Evelyn Reynolds

Inflation, once expected to fade quickly, is proving more stubborn. That ramps up tension among officials as they wait for pressures to fade.The Federal Reserve’s preferred gauge of inflation climbed in August at the quickest pace in 30 years, data released on Friday showed, keeping policymakers on edge as evidence mounts that rapidly rising prices are poised to last longer than practically any of them had expected earlier this year.The numbers come at a pivotal moment, as inflationary warning signals abound. Used car prices show signs of picking up again, costs for raw goods like cotton and crude oil are increasing and companies continue to experience pain from persistent supply chain disruptions.That is stoking fears in Washington and on Wall Street that although rapid price gains will eventually fade, the adjustment could drag on for months. A longer burst of inflation raises the chances that consumers will change their expectations and behavior, paving the way for more permanent price increases.It is a high-stakes juncture for policymakers. The Fed is preparing to withdraw some of its support for the economy soon, but it would prefer to do so only gradually, given the millions of Americans who remain out of work. The White House is trying to pass two big policy packages at the core of President Biden’s economic agenda, and Republicans have begun wielding every new inflation data point as an argument against more federal spending.Pandemic-related disruptions have caused the bulk of this year’s pop in prices, which is why economists and White House officials continue to predict they will eventually recede. A spike in demand from stuck-at-home workers and families for furniture, electronics and other products collided with factory shutdowns in Asia and overwhelmed shipping routes.The inflation measure released on Friday, the Personal Consumption Expenditures index, rose 4.3 percent in the year through August, beating out the previous month’s reading of 4.2 percent. And it is increasingly clear that getting back to normal will not be a quick process. Factory shutdowns continue to ripple through the global supply chain. Shipping snarls may worsen as the holiday season approaches. Rents are rebounding at a breakneck pace after a pandemic swoon, threatening to push housing inflation — an important part of overall price indexes — higher.“It’s still quite an inflationary environment going into next year, and that isn’t going to be good for growth,” said Laura Rosner-Warburton, an economist at the research firm MacroPolicy Perspectives. “They need to be monitoring things very closely. This is a huge shock.”Wages are rising, but in many cases not quickly enough to overcome the rapid run-up in prices, Ms. Rosner-Warburton pointed out. A reduction in purchasing power threatens to create a cycle in which consumers buy less while goods and services are becoming more expensive because of supply limits, a situation often called “stagflation.”That remains a risk — not a baseline expectation — but the possibility of lingering inflation increasingly worries economists, companies and even some policymakers.It is “frustrating to see the bottlenecks and supply chain problems not getting better — in fact, at the margin, apparently getting a little bit worse,” Jerome H. Powell, the Fed’s chair, said while speaking on a panel on Wednesday. “We see that continuing into next year, probably, and holding inflation up longer than we had thought.”Phil Levy, the chief economist at the logistics firm Flexport, said his company expected supply chain issues to begin easing next summer at the earliest. But as labor issues bubble up at long-overburdened ports, that could take even longer.And in the near term, trouble finding shipping space could translate to shortages of toys and trinkets during the holiday season, causing companies to lift prices to make sure their supply lasts, Mr. Levy said.“Ports are under strain, with ships backed up. We are short on truckers. We have warehouses that are packed full,” he said, later adding: “There was a sense a year ago that this would be a short-lived thing — there would be a craze, a squeeze, and then it would let up. The interpretation of ‘transitory’ has changed.”While central bankers have long expected price gains to slow down, their guesses at how quickly that moderation will happen have been increasingly glum. In their latest economic projections, Fed officials forecast that the Personal Consumption Expenditures index will average 4.2 percent in the final quarter of 2021 — up from 3.4 percent in their June estimates — before declining to 2.2 percent by the end of next year.The Fed aims for 2 percent inflation on average over time, though it is happy to tolerate higher periods as long as they are not expected to last.Today’s price problem is a surprising one. Central bankers across advanced economies had spent most of the last decade wrestling with too-low, rather than too-high, inflation. That’s one of the reasons officials expect price gains to cool — once the pandemic shock recedes, long-running forces like population aging and technology should dominate.But for now, officials are watching to make sure the current jump fades, and they are positioning themselves for the possibility that it might not.The Fed clearly signaled at its latest meeting that it could announce a plan to dial back its big bond-buying program as soon as November, the first step in removing monetary policy support for the economy. Some Fed officials have pointed out that bringing the bond-buying program to a close soon could leave the central bank more nimble, should it find that it needs to raise interest rates — its more powerful tool, currently still near zero — to tamp down demand and wrestle inflation back to its goal.Inflation and supply issues also pose a headache for President Biden’s White House, as rising costs chip away at voters’ paychecks and as houses and cars prove sharply more expensive and difficult to buy.Administration officials are focusing on the fact that a “core” price index, which strips out volatile food and fuel prices, has been slowing somewhat on a monthly basis, a senior White House official said on Friday. That measure climbed 0.3 percent in August from July, roughly the same as the previous month and down from a peak of 0.6 percent earlier this year.But the headline-grabbing annual numbers are giving Republicans political fodder, with many blaming the jump in prices on government spending and using it to argue against additional outlays.Container ships waiting at sea to dock at the Los Angeles Port this week.Etienne Laurent/EPA, via Shutterstock“Regardless of what the White House press team says, I think people are really seeing the impact of higher prices, day in, day out,” Representative Bryan Steil, a Republican from Wisconsin, said while questioning Treasury Secretary Janet L. Yellen and Mr. Powell during a hearing on Thursday. He later suggested that “runaway spending” in Washington would increase consumer inflation expectations.The White House argues that stimulus from Mr. Biden’s infrastructure and social spending legislation would trickle out over time and could improve economic capacity, relieving supply chain pressures over the longer run.But the administration and Fed alike are watching closely to make sure that consumers do not come to expect ever-higher prices amid today’s burst in inflation.“The real question is, when your boss says, ‘Hey, I’m giving you a 4 percent raise this year,’ are you happy or upset?” Mr. Levy, the Flexport economist, said. “Once that stuff gets built in, it can be very painful to change.”Encouragingly, consumer and financial market expectations of where inflation will settle over the longer term — typically five years — seem to have leveled off after climbing slightly earlier in 2021. Still, companies are planning for the possibility that supply chain disruptions and rising costs will persist for some time.“We’re not expecting supply chain pressures to ease,” Mark J. Tritton, chief executive officer at Bed Bath & Beyond, said during an earnings call on Friday. He noted that the company was trying to adjust how it operated to deal with the issues, including by trying to carefully manage inventory.General Motors and Honda both reported significant declines from a year earlier in sales during the three months that ended in September as chip shortages forced them to idle plants, leaving dealers with few vehicles to offer customers. And as used cars remain in short supply, their prices — a major driver of inflation this year — could rise again.The pain is being felt across many advanced economies: Inflation in the eurozone climbed to 3.4 percent in September from a year earlier, the highest in 13 years, according to an estimate by the region’s statistical agency released on Friday.Omair Sharif, founder of the research firm Inflation Insights, said he still expected U.S. price increases to fade to more normal levels by the middle of next year — but acknowledged that it was going to take longer to resolve supply problems than he would have expected even three months ago.“We just had blinders on with the global supply chain,” he said.Neal E. Boudette More

