feet of living space that is wrapped in a curved exterior wall, adorned with pops of pink around the windows and decorative white squares, it looms over the squat main house as a statement of something different behind a chain-link fence.The inside tells a longer story. For years the unit was illegal, built clandestinely in the mid-1990s by Bernardo and Tomasa Martinez as part of a $2,000 project that turned the garage into a cold but habitable unit with a bed and bathroom. The family rented it for $300 to a friend, then $500 to Bernardo Martinez’s brother, using the money to offset their mortgage and weather unemployment during the Great Recession.Eventually the unit housed their son, Luis, who lived there several years later while he was getting a master’s degree in architecture. Luis Martinez designed the latest conversion and, during an interview on the driveway, noted that the garage may have become a legal residence in 2020, but it has long been someone’s home.“The city rules are finally catching up to how these places are being utilized,” Luis Martinez said.Until last year’s renovation, the Martinez family’s backyard home belonged to the shadow inventory of unpermitted housing that has swelled across Los Angeles and other high-priced cities as affordable housing shriveled. Amateur developers build them for profit. Homeowners build them for family or to help with the mortgage.Mr. Martinez, right, an architectural designer and a co-owner of Studioo15, with his parents, Tomasa and Bernardo Martinez, at their home in Los Angeles.Philip Cheung for The New York TimesIn a tight and expensive housing market, where homes are desperately needed but also hard to build, people of every income level have decided to simply build themselves. The result is a vast informal housing market that accounts for millions of units nationwide, especially at the lower end.“This is one of the most significant sources of affordable housing in the country,” said Vinit Mukhija, an urban planning professor at University of California, Los Angeles.Over the past two years of the pandemic, as policymakers have struggled to contain the spread of disease in overcrowded housing and prevent widespread evictions among vulnerable tenants, Covid-19 has laid bare how precarious — and poorly understood — the United States housing market has become. A little over 100 million people live in rental housing across the U.S., but nobody knows exactly how many people are at risk of eviction, how many lose their housing without a formal notice, or even much about pricing trends.Almost nowhere is this disconnect greater than with informal units, which cities tacitly accept as a crucial part of their housing supply but don’t exactly condone and often empty or demolish if someone complains. This practice creates a kind of legal gray area in which tenants and owners don’t want to be found out and can both find it difficult to access tenant protections or financial aid, such as the $46 billion in pandemic rental assistance created by federal stimulus programs.Surveying the surrounding neighborhood from the roof deck of his old garage home, Luis Martinez counted off a few of nearby informal units: A corrugated steel addition that consumed the yard of a house a few lots away; a roll-up garage door that hides an unpermitted home down the street; the remnants of a shower that was once inside a backyard unit, demolished after city inspectors discovered it.Los Angeles County, home of 10 million people, has at least 200,000 informal units, according to researchers at University of California, Los Angeles. That’s more than than the entire housing stock of Minneapolis.‘Horizontal density’An uncompleted accessory dwelling unit, center, in the backyard of a home in the Boyle Heights neighborhood of Los Angeles.Philip Cheung for The New York TimesSome are rudimentary structures that lack plumbing. Some are two-story pool houses that rent for several thousand dollars a month. Off-the-books housing shows up in rich neighborhoods and poor neighborhoods, everywhere it is needed.Which in California — home of the $800,000 median home price and sprawling, roadside homeless camps — can seem like it is everywhere. Over the past decade, the state has added a little over three times as many people as housing units and is far below the national average in housing units per capita, according to a recent analysis from the Public Policy Institute of California. Population growth has slowed and even fell last year, but the supply of homes is so low and the demand so great that prices only continue to rise.Looking to add units, the state legislature has spent the past five years passing a flurry of new laws designed to increase density and speed the pace of new construction. They’ve vastly lowered regulatory barriers that prevented backyard homes and essentially ended single-family zoning with legislation that allows duplexes in most neighborhoods across the state. A byproduct of these laws is that there is now a path for existing units to get legalized, a process that can require heavy renovations and tens of thousands of dollars. Cities including Los Angeles and Long Beach have also created new ordinances that clear the way to legalize unpermitted units in apartment buildings.As a designer who specializes in residential structures, Luis Martinez has lived this at home, and has now made it his career. His design business, Studioo15, has surged over the past two years as residents across Los Angeles have used