Economy

Charles Michel, president of the European Council, calls it a “new alliance between Africa and Europe”. President Emmanuel Macron of France refers to a “New Deal with Africa”. Last week Ursula von der Leyen, president of the European Commission, promised €150bn of investments in the continent by 2027 as part of the EU’s Global Gateway, its counter-offer to China’s Belt and Road Initiative. Yet as leaders from both continents descend on Brussels on Thursday for the start of a much-delayed two-day EU-Africa Summit, some African delegates are wondering what the new alliance is all about. “I think there’s a bit more excitement from the European side than from the African side,” said Lidet Tadesse Shiferaw, associate director of the European Centre for Development Policy Management. “The EU is an important partner to the African continent, but it’s no longer the main or the most important partner,” she said. “The EU could be setting itself up for failure by announcing so many flagship projects to woo the African side.”The summit comes at a time of strained relations. France is preparing to pull troops out of Mali after Bamako’s military government hired Russian mercenaries to fight terrorists and expelled the French ambassador. Europe has watched nervously as generals in Mali, Burkina Faso and Guinea have toppled civilian governments and as offshoots of Isis and other jihadist groups gain ground from the Sahel to central Africa. A lot of goodwill has been lost over Covid vaccines, with Europe accused of helping to propagate “vaccine apartheid” by snapping up Covid jabs and opposing a waiver of intellectual property rights. Europe has also been criticised for allegedly discriminatory travel bans on countries such as Nigeria and South Africa, the latter of which alerted the world to the Omicron strain of Covid-19 in November.Many African leaders are also wary of Europe’s green agenda, which they see as an attempt to block hydrocarbons projects that they argue are needed to industrialise and to bring electricity to the 600mn Africans without it. In his inaugural speech as chair of the African Union, Macky Sall, president of Senegal, said ending the financing of gas projects would “thwart our efforts for social development . . . it is legitimate that our countries demand a fair and equitable energy transition”. European and African leaders spend much time talking past each other, said Aanu Adeoye, an analyst at Chatham House, a UK think-tank. “It feels like there’s a disconnect in terms of what the priorities for both sides are,” he says, citing as an example differing views on immigration where “the Europeans are mostly interested in stopping the flow of migrants, while African countries are interested in talking about growing their economies”.“The Europeans rightly or wrongly feel the need to talk about human rights . . . and the rule of law, but a lot of times leaders don’t want to be preached at,” said Adeoye, adding that the Europeans don’t always live up to their own moral standards. “In Libya, the EU is essentially paying for the Libyan coastguard to keep people in check and these guys are employing tactics that wouldn’t be acceptable on European soil.”

Apart from concerns about flows of migrants from a continent whose population is expected to nearly double to 2.5bn by 2050, much of Europe’s attempt to recast the relationship is a reaction to China’s perceived success in cementing trade and investment ties. Trade between China and Africa rose in the first two decades of the century, hitting $176bn in 2020. Trade between EU states and Africa, though higher at about €225bn in 2020, has stagnated over the past decade. “I think the Europeans are very nervous about losing ground in Africa,” said Geert Laporte, director of the European Think Tanks Group, adding that not only China but also Russia, Turkey and others have made big inroads.Laporte voices European frustration at what he characterises as an essentially transactional relationship in spite of all the talk about shared values and alliances. “The two parties always say we want a partnership beyond finance and beyond aid,” he said. “But always it turns around money.” Yunnan Chen, senior research officer at the Overseas Development Institute, a UK think-tank, argues that Europe can compete with China “for economic and soft power” but only if it learns what China, which has no colonial baggage, has got right as well as where it has fallen short. “Africa should not simply be viewed as a venue for strategic competition, but one that holds intrinsic opportunity.” Michaël Tanchum, a policy fellow at the Africa programme of the European Council on Foreign Relations, also makes the case for a different lens on Africa, which he says has 100 cities with more than 1mn people. “When you look at the next 20 years, where is the supply of affordable labour and where are the markets?” he asked. “Any country that doesn’t have a constructive relationship with Africa is going to lose its relative position in the global economy.”Rémy Rioux, chief executive of the French Development Agency, said Europe was doing better at co-ordinating its financial offering across member states and institutions. “No other region has such a presence on the ground, so it’s really a question of organising ‘Team Europe’,” he said. “We are progressing very rapidly and this summit will only reinforce that.” Tadesse Shiferaw of the ECDPM said that the conversation had changed. The decolonisation movement and Black Lives Matter have shifted the balance between Africa and Europe, she argued. “There’s been a mental and attitudinal shift globally. Europe understands that, but it is struggling to keep up.” More