A new trade and technology partnership aims to counter China, but tensions over issues like metal tariffs remain.WASHINGTON — The United States and the European Union took a step this week toward a closer alliance by announcing a new partnership for trade and technology, but tensions over a variety of strategic and economic issues are still simmering in the background.The establishment of the Trade and Technology Council, which aims to establish a united front on trade practices and sophisticated technologies, is a significant test of whether President Biden can fulfill his pledge to mitigate trans-Atlantic tensions that soared under President Donald J. Trump. The Biden administration has long described Europe as a natural partner in a broader economic and political confrontation with China, and it criticized the Trump administration for picking trade fights that alienated European governments.But while officials on both sides say trans-Atlantic relations have been improving, the U.S.-Europe reset has been rockier than anticipated.The inaugural meeting of the Trade and Technology Council in Pittsburgh this week was nearly scuttled after the Biden administration said it would share advanced submarine technology with Australia, a deal that enraged the French government.Europeans say they have been frustrated by a lack of consultation with the Biden administration on a range of issues, including the U.S. withdrawal from Afghanistan. And officials face a difficult negotiation in the coming weeks over metal tariffs that Mr. Trump imposed globally in 2018.Europeans have said they will impose retaliatory tariffs on other U.S. products as of Dec. 1 unless Mr. Biden rolls back a 25 percent tax on European steel and a 10 percent duty on aluminum.“The E.U. initially viewed the Biden administration as a ‘breath of fresh air’ but is now increasingly wondering how much Biden will differ from Trump,” Stephen Olson, a senior research fellow at the Hinrich Foundation and a former U.S. trade negotiator, wrote in a recent analysis. “Prospects for a U.S.-E.U. ‘united front’ have been overblown from the start.”Valdis Dombrovskis, the European commissioner for trade, said in a round table with journalists in Washington on Tuesday that the two sides had been doing intensive work on the issue. They were aiming to reach an agreement by early November to have enough time to avert European countertariffs, he said.The European Union was disappointed with the Biden administration’s handling of the Australian submarine agreement, Mr. Dombrovskis added, but “occasional divergences” should not disrupt their strategic alliance.“Of course, as allies and friends, we do not always agree on everything, and we have seen this in recent weeks,” Mr. Dombrovskis said, adding that there had been more engagement from the Biden administration than the Trump administration.In meetings this week, Secretary of State Antony J. Blinken; Gina Raimondo, the commerce secretary; Katherine Tai, the U.S. trade representative; and their European counterparts pledged to collaborate on a variety of 21st-century issues, such as controlling exports of advanced technology, screening investments for national security threats and offering incentives to manufacture chips in Europe and the United States as a semiconductor shortage continues.Though official documents did not explicitly mention China, the partnership is clearly aimed in part at countering the country’s authoritarian practices. Among other goals, the council promised to combat arbitrary and unlawful technological surveillance and the trade-distorting practices of nonmarket economies.U.S. and European officials in June announced an agreement ending a 17-year dispute over aircraft subsidies given to Airbus and Boeing.But a lingering fight over Mr. Trump’s metal tariffs on imports from Europe and elsewhere could prove harder to resolve. Mr. Biden is under intense pressure to maintain barriers to imports from domestic steel makers and labor unions that supported his campaign.In a virtual round table on Thursday, industry executives and labor leaders said that cheap steel produced in Europe could still damage the U.S. industry.While China is best known for subsidizing its steel industry, European makers have also been major recipients of government subsidies, giving them an unfair advantage over U.S. competitors, said Lourenco Goncalves, the chief executive of Cleveland-Cliffs Inc., an American iron ore mining company.He urged the Biden administration to negotiate from a “position of strength.”“We need the White House, and we need the ones on the front line not to be affected by sweet talk, particularly from the Europeans,” Mr. Goncalves said. “I believe that the friends are a lot worse than the enemies.”U.S. officials made an offer to their European counterparts this summer to transform the current 25 percent tariff on European steel into a so-called tariff-rate quota, an arrangement in which higher levels of imports are met with higher duties, according to a person familiar with the discussions, who spoke on the condition of anonymity to discuss confidential matters.The Europeans have argued for a more flexible arrangement, and discussions are expected to intensify over the next three weeks, the person said.Thomas Kaplan More

