Bowman, Michelle

Latest story

125 Shares97 Views

Soft Landing or No Landing? Fed’s Economic Picture Gets Complicated.

by

Stubborn inflation and strong growth could keep the Federal Reserve wary about interest rate cuts, eager to avoid adding vim to the economy.America seemed headed for an economic fairy-tale ending in late 2023. The painfully rapid inflation that had kicked off in 2021 appeared to be cooling in earnest, and economic growth had begun to gradually moderate after a series of Federal Reserve interest rate increases.But 2024 has brought a spate of surprises: The economy is expanding rapidly, job gains are unexpectedly strong and progress on inflation shows signs of stalling. That could add up to a very different conclusion.Instead of the “soft landing” that many economists thought was underway — a situation in which inflation slows as growth gently calms without a painful recession — analysts are increasingly wary that America’s economy is not landing at all. Rather than settling down, the economy appears to be booming as prices continue to climb more quickly than usual.A “no landing” outcome might feel pretty good to the typical American household. Inflation is nowhere near as high as it was at its peak in 2022, wages are climbing and jobs are plentiful. But it would cause problems for the Federal Reserve, which has been determined to wrestle price increases back to their 2 percent target, a slow and steady pace that the Fed thinks is consistent with price stability. Policymakers raised interest rates sharply in 2022 and 2023, pushing them to a two-decade high in an attempt to weigh on growth and inflation.If inflation gets stuck at an elevated level for months on end, it could prod Fed officials to hold rates high for longer in an effort to cool the economy and ensure that prices come fully under control.“Persistent buoyancy in inflation numbers” probably “does give Fed officials pause that maybe the economy is running too hot right now for rate cuts,” said Kathy Bostjancic, chief economist at Nationwide. “Right now, we’re not even seeing a ‘soft landing’ — we’re seeing a ‘no landing.’”We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

More stories

  • 138 Shares119 Views

    in Economy

    Fed Officials Hint That Rate Increases Are Over, and Investors Celebrate

    by

    Stocks and bonds were buoyed after even inflation-focused Federal Reserve officials suggested that rates may stay steady.Federal Reserve officials appear to be dialing back the chances of future interest rate increases, after months in which they have carefully kept the possibility of further policy changes alive for fear that inflation would prove stubborn.Several Fed officials — including two who often push for higher interest rates — hinted on Tuesday that the central bank is making progress on inflation and may be done or close to done raising borrowing costs. Economic growth is cooling, reducing the urgency for additional moves.Christopher Waller, a Fed governor and one of the central bank’s more inflation-focused members, gave a speech on Tuesday titled “Something Appears to Be Giving,” an update on a previous speech that he had titled “Something’s Got to Give.”“I am encouraged by what we have learned in the past few weeks — something appears to be giving, and it’s the pace of the economy,” Mr. Waller said. “I am increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2 percent.”Michelle Bowman, another Fed governor who also tends to be inflation-focused, said that she saw risks that factors like higher services spending or climbing energy costs could keep inflation elevated. She said that it was still her basic expectation that the Fed would need to raise rates further. Even so, she did not sound dead-set on such a move, noting that policy was not on a “preset course.”“I remain willing to support raising the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or is insufficient to bring inflation down to 2 percent in a timely way,” Ms. Bowman said.Taken together with other recent remarks from Fed officials, the latest comments offer an increasingly clear signal that central bank policymakers may be finished with their campaign to increase interest rates in a bid to slow demand and cool inflation. Interest rates are already set to a range of 5.25 to 5.5 percent. The Fed’s next meeting will take place on Dec. 12-13, and investors are overwhelmingly betting that the central bank will hold rates steady, as policymakers did at their last two meetings.Investors appeared buoyed by the Fed officials’ comments. Higher interest rates raise costs for consumers and companies, typically weighing on markets. The two-year Treasury yield, which is sensitive to changes in investors’ interest rate expectations, fell noticeably on Tuesday morning, extending its drop through the afternoon. Yields fall as prices rise. The move initially provided a tailwind to the stock market, helping lift the S&P 500 from its earlier fall to a gain of 0.4 percent, before the rally eased and the index drifted lower to an eventual rise of 0.1 percent.Fed officials have been nervously watching continued strength in the economy: Gross domestic product expanded at a breakneck 4.9 percent annual rate in the third quarter. The concern has been that continued solid demand will give companies the wherewithal to continue raising prices quickly.But recently, job growth has eased and consumer price inflation has shown meaningful signs of a broad-based slowdown. That is giving policymakers more confidence that their current policy setting is aggressive enough to wrestle price increases fully under control.Still, as both Mr. Waller and Ms. Bowman made clear, Fed officials are not yet ready to definitively declare victory — data could still surprise them. And while a recent run-up in longer-term interest rates had been helping to cool the economy, the move has already begun to reverse as investors predict a gentler Fed policy path.The 10-year Treasury yield, one of the most important interest rates in the world, has fallen drastically in recent weeks after shooting up in previous months, curtailing a sell-off in the stock market and lifting investor optimism. But higher stock prices and cheaper borrowing costs could prevent growth and inflation from slowing as quickly.“The recent loosening of financial conditions is a reminder that many factors can affect these conditions and that policymakers must be careful about relying on such tightening to do our job,” Mr. Waller said on Tuesday. More