At the start of the pandemic, US central bank officials were united on the need to shore up the world’s largest economy and stave off a financial crisis by slashing interest rates to zero and buying trillions of dollars of assets.But as the Federal Reserve prepares to unwind that unprecedented monetary support in the face of surging inflation, divisions have emerged among its policymakers over how — and how quickly — to withdraw the stimulus that has been in place for nearly two years. Minutes from January’s meeting of the Federal Open Market Committee, released on Wednesday, showed that officials agree on one thing: the first US interest rate rise since 2018 will be implemented “soon”, all but guaranteeing an increase in March. Beyond that, there appears to be little harmony yet on the number, or size, of subsequent interest rate rises. “It is very telling to me that there is a lot of debate going on across the committee and there is no consensus about the appropriate pace of tightening,” said Blerina Uruci, US economist at T Rowe Price. “It seems very much still up in the air.”Differences of opinion among officials have played out in public too, as policymakers use speeches and interviews to suggest significantly different approaches to tightening monetary policy.

That has left Jay Powell, acting chair until confirmed for a second term by the Senate, with the tricky task of forging consensus on a committee that is split not only on the pace and size of interest rate rises but also what to do with a balance sheet that has increased to nearly $9tn as a result of the central bank’s pandemic largesse. “How to thread the needle for a decision-making process that is a bit frayed is a heavy lift,” said Diane Swonk, chief economist at Grant Thornton. “We won’t only be getting mixed messages from the economy, but the interpretation of those mixed messages from the economy will mean mixed messages from members of the Federal Reserve.”The US central bank must raise rates to a level that begins to constrain economic activity without choking it off. According to the closely watched “dot plot” projections by FOMC members and branch presidents, last released in December, the magic number is 2.5 per cent. “The argument now is how quickly to get to neutral,” said Michael Gapen, chief US economist at Barclays, who noted the debate over whether to “front-load” the tightening to more quickly tackle inflation against those who wanted to move more slowly. The most hawkish intervention this year came from James Bullard, president of the St Louis Fed, who last week said he would support a jumbo half-point rate rise in March or even an increase before next month’s scheduled meeting. Bullard appeared to withdraw those comments on Monday, saying that he would defer to Powell on such decisions. But his comments nonetheless sparked public pushback from some of his more dovish colleagues, who called for a more cautious approach.Neel Kashkari, president of the Minneapolis Fed, responded by urging the Fed not to “overdo it” and warned that if the central bank raised rates “really aggressively, we run the risk of slamming the brakes on the economy”. Patrick Harker, president of the Philadelphia Fed, said the central bank needed to be “methodical” about scaling back the stimulus, echoing comments made by San Francisco’s Mary Daly earlier in the week. “It is a fact at this point that they cannot guide clearly about what this rate-hiking cycle can look like,” said Matthew Luzzetti, chief US economist at Deutsche Bank. “It does open up the potential for dislocation about what Fed officials expect and what markets price in.”The Fed’s plans to shrink its balance sheet are also lacking in detail, Luzzetti said. January’s minutes suggested that Fed officials are on board with a “significant reduction”, but no specifics have yet been shared about when that process may begin and at what pace.

There are also “stark differences”, Luzzetti added, about the role that shrinking the balance sheet should play in tightening monetary policy. Esther George, president of the Kansas City Fed and a voting member on the committee this year, expressed her support this week for the Fed to consider selling assets to try to curb inflation. Cleveland’s Loretta Mester, another voting member, has proposed selling the Fed’s holdings of agency mortgage-backed securities. The official Fed line is that the balance sheet should be shrunk in a “predictable manner”, chiefly by not reinvesting the proceeds from maturing securities as opposed to selling assets outright. Some economists, including Swonk and Luzzetti, expect to see more signs of dissent on the balance sheet at forthcoming meetings. “The balance sheet is a much more heated debate, because there is much more uncertainty about what reducing it will do to the economy,” said Swonk. More