Stock market holdings now make up about half of the $109.2 trillion of financial assets that households owned through the second quarter of 2021.
The equity share of assets is a 70-year high, according to Bank of America, and a potentially worrying trend if the market’s fortunes shift.

Tourists are lined up for taking photos by the Charging Bull Statue in the financial district of New York, on August 16, 2021.
Tayfun Coskun | Anadolu Agency | Getty Images

Overall U.S. household wealth has never been this high, thanks largely to gains in the stock market that are a bigger share of that prosperity than ever before.
In fact, equity holdings now make up about half of the $109.2 trillion of financial assets that households owned through the second quarter of 2021, according to Bank of America. Other than stocks, financial assets also include bonds, cash, certificates of deposit and bank deposits.

The equity share of assets is a 70-year high, Bank of America said.
Overall household net worth jumped to $141.7 trillion in the second quarter, the result of a $3.5 trillion increase in the value of corporate equities as stocks continued their climb during the period. Including nonprofits, the equity share of net worth is 41.5%, according to the Federal Reserve.

While the news has been good for individuals who own stocks, there’s an ever-present specter of risk-taking that raises worries should the market’s fortunes change. Wall Street saw the longest bull market in history end early in 2020, then quickly resume and power to records through the back part of 2021.
“Money goes where money grows,” said Mitchell Goldberg, president of ClientFirst Strategy. “As the stocks value keep going up, they’re continuing to put money there. They’re going to keep putting money into it until there’s a better place to put it.”
The S&P 500 has risen just over 15% in 2021, on the backs of friendly fiscal and monetary policy and robust growth in corporate earnings.

A significant part of the policy backdrop has been record-low interest rates and aggressive money pumping from the Federal Reserve, along with massive fiscal stimulus from Congress.
With the Fed making the first noises about tightening and Washington politicians battling over more spending, Goldberg wonders what will happen if the market-friendly policies start to turn around.
“People’s wealth are up on two things, stocks and houses, and they’re both more or less tied to interest rates,” he said. “There have been a lot of policies that have pushed the value of these assets up. What happens when the policies go away? That’s the $64 trillion question.”
Fed officials have indicated they likely will begin reducing the pace of their monthly asset purchases by the end of the year. Still, interest rate rises seem a ways off, with Philadelphia Fed President Patrick Harker affirming Friday that the central bank is unlikely to start hiking until late 2022 or early 2023.
Bank of America’s chief investment strategist, Michael Hartnett, noted Friday that clients “have sold stocks (modestly) past 5 weeks.” The bank’s indicator of sentiment has gone from almost bullish enough to trigger a contrarian “sell” signal to a bit more cautious.
Still, investors have poured about $34.5 billion into U.S. equity mutual funds and ETFs alone over the past 12 months, according to Morningstar, indicating there’s still plenty of appetite for stocks.
Goldberg said he’s cautious in that kind of environment, and is advising his older clients to trim their holdings somewhat and start building up cash in what could be a more challenging environment.
“Everyone who is invested today is investing the same way, based on falling interest rates, globalization, great supply-demand chains and low inflation,” he said. “Those are huge macroeconomic cycles, and it looks like we’re seeing the reverse now. While we go through those changes, it’s going to create a lot of volatility, a lot of peril and a lot of opportunity.”