the new state laws to add thousands of backyard units. Yet about half of his clients, he said, are people like his parents who want to have existing units legalized.Bernardo and Tomasa Martinez, both in their early 60s, immigrated to Los Angeles from Mexico in 1989. Working in the low-wage service sector — she was a waitress; he worked as a laborer loading a truck — they settled in a two-bedroom house in South Los Angeles that had four families and 16 people. Luis Martinez, who crossed the border as a child, was surrounded by love and family, in a house where money was tight and privacy nonexistent.Eventually the family was able to buy a small three-bedroom in Boyle Heights, on the east side of Los Angeles. It sits on a block of fading homes that have chain link fences in the front and a detached garage out back. To supplement the family income, the Martinezes converted the garage into a rental unit without a permit. Bernardo Martinez and a group of local handymen raised the floor and installed plumbing that fed into the main house, while Luis helped with painting.Luis remembers that nobody complained, probably because the neighbors were doing the same thing. “It was normal,” he said, “like, ‘I live in the garage’ and some garages were nicer than others.”Mr. Martinez went to East Los Angeles College after high school, then transferred to the University of California, Berkeley, where he got an architecture degree in 2005. In the years after graduation, when the Great Recession struck, his father lost his job and, after a spell of unemployment, took a minimum wage job mowing the lawn at a golf course. To help with bills, they rented the garage unit to Bernardo Martinez’s brother for $500 a month. “With the minimum wage, you can’t afford to pay a mortgage and food for everybody,” Tomasa Martinez said.‘Home Sweet Legal Home’The point of informal housing is that it’s hard to see — it is built to elude zoning authorities or anyone else who might notice from the street.Jake Wegmann, a professor of urban planning at the University of Texas at Austin, describes this as “horizontal density,” by which he means additions that make use of driveways and yard space, instead of going up a second or third floor. Because both the tenants and owners of these units don’t want to be discovered, there is essentially no advocacy on behalf of illegal housing dwellers, even though the number of tenants easily goes into the millions nationwide.Their presence is often logged in the form of proxy complaints about city services. “We talk about there not being any parking on the street, we talk about sewer pipes deteriorating, we talk about there being overcrowded schools, but oftentimes unpermitted housing is underlying all this,” Dr. Wegmann said in an interview.Ira Belgrade lives about ten miles west of the Martinezes in a Mid-Wilshire ZIP code where the typical home is worth $2 million (in Mr. Martinez’s neighborhood, it’s less than $600,000). His economic calculus was still the same.Behind his house sits a two-story office and entertainment room that has three pairs of French doors and is flanked by rows of ficus trees that wrap the yard in shade. Mr. Belgrade and his wife used to run a talent management business from the building, and never considered renting it.Then, Mr. Belgrade’s wife died in April 2009 after a long illness. Business started declining and the mortgage on his house became a struggle. “My life was like a wreck and I thought ‘Well, you know, if I can make this into a full apartment I could just rent the thing and I could chill out,” he said. “The city said ‘No you can’t have it’ so I said ‘Screw it’ and did it anyway.”Ira Belgrade in front of the accessory dwelling unit behind his home.Philip Cheung for The New York TimesHe hired a contractor to install a full kitchen and rented it for $3,650. Nobody noticed for four years. Then came an anonymous complaint, and he got tagged with a code enforcement violation.Mr. Belgrade said he spent three years struggling to get the unit legalized. At one point, he walked around his neighborhood taking pictures of 28 backyard homes that he believed were also not on the city’s books, in preparation for a mass complaint.“My argument was, ‘If you shut me down, you have to shut down these other 28 homes,’” he said. “It was total self-preservation.”Mr. Belgrade held out long enough to get the unit legally converted under the state’s new backyard unit laws. Along the way, he learned so much about city and state housing law that he acquired a new career. Instead of managing actors or casting movies like Army of Darkness, Mr. Belgrade now runs a consultancy called YIMBY LA, for “Yes In My Back Yard Los Angeles,” which advises people building new backyard units and also helps get permits for people who had them on the sly. The company’s tagline: “Home Sweet Legal Home.”When cities pay attentionThrough ten years as a code compliance officer for the County of Los Angeles, Jonathan Pacheco Bell estimates that he entered about 1,000 different homes, most of them in the unincorporated areas around South Los Angeles. He handed out violation notices and watched illegal housing get destroyed or vacated.But, after a decade of enforcement work, he said he came to accept that zoning codes become something of a fiction in the face of an affordable housing crisis. Many informal units are substandard or unsafe. But most, he said, are not. And until recently, the county’s policy of removing them was, in his view, creating more