The writer is publisher of The Overshoot research service and co-author of Trade Wars are Class WarsThere is a puzzle buried deep in the US economic data that matters for investors. According to the balance of payments figures, which cover trade and other cross-border transactions, US consumers, businesses and the government collectively spent about $800bn more than they earned in 2021.However, the national data on saving and investment by sector imply that the gap between income and spending was only about $300bn. That leaves a “statistical discrepancy” of about $500bn, or roughly 2.5 per cent of GDP. This is the largest ever recorded difference between the two measures of the US current account deficit.There are only three explanations. One is that the balance of payments data are overstating the current account deficit. Alternatively, it could be that national income is being overstated, or domestic spending is being undercounted. While all three are possible, the most likely explanation is that corporate capital spending is being undercounted, perhaps by as much as 15 per cent.The Bureau of Economic Analysis usually attributes the entire “statistical discrepancy” to difficulties in estimating both US corporate profits after taxes and dividends, or “net saving”, and investment spending. Data on government budgets, household income and spending, exports and imports and foreign investment income are all thought to be less prone to error.According to the latest official numbers, businesses generated about $1tn in profits after taxes and dividends from their US operations in 2021 — and spent just $420bn on capex, net of depreciation.In 2019, both “net saving” and “net investment” were just shy of $700bn. The numbers therefore imply that “net saving” was up by nearly 50 per cent compared with 2019, while “net investment” was down by almost 40 per cent.As a result, “net lending”, or saving minus investment, by US businesses, which equals their combined contribution to the US current account balance, has ostensibly ballooned from roughly zero before the pandemic to almost $600bn in 2021. But that would be wildly inconsistent with the balance of payments data, assuming the numbers on household saving and government borrowing are broadly accurate — and they probably are. The question is whether the implied measurement error is attributable to the profit side of the equation, the investment side, or both.While BEA’s house view is that the “statistical discrepancy” generally reflects difficulties in counting profits, the government’s current estimates are broadly consistent with what public companies have been reporting to investors. It is possible, but unlikely, that those earnings reports are wrong. It is even less likely that US businesses’ “net lending” and the current account deficit have both been overstated because the BEA has somehow missed a 50 per cent surge in profit-shifting to foreign jurisdictions. The most plausible explanation is therefore that capital spending before depreciation is being undercounted.This wouldn’t be the first time that the government has been missing business investment because of methodological limitations. In 1986, the BEA boosted its estimate of the yearly average growth rate of business spending on durable equipment by a whopping 5 percentage points after revising how it measured price changes of computers. The BEA didn’t count purchases of computer software as business investment until 1999. Similarly, it was not until 2013 that the BEA decided to count R&D spending as investment. In 2018, the BEA concluded that both business investment and profits had been understated because of the way they had been measuring depreciation.More recently, the economists David Byrne, Carol Corrado and Daniel Sichel have convincingly argued that spending on cloud computing capacity is being improperly classified as business consumption of intermediate inputs, rather than as investment in new fixed assets.Missing investment from the data would help explain the US economy’s relatively robust demand for imports relative to domestic demand. More importantly, it would help explain why profits have continued to grow. As the business forecaster Jerome Levy recognised more than a century ago, capital spending is the only sustainable source of profits for the economy as a whole because the buyers get assets that depreciate slowly, while sellers get income immediately. More

Homebuilder confidence fell for the second straight month.
Residential construction costs are up 21% year over year.
“These delivery delays are raising construction costs and pricing prospective buyers out of the market,” said the chairman of the National Association of Home Builders.

Supply chain issues for homebuilders appear to be getting worse, and that is weighing on confidence in the industry.
Builder confidence in the single-family, newly built housing market fell 1 point in February to 82 on the National Association of Home Builders/Wells Fargo Housing Market Index. That is the second straight month of declines. Anything above 50 is considered positive. The index stood at 84 in February 2021.

“Production disruptions are so severe that many builders are waiting months to receive cabinets, garage doors, countertops and appliances,” said NAHB Chairman Jerry Konter, a builder from Savannah, Georgia. “These delivery delays are raising construction costs and pricing prospective buyers out of the market.”
Surging lumber prices are also adding thousands of dollars to the cost of new homes.