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General Motors, Toyota, Honda, Stellantis and Nissan reported recent declines as problems in the global supply chain held down output and inventories.Four of the biggest sellers of cars and trucks in the United States said Friday that their sales had plunged recently, reflecting the intense squeeze that a global semiconductor shortage has put on auto production.General Motors, Honda, Nissan and Stellantis reported significant declines in sales in the three months that ended in September — in G.M.’s case, a drop of one-third from a year earlier — as chip shortages forced them to idle plants, leaving dealers with few vehicles to offer customers.Toyota had a slight increase for the quarter, but its sales in September fell sharply after it was forced to slash global production because of the chip shortage and other disruptions to its parts supplies stemming from the coronavirus pandemic.“We are in uncharted waters,” said Alan Haig, president of Haig Partners, an automotive consultant. “We’ve never seen a vehicle shortage like this. There are just not enough cars to sell.”The shortage of semiconductors stems from the beginning of the pandemic, when automakers around the world closed factories for weeks and suddenly cut their orders for computer chips. At the same time, manufacturers of laptops, game consoles and other electronics were demanding more chips as sales of their products took off among homebound consumers.When automakers resumed production, chip makers had much less production capacity to allocate for automotive chips.Strong auto sales, spurred in part by government stimulus checks, helped prop up consumer spending during the first year of the pandemic. But now production delays and depleted inventories are hurting sales when waning government support and the rise of the Delta variant of the coronavirus are acting as a drag on consumer spending.The forecasting firm IHS Markit on Friday lowered its estimate of third-quarter consumer spending growth to an annual rate of just 0.4 percent, down from 12 percent in the second quarter, contributing to a sharp slowdown in overall economic growth.Automakers have tried to use the electronic components they have in stock for their most profitable vehicles, such as pickup trucks and large sport utility vehicles. But in recent months those models have been affected, too.With fewer vehicles rolling off assembly lines, dealers’ inventories have become skimpy. On Friday, Kenosha Toyota in Wisconsin had a single new vehicle for sale — a two-wheel-drive Tacoma pickup. Suburban Chevrolet of Ann Arbor in Michigan was displaying just 11 new models for sale on its website.Despite the shortage, automakers and dealers alike are reaping hefty profits because tight inventories have forced consumers to pay higher prices. J.D. Power estimated that the average selling price of a new vehicle in September was $42,802, up more than $12,000 from the same month in 2020.“It’s a bonanza for the dealers and the factories, despite the shortage of inventory,” Mr. Haig said.With new cars scarce, prices of used cars have also shot up. And the latest sales figures raise concerns that the inventory shortage is worsening and crimping sales.“There are simply not enough vehicles available to meet consumer demand,” said Thomas King, president of J.D. Power’s data and analytics division.At General Motors, sales were down 33 percent in the quarter. The automaker sold 446,997 vehicles, compared with 665,192 light trucks and cars a year earlier. In the same quarter of 2019, G.M. sold 738,638.Honda’s sales were down 11 percent in the quarter, to 354,914 cars and trucks. But a decline in September of nearly 25 percent from the prior year showed the increasing squeeze on production. Stellantis, which was formed by the merger of Fiat Chrysler and France’s Peugeot, reported a 19 percent drop in third-quarter sales. At Nissan, the decline was 10 percent.Toyota said its sales in the quarter were about 1 percent higher than a year earlier, at 566,005. But its sales for September were down 22 percent.General Motors does not report monthly sales figures. Ford is expected to report its third-quarter sales on Monday.The shortage of semiconductors has forced manufacturers to idle plants for weeks at a time. G.M. idled several pickup truck plants for parts of August and September. Toyota cut global production by 40 percent in September, and expects a similar cut in October.General Motors emphasized that a lack of potential buyers was not the problem. “Underlying demand conditions remain strong, thanks to ample job openings, growing pent-up vehicle demand and excess savings accumulated by many households during the pandemic,” Elaine Buckberg, G.M.’s chief economist, said in a company statement.And the company signaled that the chip supply was improving. “We look forward to a more stable operating environment through the fall,” said Steve Carlisle, the president of G.M. North America.At the end of September, G.M. had 128,757 vehicles in dealer inventories, down from 211,974 at the end of June and more than 334,000 at the end of the first quarter. In years past, the figure was often about 800,000.Toyota had 37,516 vehicles on dealer lots at the end of the quarter, and 61,208 at ports serving the U.S. market. At the current sales rate, that is enough to last about 18 days.Ben Casselman More

Core inflation rose 3.6% in August from a year ago, the biggest jump in more than 30 years.
Personal spending increased 0.8%, slightly higher than the estimate.