problems than it solved.Mr. Pacheco Bell is now a consultant who gives frequent talks at planning conferences. In those presentations, he tells the story of a family he cited in 2016, just as the state laws on accessory dwellings were changing. The family patriarch had died in a bus crash in 2009 and, to supplement her income, the widow hired a neighbor to build a backyard home. It cost $16,000 to build and she was able to rent it for $500, providing years of income for her family and one unit of affordable housing in a region that badly needed it.Mr. Pacheco Bell showed up after an anonymous complaint. The unit had plumbing and a kitchen. There was a crucifix on the front door, magnetic letters on the refrigerator and a child’s homework assignments taped to the wall. The home was usable and well-maintained, but was in violation of zoning codes because it was too close to a fence. Mr. Pacheco Bell wrote the unit up and returned a few months later to confirm it had been demolished. Walking around the backyard, and seeing the outline of the home and the rubble, made him question the job he was doing.“And as a planner I had a crisis of consciousness, like ‘How many people have I made homeless?” he said.Los Angeles has extended many tenant protections to residents of illegal units, but advocates for tenants say most renters aren’t aware of them. Landlords say they live in fear of being outed by tenants who can decline to pay rent until they get the unit permitted, a process that can take months.It all creates a market in which relationships are central to its function and proximity to each other can cut both ways. Sometimes tenants are treated as roommates or extended family, trading favors with their landlords and paying a low monthly rent. Other times, they live with abusive landlords who can steal food from refrigerators or expect them to do unpaid chores, threatening eviction when they don’t comply.“Renters have to make a choice: Are you going to live in a place that costs more? Or do you put yourself in a situation where you’re likely to have overcrowding and you might have restrictions over things like having guests over?” said Silvia González, director of research at the Latino Policy and Politics Initiative at UCLA.Dr. González is unusually close to her research: She grew up in Pacoima, a neighborhood of working-class Latino families in the San Fernando Valley, and spent much of her childhood living in an unpermitted home behind an aunt’s house.In a study for the nonprofit Pacoima Beautiful, she and other researchers found that these units can act as a bulwark against gentrification because they create low-cost housing and allow families to pool resources, as the Martinez family did. The benefits of legalizing them are clear enough: Units become safer, value is added to homes and tenants get the security of a sanctioned unit.Now that the law has changed, however, upstart developers are rushing to build new units and are bidding up parcels where they can be developed. This has caused fears that the once-illegal housing density serving as a source of last-resort shelter in many neighborhoods could become an engine of displacement. To head that off, Pacoima Beautiful recommended that cities and the state create low-cost financing mechanisms to encourage homeowners to get permitted.It took the Martinez family a decade to dig out from the Great Recession, but over time Bernardo Martinez worked his way back into the logistics industry and now runs an import/export business that moves clothes, toys and other merchandise between Los Angeles and Mexico. The family built back their savings, and was able to finance the $200,000 backyard unit.Boyle Heights remains an epicenter of L.A.’s gentrification battles, and Luis Martinez has found himself embroiled in them. In 2017, he purchased a duplex close to his parents and commenced an owner move-in eviction so he could live in one of the units. During the dispute, protesters marched outside his parents’ house and both the tenant who left and the one who remained sued him, alleging the duplex was uninhabitable and that he refused to fix it. Mr. Martinez disputed the allegations and settled earlier this year.The newly legalized unit behind his parents’ house is unlikely to assuage any gentrification fears. The building’s wavy surface looks like it landed in Boyle Heights after taking the wrong exit, and inside there are marble counters and a wine fridge.It sits empty now, but Mr. Martinez said his family plans to rent it out someday — he guesses they could get $2,500 in monthly rent — so his parents can retire and let the yard work for them. More

The Financial Stability Oversight Council issued a formal warning on the economic damage that global warming could inflict.WASHINGTON — Federal regulators warned for the first time in an annual report to Congress on Friday that climate change was an “emerging threat” to the U.S. financial system, laying out how the costs associated with more hurricanes, wildfires and floods caused by global warming could lead to a cascade of damage throughout the economy.The Financial Stability Oversight Council, a group of top financial regulators led by the Treasury secretary, offered a grim assessment of how the fallout from rising temperatures could spread, hurting property values and saddling insurers, banks and pensions that are associated with the sector with heavy losses. The report follows a similar analysis of climate risk that the council released in October.