A worker makes repairs to a home under construction at the Lennar Bridgeway home development on December 15, 2021 in Newark, California.
Justin Sullivan | Getty Images

Homebuyers are already contending with rising interest rates. The average rate on the popular 30-year fixed mortgage just crossed over 4%, well over a full percentage point higher than it was a year ago. Add higher rates to higher home prices, and some buyers are simply unable to afford it. This is why rental demand is currently so high.
“Residential construction costs are up 21% on a year over year basis, and these higher development costs have hit first-time buyers particularly hard,” said Robert Dietz, NAHB’s chief economist. “Higher interest rates in 2022 will further reduce housing affordability even as demand remains solid due to a lack of resale inventory.”
Of the index’s three components, current sales conditions increased 1 point to 90, and sales expectations in the next six months fell 2 points to 80. Buyer traffic fell 4 points to 65.
Regionally, on a three-month moving average, sentiment in the Northeast increased 3 points to 76. In the West it rose 1 point to 89, and in the Midwest it fell 1 point to 73. Sentiment in the South dropped 1 point to 86.

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Russia continues to increase the number of troops it has massed on the Ukrainian border, Nato’s secretary-general warned on Wednesday, even though Moscow insisted that it was withdrawing forces. Jens Stoltenberg said the western security alliance was “prepared for the worst” as tension persisted over Ukraine, despite continuing diplomatic efforts to avert conflict even after Vladimir Putin, Russia’s president, announced a partial troop withdrawal on Tuesday. “We have not seen any de-escalation,” Stoltenberg said on arriving at a two-day summit of Nato defence ministers in Brussels. “We see they have increased the number of troops and more troops are on their way . . We are prepared for the worst.” His assessment was denied by Moscow on a day when hopes for diplomacy were clouded by conflicting claims over the status of the Russian forces deployed within striking distance of Ukraine’s border.Russia sanctions: The chair of the world’s most powerful financial watchdog called on western leaders to “think twice” before imposing sanctions on Russia, warning that some penalties risked undermining global financial stability. European security: France’s foreign minister, has called for a revamp of Europe’s security framework, warning that it has become “nearly obsolete” and risks allowing Russia to become a permanent threat on the continent.Thanks for reading FirstFT Asia. Have feedback on today’s newsletter? Share your thoughts with us at [email protected] — Emily Five more stories in the news1. Fed prepared to tighten policy further if inflation persists Federal Reserve officials are set to raise interest rates next month and would be willing to tighten monetary policy more quickly than they currently anticipate if inflation does not come under control, according to the minutes of their latest meeting. More US markets news: US government debt has been hit with the most serious bout of volatility since March 2020, making it more difficult for investors to transact in the world’s most important bond market. 2. Apple shareholders urged to vote against CEO pay package Institutional Shareholder Services, a top shareholder advisory group, has recommended that Apple investors vote against Tim Cook’s $99mn pay and bonuses package, forcing one of Silicon Valley’s most prominent campaigners on equality to defend his remuneration at the world’s most valuable company. What do you think? Tell us in our latest poll.

© Apple poll: Would you vote against Tim Cook’s pay and bonus package

3. Goldman bankers achieved ‘hero status’ for 1MDB work Goldman Sachs bankers who worked on a series of lucrative bond deals at the centre of the 1MDB scandal achieved “hero status” at the bank, according to testimony from Tim Leissner, a former executive who has pleaded guilty in connection with the case.4. Ericsson says it may have paid Isis Shares in Ericsson fell sharply after Börje Ekholm, chief executive of the Swedish telecoms equipment maker, conceded it could have made payments to terror organisation Isis in Iraq. An internal investigation from 2019 found serious breaches of compliance rules in Iraq including payments for transport routes to evade local customs.5. Chinese state pumps money into metaverse stakes As China competes to become the global centre of the new digital craze, its newly formed Metaverse Industry Committee announced yesterday that 17 companies had been included in the organisation to “promote the healthy, orderly and sustainable development of the metaverse”.