Inflation ran at a fresh 30-year high in August as supply chain disruptions and extraordinarily high demand fueled ongoing price pressures, the Commerce Department reported Friday.
The core personal consumption expenditures price index, which excludes food and energy costs and is the Federal Reserve’s preferred measure of inflation, increased 0.3% for the month and was up 3.6% from a year ago. The monthly gain was slightly higher than the 0.2% Dow Jones estimate and the annual forecast of 3.5%.

That’s the highest since May 1991 and reflective of inflationary pressures that Fed Chairman Jerome Powell said earlier this week he finds “frustrating.”
On a headline basis, PCE prices rose 0.4% for the month and 4.3% year over year, the highest since January 1991. That reflected a 24.9% increase in energy prices and a 2.8% rise in food.
Goods prices rose by 5.5% while services increased by 3.6%.
The rise in inflation came as personal income increased 0.2% for the month, in line with estimates but indicative that real income is falling as inflation rises. Spending accelerated 0.8%, slightly above the 0.7% forecast.
Personal savings totaled $1.71 trillion, running at a 9.4% rate and a decrease from 10.1% in July. The savings rate peaked at 33.8% in April 2020 in the early days of the pandemic as the government rushed out payments to individuals and businesses were shut down to combat the Covid spread.

A separate report Friday morning showed that manufacturing continued to expand.
The ISM Manufacturing index for September registered a 61.1 reading, representing the percentage of companies seeing expansion. Anything above 50 represents growth; the Dow Jones estimate was 59.5.
The survey also showed prices rising, with 81.2% of respondents reporting increases against 79.4% in August.
Order backlogs decreased to 64.8, a drop of 3.4 points from a month ago, but companies overall were still reporting delays.
“Supply chain concerns are growing beyond electronics and chips into most other commodities. Lead times are extending, shipping lanes are slowing, and we will not see an end to this in 2021,” said one respondent in the electrical equipment, appliances and components industry.
Also, consumer sentiment improved, according to the University of Michigan’s index, which rose to 72.8 in September compared to 70.8 in August and a 71 estimate.