“Increased frequency and severity of acute physical risk events and longer-term chronic phenomena associated with climate change are expected to lead to increased economic and financial costs,” the new document said.However, the report stopped short of the kinds of policy prescriptions that environmental groups and progressive Democrats have been calling for, such as tougher rules requiring banks to assess their ability to withstand climate-related losses, new capital requirements or curbs on extending financing to fossil fuel companies. Instead, it echoed a set of recommendations from the October report that called for improved data for evaluating climate-related financial risks and more uniform disclosure requirements to help investors make better informed decisions.Climate change was not mentioned last year in the Trump administration’s final F.S.O.C. report.The warning on climate change was one of several looming threats to the financial system, which faces ongoing uncertainty nearly two years into a global pandemic that is being gripped by a new variant.What to Know About Inflation in the U.S.Inflation, Explained: What is inflation, why is it up and whom does it hurt? We answered some common questions.The Fed’s Pivot: Jerome Powell’s abrupt change of course moved the central bank into inflation-fighting mode.Fastest Inflation in Decades: The Consumer Price Index rose 6.8 percent in November from a year earlier, its sharpest increase since 1982.Why Washington Is Worried: Policymakers are acknowledging that price increases have been proving more persistent than expected.The Psychology of Inflation: Americans are flush with cash and jobs, but they also think the economy is awful.In its annual report, the panel also issued a warning about the risk of higher than expected inflation, suggesting that it would lead to higher interest rates and losses at some financial institutions, blunting the momentum of the recovery.The report comes as the Federal Reserve said this week that it would accelerate the end of its monthly bond buying program, which it has used to buttress economic growth during the pandemic, and raise interest rates three times next year to combat inflation.The F.S.O.C. regulators attributed inflation in advanced economies to “an increase in commodity prices, supply chain disruptions, and labor shortages.” They warned that a rapid or unexpected rise in interest rates to blunt rising prices could induce “sharp contractionary forces” and acknowledged that it was unclear how long inflation would persist.“The advent of higher inflation also raises the question of whether longer-term inflation expectations of households and businesses will rise or become unanchored,” the report said.The trajectory of the global economy is also a concern, as lockdowns and downturns in other countries could spill over into the U.S. financial system. Regulators pointed specifically to the prospect of a “hard landing” in China as a potential worry and noted that the Chinese real estate sector is “heavily leveraged.” A slowdown in the real estate market there could hurt global commodity markets because China is such a major consumer of steel, copper and iron ore.Inflation F.A.Q.Card 1 of 6What is inflation? More

President Joe Biden signed a debt ceiling increase into law, preventing the first-ever U.S. default.
The measure lifts the government’s borrowing limit by $2.5 trillion, which is expected to allow the U.S. to cover its obligations into 2023.
Biden signed the bill a day after the Treasury’s estimated date when it would run out of tools to pay the country’s bills.

U.S. President Joe Biden speaks prior to signing an executive order intended to reduce bureaucracy around government services for the public, in the Oval Office at the White House in Washington, U.S., December 13, 2021.
Evelyn Hockstein | Reuters

President Joe Biden signed a debt ceiling increase into law Thursday, ensuring the U.S. will not default on its debt for the first time ever.
The country inched close to economic peril. Biden signed the borrowing limit hike a day after the date that the Treasury Department estimated it would run out of tools to keep paying the country’s bills.

Congress sent the legislation, which raises the debt ceiling by $2.5 trillion, to Biden early Wednesday. It is expected to allow the government to cover its obligations into 2023.
Treasury Secretary Janet Yellen warned failure to increase the borrowing limit could lead to a recession and job losses around the country.

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Some Democrats wanted to increase the debt ceiling by a larger amount or scrap it altogether. Since lawmakers will have to raise the limit again in 2023, Republicans will have the chance to use it as a political cudgel to extract concessions from Democrats if they regain control of Congress in next year’s midterms.
Democrats raised the debt ceiling this week without Republican support. The GOP voted to allow Democrats to lift the borrowing limit with a simple majority vote in the Senate only once, bypassing a filibuster.

Both parties have typically voted to hike the debt ceiling. Republicans argued Democrats had a responsibility to raise this time as they pursue a $1.75 trillion social spending and climate bill without GOP support.

Increasing the borrowing limit does not authorize new government spending. Yellen has also stressed that Congress would have had to raise the ceiling this year if Democrats had passed no new legislation.