Beijing, Shanghai and Shenzhen have incorporated the metaverse into their city’s development plans and courted self-styled metaverse companies to set up shop © Xing Yun/Costfoto/Future Publishing/Getty Images

Coronavirus digestXi Jinping has told Hong Kong to “take all necessary steps” to contain the city’s biggest coronavirus wave, sparking fears of more stringent measures as patients are left lying on beds outside hospitals in the Asian financial hub.England’s children aged five to 11 are to be offered a Covid-19 vaccine beginning in April. Heineken’s chief executive warned that “off the charts” cost inflation will push up the price of a pint and said the risk of outright shortages was growing.The European Medicines Agency is unlikely to grant conditional marketing authorisation to Merck’s Covid-19 antiviral pill molnupiravir this month as it grapples with “problematic” data. Opinion: We must face the looming threat of prolonged and messy but necessary debt restructuring, writes Martin Wolf.The day aheadASEAN Foreign Ministers Retreat Officials will meet in Phnom Penh after a planned January retreat was postponed. Myanmar’s military government will not participate in the meeting after the bloc ruled that the country would only be permitted to send a “non-political” representative. (The Diplomat) Hungarian PM hosts Brazilian President Viktor Orban will host Jair Bolsonaro one day after the Brazilian leader met Russian president Vladimir Putin — against the wishes of the US and other western allies amid the Ukraine crisis. (France 24) Russia holds meeting on Ukraine at UN As the current head of the UN Security Council, Russian officials will hold a meeting on Ukraine at the UN headquarters in New York. What else we’re reading South Korea’s push for developed nation status On three occasions since 2008, the country has applied and been rejected for recognition by the index-maker MSCI as a developed market. The story has now become a key issue in presidential polls — but developed nation status may not give South Korea the win it hopes, writes Leo Lewis. China falls short in Olympian effort to cut pollution While China has met its national air quality standard, its pollution levels still exceed World Health Organization guidelines, the Air Quality Life Index notes. When compared with Los Angeles, the most polluted city in the US, Beijing is still three times more polluted. More on the Beijing Games: China’s best performance at this year’s Olympics has been helped by top foreign coaches.Are companies walking their diversity talk? On this episode of the Working It podcast, Isabel Berwick talks to Taylor Nicole Rogers, the FT’s US labour and equality correspondent to get a snapshot of where corporate America stands on diversity, equity and inclusion. Taylor also talks about her own workplace experience as a black woman.Unilever’s tea business tests PE’s conscience Workers on a Kenyan tea estate are still seeking medical compensation from the consumer goods group after seven people were killed and 56 women raped in a 2007 attack fuelled by ethnic tensions. Now, CVC’s $4.5bn deal to buy brands such as PG Tips means it will also be responsible for plantations in Africa.Citi’s Jane Fraser ditches big league dreams Citigroup has conceded its ambition of becoming a top-three Wall Street investment bank in order to focus on businesses that offer growth opportunities while being less capital intensive. But making the case for the strategy will put its chief executive’s communication skills to the test.ArtAt Kettle’s Yard in Cambridge, the city that became a home for Ai Weiwei in 2018 following his self-imposed exile from China, the dissident artist has filled the galleries with an assortment of Chinese antiquities alongside his own artworks that either ape or playfully vandalise ancient masterpieces, as well as outright fakes, for his exhibition The Liberty of Doubt. The story they tell us has a lot to say about how we approach art. More