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Many experts are rethinking longstanding core ideas, including the importance of inflation expectations.It has long been a central tenet of mainstream economic theory that public fears of inflation tend to be self-fulfilling.Now though, a cheeky and even gleeful takedown of this idea has emerged from an unlikely source, a senior adviser at the Federal Reserve named Jeremy B. Rudd. His 27-page paper, published as part of the Fed’s Finance and Economics Discussion Series, has become what passes for a viral sensation among economists.The paper disputes the idea that people’s expectations for future inflation matter much for the level of inflation experienced today. That is especially important right now, in trying to figure out whether the current inflation surge is temporary or not.But the Rudd paper is part of something bigger still. It reflects a broader rethinking of core ideas about how the economy works and how policymakers, especially at central banks, try to manage things. This shift has also included debates about the relationship between unemployment and inflation, how deficit spending affects the economy, and much more.In effect, many of the key ideas underlying economic policy during the Great Moderation — the period of relatively steady growth and low inflation from the mid-1980s to 2007 that also seems to be a high-water mark for economists’ overconfidence — increasingly look to be at best incomplete, and at worst wrong.It is vivid evidence that macroeconomics, despite the thousands of highly intelligent people over centuries who have tried to figure it out, remains, to an uncomfortable degree, a black box. The ways that millions of people bounce off one another — buying and selling, lending and borrowing, intersecting with governments and central banks and businesses and everything else around us — amount to a system so complex that no human fully comprehends it.“Macroeconomics behaves like we’re doing physics after the quantum revolution, that we really understand at a fundamental level the forces around us,” said Adam Posen, president of the Peterson Institute for International Economics, in an interview. “We’re really at the level of Galileo and Copernicus,” just figuring out the basics of how the universe works.“It requires more humility and acceptance that not everything fits into one model yet,” he said.Or put less politely, as Mr. Rudd writes in the first sentence of his paper, “Mainstream economics is replete with ideas that ‘everyone knows’ to be true, but that are actually arrant nonsense.”One reason for this, he posits: “The economy is a complicated system that is inherently difficult to understand, so propositions like these” — the arrant nonsense in question — “are all that saves us from intellectual nihilism.”And from that starting point, a staff economist at the world’s most powerful central bank went on to say, in effect, that his own employer has been focused on the wrong things for the last few decades.Dockworkers unloading cars in Baltimore in 1971. Importers were worried about the effect of the 10 percent duty imposed by President Nixon on foreign-made items as part of his new economic “game plan” to halt inflation.Bettmann/Getty ImagesMainstream policymakers, very much including Mr. Rudd’s bosses at the Fed, believe that inflation is, in large part, self-fulfilling — that what people expect future inflation to look like has an ability to shape how much prices rise in the near term.In the common telling, the Great Inflation of the 1970s got going because people came to believe inflation would keep spiraling. The surge in gasoline prices wasn’t simply a frustrating development, but a harbinger of things to come, so people needed to demand higher raises, and businesses could feel confident charging higher prices for most everything.In this story, the great achievement of the Fed in the early 1980s was to break this cycle by re-establishing credibility that it would not allow sustained high inflation (though at the cost of a severe recession).That is why today’s discussions over the inflation outlook often spend a lot of time focusing on things like what bond prices suggest inflation will be five or 10 years from now, or how people answer survey questions about what they expect.Mr. Rudd argues that there is no solid evidence that the conventional story of the 1970s describes the real mechanism through which inflation takes place. He says there’s a simpler explanation consistent with the data: that businesses and workers arrive at prices and wages based on the conditions they’ve experienced in the recent past, not some abstract future forecast.For example, when inflation has been low in the recent past, workers might not demand raises as they would in a world where inflation was high; after all, their existing paychecks go pretty much as far as they used to. You don’t need some theory involving inflation expectations to get there.Some economists who are sympathetic to the idea that central bankers have overly fetishized precise measurements of inflation expectations aren’t ready to fully dismiss the idea.For example, Mr. Posen, a former Bank of England policymaker, says there remains a simple and hard-to-dispute idea about inflation expectations supported by lots of history: that if people distrust a country’s monetary system, inflation shocks can spiral upward. Economic policy credibility matters. But that isn’t the same as assuming that some survey or bond market measure of what will happen to inflation in the distant future is particularly meaningful for forecasting the near future.“It has been a noble lie that has become a critical part of the catechism of global monetary policy, that long-term inflation expectations are not just interesting but are a decisive determinant of real-time inflation,” said Paul McCulley, a former Pimco chief economist, commenting on Mr. Rudd’s paper.This isn’t the only way in which basic precepts underlying economic policy are shifting beneath economists’ feet.Particularly prominently, for years central bankers believed there was a tight relationship between the unemployment rate and inflation, known as the Phillips Curve. Over the course of the 2000s, though, that relationship appeared to weaken and become a less reliable guideline for how to set policy.Similarly, interest rates and inflation fell worldwide, for reasons that scholars are still trying to understand fully. That implied a lower “neutral interest rate,” or the rate that neither stimulates nor slows the economy, than was widely believed to be the case as recently as the mid-2010s.In many ways, the Fed’s policies just before the pandemic were aimed at incorporating those lessons and embracing sustained lower interest rates — and the possibility of lower unemployment — than many in the mainstream thought reasonable a few years earlier.In the realm of fiscal policy, some conventional wisdom has also been upended in the last few years. It was thought that large government debt issuance would risk causing a spike in interest rates and crowd out private sector investment. But in that period, huge budget deficits have been paired with low interest rates and abundant credit for businesses.All of this makes it a challenging time for central bankers and other shapers of policy. “If you’re a policymaker and you don’t have robust confidence in the parameters of the game you are managing, it makes your job a whole lot more difficult,” Mr. McCulley said.But if you are in charge of making economic policy that affects the lives of millions, you can’t simply shrug your shoulders and say, “We don’t know how the world works, so what are we supposed to do?” You look at the evidence available, and make the best judgment you can.And then, if you think it turns out you were wrong about something, publish a sassy paper to try to get it right. More