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Within 24 hours, the Federal Reserve, Bank of England and European Central Bank all stepped forward to deal with price increases.There is still a lot scientists do not know about Omicron. There is cautious optimism — but no certainty — about the effectiveness of vaccines against this fast-spreading variant of the coronavirus, and experts do not fully understand what it means for public health or the economy.But central banks have concluded they don’t have the luxury of waiting to find out.Facing surging inflation, three of the world’s most influential central banks — the Federal Reserve, Bank of England and European Central Bank — took decisive steps within 24 hours of each other to look past Omicron’s economic uncertainty. On Thursday, Britain’s central bank unexpectedly raised interest rates for the first time in more than three years as a way to curb inflation that has reached a 10-year high. The eurozone’s central bank confirmed it would stop purchases under a bond-buying program in March. The day before, the Fed projected three interest rate increases next year and said it would accelerate the wind down its own bond-buying program.The perception that the Bank of England would “view the outbreak of the Omicron variant with greater concern than it actually did” caused the surprise in financial markets, ” Philip Shaw, an economist at Investec in London, wrote in a note to clients. The Fed also “carried on regardless” with its tightening plans, he added.Aside from Omicron, the central banks were running out of reasons to continue emergency levels of monetary stimulus designed to keep money flowing through financial markets and to keep lending to businesses and households robust throughout the pandemic. The drastic measures of the past two years had done the job — and then some: Inflation is at a nearly 40-year high in the United States; in the eurozone it is the highest since records began in 1997; and price rises in Britain have consistently exceeded expectations.It is still unknown how Omicron will affect the economic recovery. Vaccine makers are still testing their shots against the variant.Alessandro Grassani for The New York TimesThe heads of all three central banks have separately decided that the price gains won’t be as temporary as they once thought, as supply chains take a while to untangle and energy prices pick up again.Andrew Bailey, the governor of the Bank of England, said that policymakers in Britain were seeing things that could threaten inflation in the medium-term. “So that’s why we have to act,” he said on Thursday.“We don’t know, of course, a lot about Omicron at the moment,” he added. It could slow the economy, and already there are canceled holiday parties, fewer restaurant bookings, less retail foot traffic and signs that more people are staying home. But Omicron could also worsen inflationary pressures, he said. “And that’s, I’m afraid, a very important factor for us.”Already, price gains have popped higher this year as snarled supply chains and goods shortages have raised shipping and manufacturing costs. Depending on the severity of Omicron and how governments react, the variant could cause factories to shut down and could keep supply chains in disarray and workers at home, prolonging goods and labor shortages and pushing inflation higher.At the same time, policymakers are assuming the impact on the economy will be milder than previous waves of the virus. With each surge in cases and reintroduction of restrictions, the dent to the economy has gotten smaller and smaller. This would lessen the risk that the central banks end up tightening monetary policy into a downturn.Still, it is an awkward balancing act. On the same day the Bank of England raised rates, its staff cut half a percentage point from their growth forecasts for the final three months of the year. By the end of 2021, the British economy will still be 1.5 percent smaller than its prepandemic size, the bank estimated.Christine Lagarde, the president of the European Central Bank, said Omicron had created uncertainty in the face of a strong recovery.Pool photo by Ronald Wittek“From a macroeconomic perspective, it’s unlikely that the fourth wave is going to have as meaningful an impact as we’ve seen even during last winter,” said Dean Turner, an economist at UBS Global Wealth Management.The economic recoveries from the pandemic, though bumpy, haven’t been derailed yet. Unemployment rates are falling in Europe and the United States, and businesses are complaining that is difficult to hire staff. That, combined with the burst of inflation, was enough to bolster the case for some monetary tightening.“There’s a lot of uncertainty with the new variant, and it’s not clear how big the effects would be on either inflation or growth or hiring,” Jerome H. Powell, the Fed chair, said on Wednesday. But there is a “real risk” inflation could be more persistent, he also said, which was part of the reason the bank sped up its plans to taper its bond purchases.Ending the Fed’s bond purchases sooner would give the central bank room to react to a wider range of economic outcomes next year, Mr. Powell said.