WASHINGTON (Reuters) -Federal Reserve officials last month agreed that, with inflation tightening its grip on the economy and employment strong, it was time to raise interest rates, but also that any decisions would depend on a meeting-by-meeting analysis of inflation and other data, according to the minutes of the Jan. 25-26 policy meeting.The account of the two-day session showed the U.S. central bank readying for a fight against the fastest pace of price increases since the 1980s, with officials saying that while they still expected inflation to ease through the year they would be ready to hike rates fast if it does not.”Most participants noted that, if inflation does not move down as they expect, it would be appropriate for the (Federal Open Market) Committee to remove policy accommodation at a faster pace than they currently anticipate,” the minutes stated.As it stood, Fed officials said the strength of the economy and the high current pace of inflation would warrant raising rates quicker than the once-per-quarter pace seen during the tightening cycle that began in 2015 – a statement some analysts said perhaps points to rate hikes at every meeting this year.The Fed meets eight times per year, or roughly every six to seven weeks.But, with the United States still near a peak in coronavirus infections when the last policy meeting was held, the minutes gave no obvious indication policymakers were wed to a particular path – and, especially, no sense they would start the liftoff in borrowing costs at their upcoming meeting in March with a half-percentage-point rise in the benchmark overnight interest rate.The Fed in recent years has stuck with smaller and usually well-anticipated quarter-percentage-point increases.Among the Fed officials who have made public comments about monetary policy since the January meeting, most have favored a smaller initial increase, including two who spoke on Wednesday.Even though surprised by the persistence of inflation, “participants emphasized that the appropriate path of policy would depend on economic and financial developments and their implications for the outlook and the risks around the outlook,” the minutes stated. Fed officials “will be updating their assessments of the appropriate setting for the policy stance at each meeting.”Bond yields fell and stocks on balance moved higher after the release of the minutes. The yield on the 2-year Treasury note, the maturity generally most sensitive to Fed interest rate expectations, slid to 1.52% from 1.55% and the S&P 500 index rose into positive territory on the day.BALANCE SHEET DEBATEFollowing the January policy meeting Fed officials issued a statement saying that it would “soon be appropriate” to raise the central bank’s benchmark overnight interest rate from its near-zero level. Data since the beginning of this year have, if anything, heightened the Fed’s readiness to act. U.S. retail sales in January were strong, and U.S. employers added 467,000 jobs that month, far more than expected. The most recent inflation data showed no sign of easing from the current 40-year high.But policymakers have not committed to much beyond the notion that they will increase rates at their March 15-16 policy meeting and will likely continue to raise rates through the year – depending on how inflation responds.Investors had begun pricing in the prospect that the Fed would raise its target interest rate by half a percentage point next month, but they now see a quarter-percentage-point hike as more likely.”While the minutes of the late-January FOMC meeting pre-date the release of the stronger-than-expected labour market and inflation data covering last month, officials didn’t appear to be seriously considering either a 50bp rate hike to start the tightening cycle or a hike at each of the remaining seven policy meetings this year,” said Paul Ashworth, chief North America economist at Capital Economics.The Fed in January also released a broad set of guidelines about how it plans to reduce the nearly $9 trillion portfolio of securities held by the central bank.Discussion of the balance sheet included debate about whether or not outright sales of securities will be needed, the minutes stated. Though no decision has been made, the minutes noted that “many” participants in the meeting said sales may be needed at some point in the future. More

Officials at the Federal Reserve expressed concern about inflation at their meeting in January, in particular that it had spread beyond pandemic-affected sectors into other areas, and agreed it would be warranted to begin scaling back their support for the economy faster than they previously had anticipated, minutes of the meeting released Wednesday showed.Fed officials noted that the labor market remained strong, though the Omicron wave of the coronavirus had worsened supply chain bottlenecks and labor shortages, and that inflation continued to significantly exceed the levels the central bank targets.Most officials still expect inflation to moderate over the year as pandemic-related supply bottlenecks ease and the Fed removes some of its support for the economy. But some participants warned that inflation could continue to accelerate, pointing to factors like rising wages and rents. If inflation does not move down as they expect, most Fed officials agreed that they might need to pare back their support for the economy even more quickly, though that could carry some risk.The outlook for inflation could be worsened by China’s zero-tolerance policy toward Covid, which has led to expansive lockdowns that have shuttered factories; a clash in Ukraine that could push up global energy prices; or the spread of another variant, they said.The central bank emphasized that the pace of interest rate increases would hinge on how the economy developed. But most officials agreed that the Fed should take a faster approach to cooling the economy than it did in 2015, when it began raising rates at a slow and plodding pace in the wake of the Great Recession.“Most participants suggested that a faster pace of increases in the target range for the federal funds rate than in the post-2015 period would likely be warranted, should the economy evolve generally in line with the committee’s expectation,” the minutes read.Fed officials also agreed that it was appropriate to proceed with plans to trim the nearly $9 trillion in securities that the central bank holds. Most officials preferred to keep to a schedule announced in December, which would end such purchases starting next month, though some viewed an earlier end to the program as warranted and a way to signal that they were taking a stronger stance to fight inflation.Policymakers said the labor market had made “remarkable progress in recovering from the recession associated with the pandemic and, by most measures, was now very strong.”The January meeting solidified what markets had been anticipating: that the Fed was on track to raise interest rates in March. The question now is how quickly, and by how much. Many investors have speculated that the Fed could raise its interest rate by half a percentage point in March, instead of its usual quarter-point increase.In a statement after their two-day policy meeting in January, Fed officials laid the groundwork for higher borrowing costs “soon.” Jerome H. Powell, the Fed chair, said at a news conference after the meeting that “I would say that the committee is of a mind to raise the federal funds rate at the March meeting, assuming that the conditions are appropriate for doing so.”Inflation has continued to run hot since the Fed’s last meeting, and wage growth remains elevated. A key inflation measure released last week showed that prices were climbing at the fastest pace in 40 years and broadening beyond pandemic-affected goods and services, a sign that rapid gains could prove longer lasting and harder to shake off.January’s Consumer Price Index showed prices jumping 7.5 percent over the year and 0.6 percent from the prior month, exceeding forecasts. A separate inflation gauge that the Fed prefers also showed that prices remained elevated at the end of 2021. Overall, prices have been climbing at the fastest pace since 1982.Wall Street is now anticipating that interest rates could rise to more than 1.75 percent by the end of the year, up from near zero now. Markets began to bet on a double-size rate increase after January’s inflation data came in surprisingly strong. But some Fed officials have been tempering those expectations, saying they need to take a steady approach.Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said on Sunday that the Fed needed to get moving but that its approach ought to be “measured.”“I see that it is obvious that we need to pull some of the accommodation out of the economy,” Ms. Daly said on “Face the Nation.” “But history tells us with Fed policy that abrupt and aggressive action can actually have a destabilizing effect on the very growth and price stability we’re trying to achieve.” More