Sandra Beadling was fed up with the 70-hour workweeks, the delivery trucks running days behind schedule, and the wear and tear on her knees from all the stooping to restock the bottom shelves.The manager of the Dollar General store in Wells, Maine, Ms. Beadling, 54, had tried to hire more help. But that was a tough sell when Walmart was offering $16 an hour and her store was paying $12.Ms. Beadling had spent long stretches this summer as one of only a few workers in the store, tending to the register and trying to help shoppers. She had pleaded with her managers to allow the store’s part-time workers to have more hours, but to no avail.One night last month, Ms. Beadling closed up the Dollar General at 10, got home at 11:30 and then left her house at 4 a.m. to be back at the store for an inventory check. “I was so tired I couldn’t find words,” she said. She sent her assistant manager a text saying she had quit and then blocked her co-workers’ numbers so they couldn’t call back and persuade her to stay.“It wasn’t sustainable,” Ms. Beadling said.Some wonder whether the same can be said for the unbridled success of dollar stores and their business model, which has benefited from the prevalence of poverty and disinvestment in the inner cities and rural America. Dollar stores, which pay among the lowest wages in the retail industry and often operate in areas where there is little competition, are stumbling in the later stages of the pandemic.Sales are slowing and some measures of profit are shrinking as the industry struggles with a confluence of challenges. They include burned-out workers, pressure to increase wages, supply chain problems and a growing number of cities and towns that are rejecting new dollar stores because, they say, the business model harms their communities.Just this week, Dollar Tree, which also operates Family Dollar stores, said it would start selling more products above $1. The move has broad significance beyond the discount retail industry, analysts say, because it signals that a company that has built its brand on selling $1 merchandise feels the need to shift its model to account for higher wages and an unreliable supply line from Asia.“It means these issues may be permanent,” said Scott Mushkin, a founder and an analyst at R5 Capital, a research and consulting firm focused on retail.The dollar store strategy has struggled in an economy like the current one.Edmund D. Fountain for The New York TimesThe troubles follow a year of soaring profits and a period of staggering growth in the industry. Roughly one in every three stores that have been announced to open in the United States this year is a dollar store, according to Coresight Research, a retail advisory firm, a sign of how well the industry did in 2020.The business model, which relies on relatively cheap labor and inexpensive goods, is designed to flourish even when its core customers are hurting financially. The strategy was honed during the high unemployment and wage stagnation of the Great Recession of 2008.But dollar stores are not as well equipped for the surreal economy of today, when workers like Ms. Beadling are quitting in protest and a single coronavirus case on a container ship can cause a two-month delay in getting Chinese-made merchandise to the United States.“This is another case of the pandemic laying bare the underlying vulnerabilities in how we’ve set up our economy,” said Stacy Mitchell, co-director of the Institute for Local Self-Reliance, an advocacy group that is critical of many large corporate retailers.While just about every retailer is dealing with shipping and distribution problems, the dollar stores may have difficulty passing on the increased costs to price-sensitive customers.Dollar Tree said it expected as much as $200 million in additional freight costs this year.In an August conference call with analysts, Dollar Tree’s chief executive, Michael Witynski, recounted how one of the shipping vessels the company had chartered was denied entry to a Chinese port after a crew member tested positive for the virus. The ship had to change crews in Indonesia before returning to China.Dollar General added 50,000 workers this summer, the retailer said.Simon Simard for The New York TimesThe store in Eliot, Maine, where another manager recently quit.Simon Simard for The New York TimesMr. Mushkin said of Dollar Tree: “They have everything going the wrong way.”Dollar General said it had hired 50,000 additional workers between mid-July and Labor Day, but acknowledged in August that its labor costs were adding to expenses. Analysts say some of these additional expenses are driven by the pressure to raise wages.Still, the higher pay may not be enough to encourage employees to stay on the job. Workers say the stores are chronically understaffed and rely on part-time workers who are given unpredictable schedules and cannot afford the required employee contribution for health care benefits.In a statement, Dollar General said, “We pay competitive wages, which are determined based on several factors including the relevant labor market.” The company added that “our operating standards are designed to provide stores with sufficient labor hours, and it is not our expectation that store managers should work 70 to 80 hours per week.”Part-time workers sometimes encounter the opposite problem of not having enough work. As a store manager, Ms. Beadling said, she was constantly trying to find additional hours to give to her employees who needed the money, including one worker who was living in a tent because she couldn’t afford rent.But the allotted hours for the store were limited by higher-up managers, she said. This summer, social media buzzed with photos of dollar stores, from Lincoln, Neb., to Pittsburgh and beyond, where employees had taped up signs in the front door announcing that they had walked off the job.“Capitalism will destroy this country,” read one sign in the window of a Dollar General in Eliot, Maine, this spring. “If you don’t pay people enough to live their lives, why should they slave away for you?”Paige Murdock, the former Dollar General manager in Eliot, now works in a coffee warehouse and delivers for DoorDash.Simon Simard for The New York TimesPaige Murdock, a manager of the Eliot store, was the first to quit. The company limited the hours she could give to her staff, she said, which often meant she was running the store short-handed.She went weeks without getting a day off or seeing her family but, as a salaried employee, did not receive overtime pay. When a manager said Ms. Murdock, 44, couldn’t take her previously approved vacation week to help her daughter, who is in the military, move to Texas, she decided to quit.“If you look at my résumé, I am a very loyal employee,” Ms. Murdock said. “I will work my heart out. All the other jobs I left I would give two weeks’ notice. I don’t call out. I don’t ask for much.”Mr. Murdock now works in a warehouse for a coffee company and picks up delivery jobs at DoorDash to fill in the gaps.In its statement, Dollar General said its manager turnover “has been at historically low levels over the past few years.”Chris Burton started working at a Dollar General in New Orleans in the spring of 2020, earning $10 an hour. A saxophonist, he took the job because his work as a substitute teacher and his musical performances had been put on hold during the pandemic. More than a year later, his hourly pay has nudged up only to $11.“Walmart will move you up to $15 much faster,” said Mr. Burton, 34, who works with Step Up Louisiana, a labor advocacy group that has been pushing for improved working conditions in dollar stores. “But Dollar General is never going to pay as much as Walmart. That’s how they keep their prices lower. It’s basic economics.”Chris Burton took a $10-an-hour job at a Dollar General in New Orleans because the pandemic put his substitute teaching and music performances on hold.Edmund D. Fountain for The New York TimesWall Street is also taking note of the low pay and the complaints from employees about working conditions.“We regularly see shelves that are stocked in a disorganized manner,” said Brad Thomas, an analyst at KeyBanc Capital Markets. “As a retail analyst that indicates that the store doesn’t have enough labor or the right labor.”Mr. Mushkin of R5 Capital said other major retailers had responded faster to the changing labor conditions by raising wages when their sales were booming last year. Those early moves resulted in a smaller hit to their bottom line than what the dollar stores are experiencing.“We provide our associates with flexible schedules and market-competitive pay, and in all cases, we are at or above minimum wage in the markets we operate in,” Dollar Tree said in a statement.Political attitudes toward dollar stores in some communities are also shifting. Since the start of the pandemic, nearly three dozen communities have passed limits on dollar store developments or rejected stores outright, according to the Institute for Local Self-Reliance.The dollar stores say those are the exceptions. “We are always disappointed when local lawmakers choose to limit our ability to serve their community, but these relatively few situations have not materially impaired our ability to grow,” Dollar General said.The company added, “We provide our customers with convenient access to essential items and quality brands they want and need, including components of a nutritious meal,” including fresh produce, which is being offered in an increasing number of stores.Although the opposition hardly makes a dent in the more than 1,620 dollar stores slated to open this year, some measures have happened in major markets such as the Atlanta area and Cleveland, and in small towns like Warrensburg, N.Y.There has been considerable opposition on Warrensburg’s governing board to a Dollar General that was proposed to be built on Main Street.Bryan Rounds, a member of the board, said Warrensburg, in the southern Adirondacks, had long been mostly a “drive-through town” on the road to lakeside camps or ski slopes farther north. But during the pandemic, Warrensburg, like many rural areas, became a popular spot for Airbnb rentals. “Things are happening around here,” Mr. Rounds said. “We don’t need one of these stores.” More