“The data is pretty glaring,” Mr. Turner of UBS said of recent statistics on inflation and employment. “There’s only so much caution you can get away with,” before central banks need to take action, he said.Omicron has created uncertainty in the face of a strong recovery, Christine Lagarde, the president of the European Central Bank said on Thursday after she outlined how the bank would end its largest pandemic-era stimulus measure.Vaccine-makers are still testing their shots against Omicron and medical officials are encouraging restraint when it comes to socializing rather than implementing new lockdowns, but central bankers are marching ahead because time isn’t on their side. The effect of monetary policy decisions on the wider economy isn’t immediate.The Bank of England is forecasting that inflation will peak at 6 percent in April, three times the central bank’s target. Within such a short time frame, there is little policymakers can do to stop that from happening, but they can try to signal to businesses and unions setting wages that they will act to stop higher inflation from becoming entrenched, said Paul Mortimer-Lee, the deputy director of the National Institute of Economic and Social Research in London. This may prevent higher prices from spilling over into significantly higher wages, which could cause businesses to raise prices even more.While all three central banks are facing similar problems with high inflation and are keeping watch over wage negotiations, their future challenges are different.The Federal Reserve and Bank of England are worried about the persistence of high inflation. For the European Central Bank, inflation in the medium term is too low, not too high. It is still forecasting inflation to be below its 2 percent target in 2023 and 2024. To help reach that target in coming years, the central bank will increase the size of an older bond-buying program beginning in April, after purchases end in the larger, pandemic-era program. This is to avoid “a brutal transition,” Ms. Lagarde said.She warned against drawing strong comparisons between Britain, the United States and the eurozone economies.“Those three economies are at a completely different states of the cycle,” she said. “We are in a different universe and environment,” even though there might be some spillover effects across countries from the actions each central bank takes.Melissa Eddy More

The World Economic Forum is planning to go ahead with its annual meeting of the global elite in Davos, Switzerland, next month, even as coronavirus cases spike around the world.“We are hopeful that Delta will be on its way down by the time of our annual meeting, and we are hoping that the Omicron wave will not be as bad as some people think,” Peter Vanham, a spokesman for the organization, said on Thursday. “But everything depends on the pandemic.”Mr. Vanham said a final decision on whether to cancel the event — which drew roughly 3,000 people before the pandemic — will be made by Jan. 6, 10 days before it is scheduled to start.For more than 50 years, the World Economic Forum has brought together luminaries from the worlds of business, politics and nonprofit organizations to the Alps for a weeklong series of lectures, panel discussions and dinners. At the event, held in an upscale ski resort town, world leaders mingle with the chief executives from many of the world’s largest companies and the top bosses of Wall Street. Thousands more gather to attend unofficial conferences, dinners and parties on the sidelines of the main meeting.The last time people gathered in Davos was in January 2020, when many executives heard about Covid-19 for the first time. Much of the world shut down roughly two months later, and the 2021 gathering was canceled.But for the past several months, the World Economic Forum, which is based in Geneva, has been making plans to proceed with its annual meeting much as it had before the pandemic. The organizers have begun transforming Davos into labyrinth of high-security event spaces that includes a conference center, several hotels and a long stretch of the town’s main street.“We’re well into the phase where our sunk costs are being made,” Mr. Vanham said. “That’s a decision in itself — to prepare fully for next month, even if that means that in two or three weeks we might be confronted with a late cancellation because of Omicron. But we are definitely full steam ahead at this point.”The event’s organizers were emboldened by the fact that the Delta variant, which had sent average daily coronavirus cases in Switzerland to their highest level of the pandemic not long ago, had crested. Omicron, which Mr. Vanham called “the X factor,” has introduced uncertainly recently. “We will know just how bad that X factor is by the end of the year,” he said.Official attendance for the January event will be reduced by a fifth, Mr. Vanham said. He added that hotels in Davos were also expecting roughly 30 to 50 percent fewer attendees than in previous years.Still, thousands of attendees are planning to attend, including the chief executives of companies like Verizon, AstraZeneca and IBM. The leaders of at least three Wall Street banks, who often speak on the forum’s main stage, are still planning to attend for now, according to executives with knowledge of their banks’ plans.Bankers, who often use the forum to network with clients, are scheduling meetings for now and postponing the decision on whether to attend or cancel until closer to Jan. 16, when the event is slated to begin.Should the event go ahead, the organizers will install stringent measures to prevent the spread of the coronavirus. All those who attend the official meeting are required to be vaccinated and have a negative PCR test within 72 hours of flying to Switzerland. Once they land in the country, they have to take another test and will only receive their credentials if they test negative.And once the meeting begins, the organizers are planning to require attendees to take PCR tests every 24 or 48 hours at one of 14 on-site testing centers. More