Prices were rising fast, products were in short supply and the Omicron variant put a chill on the country at the start of the year. Through it all, American consumers kept spending.Retail sales rose 3.8 percent in January from the prior month, the Commerce Department reported on Wednesday, a faster-than-expected rebound from a sharp decline in December and another sign of the economy’s resilience, even as stores shortened their hours or closed as a surge in Covid-19 infections led to widespread staffing shortages. Wednesday’s sales data echoed a report that showed hiring was stronger than anticipated last month, with employers adding 467,000 jobs.Other factors were at play, too, most notably fast-rising prices. The retail sales data wasn’t adjusted to account for inflation, and that could continue to boost the sales figures for months to come, economists said. But the overall takeaway was still that consumer spending held up last month.“We are seeing a strong bounce to start the year, suggesting positive momentum for now, in spite of elevated prices,” said Rubeela Farooqi, the chief U.S. economist at High Frequency Economics.Consumer spending accounts for the bulk of economic activity in the United States, and the report arrived at a critical time for the economy, as the Federal Reserve shifts its focus to battling inflation from supporting growth. The central bank is expected to raise interest rates as soon as next month, and rising borrowing costs could dampen spending by consumers and businesses.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.Other factors could also curb spending. An expansion of the child tax credit — through which the government deposited as much as $300 per child into qualifying Americans’ bank accounts each month — ended at the start of the year, and although consumers haven’t been deterred by inflation yet, there have been signs it is beginning to wear them down. One measure of consumer sentiment released this month — the University of Michigan’s Index of Consumer Sentiment — showed the least favorable long-term economic outlook in a decade.“I think it’s a matter of time before there is pushback in terms of consumers stepping back, and that’s something we need to figure into our estimates,” Ms. Farooqi said.Some of January’s jump in sales probably had to do with one-off factors like a restocking of shelves that had emptied out last year, said Beth Ann Bovino, the chief U.S. economist at S&P Global. With more available to buy, spending increased, she said.Another was that people use gift cards in January after receiving them as Christmas presents. Sales of gift cards don’t show up in the data until they have been used, she said.“If they get it on Dec. 25, they probably take it out in January when they’re done with their festivities,” Ms. Bovino said, noting that shoppers may be more forgiving of higher prices when “they are buying with other people’s money.”Plus, spending patterns have become less predictable during the pandemic, complicating efforts to predict what will happen next. Before the pandemic, holiday shopping would push retail sales higher in December, and a slowdown in spending would be reflected in January. This year’s gain followed a drop in December that on Wednesday was revised to 2.5 percent.Still, Ms. Bovino noted that “people were still spending” in January, and the purchasing was broad-based: Sales at car dealers rose 5.7 percent over the previous month, while e-commerce sales rose 14.5 percent. Spending at electronics and appliances stores rose 1.9 percent, and sales at clothing and general merchandise stores, such as department stores, were higher as well.The effect of the latest coronavirus wave was evident in some sectors. Spending at restaurants, bars and gas stations fell about 1 percent as people stayed home. But overall, sales in January rose far faster than the 2 percent gain economists had expected.Inflation F.A.Q.Card 1 of 6What is inflation? More