Treasury Secretary Janet Yellen said Thursday she favors removing the debt ceiling from Congress’ control.
She has warned the U.S. has until Oct. 18 to raise spending limits or face default.

Janet Yellen, U.S. Treasury secretary, speaks during a House Financial Services Committee hearing in Washington, D.C., U.S., on Thursday, Sept. 30, 2021.
Sarah Silbiger | Bloomberg | Getty Images

With a potential default looming for the U.S. in October, Treasury Secretary Janet Yellen said Thursday she would just as soon see the power over debt limits taken away from Congress.
A bill introduced in May would repeal the national debt ceiling, and Yellen said “yes, I would” when asked during a House hearing if she backs the effort.

She noted Congress makes the decisions on taxes and spending, and should provide the ability to pay those obligations.

“If to finance those spending and tax decisions, it’s necessary to issue additional debt, I believe it’s very disruptive to put the president and myself, the Treasury secretary, in a situation where we might be unable to pay the bills that result from those past decisions,” she said in response to a question from Rep. Sean Casten, D-Ill.
The remarks were made during a hearing before the House Financial Services Committee on the Treasury and the Federal Reserve’s economic response to the Covid pandemic.
Casten said he was asking Yellen about the concept of removing the debt ceiling and not the particular bill, introduced by Rep. Bill Foster, also an Illinois Democrat, along with a trio of Democratic senators.
Yellen this week warned that extraordinary measures her department is using to keep funding the government’s operations expire Oct. 18.

Earlier in the hearing, she said the consequences would be dire if Congress fails to raise the spending limit.
“I think it would be catastrophic for the economy and for individual families,” she said.
The U.S. currently is $28.4 trillion in debt, nearly $700 billion of which has been incurred since President Joe Biden took office and chose Yellen to head the Treasury. The budget deficit through the first 10 months of the fiscal year stood at $2.71 trillion.

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