  • 88 Shares169 Views

    in Economy

    Meet the Man Making Big Banks Tremble

    by

    Michael Barr, whom President Biden appointed as the Federal Reserve’s top bank cop, has drawn blowback for his bank regulation push.Yelling at Michael Barr, the Federal Reserve’s top banking regulator, has never been particularly effective, his friends and co-workers will tell you. That hasn’t stopped America’s biggest banks, their lobbying groups and even his own colleagues, who have reacted to his proposal to tighten and expand oversight of the nation’s large lenders with a mix of incredulity and outrage.“There is no justification for significant increases in capital at the largest U.S. banks,” Kevin Fromer, the president of the Financial Services Forum, said in a statement after regulators released the draft rules spearheaded by Mr. Barr. The proposal would push up the amount of easy-access money that banks need to have at the ready, potentially cutting into their profits.Even before its release, rumors of what the draft contained triggered a lobbying blitz: Bank of America’s lobbyists and those affiliated with banks including BNP Paribas, HSBC and TD Bank descended on Capitol Hill. Lawmakers sent worried letters to the Fed and peppered its officials with questions about what the proposal would contain.The Bank Policy Institute, a trade group, recently rolled out a national ad campaign urging Americans to “demand answers” on the Fed’s new capital rules. On Tuesday, the organization and other trade groups appeared to lay the groundwork to sue over the proposal, arguing that the Fed violated the law by relying on analysis that was not made public.Some of Mr. Barr’s own colleagues have opposed the proposed changes: Two of the Fed’s seven governors, both Trump appointees, voted against them in a stark sign of discord at the consensus-oriented institution.“The costs of this proposal, if implemented in its current form, would be substantial,” Michelle Bowman, a Fed governor and an increasingly frequent critic of Mr. Barr’s, wrote in a statement.The reason for all of the drama is that the proposal — which the Fed released alongside two other banking agencies — would notably tighten the rules for both America’s largest banks and their slightly smaller counterparts.Michelle Bowman, a Fed governor, has become increasingly critical of Mr. Barr. Ann Saphir/ReutersIf adopted, it would mark both the completion of a process toward tighter bank oversight that started in the wake of the 2008 financial crisis and the beginning of the government’s regulatory response to a series of painful bank blowups this year.For the eight largest banks, the new proposal could raise capital requirements to about 14 percent on average, from about 12 percent now. And for banks with more than $100 billion in assets, it would strengthen oversight in a push that has been galvanized by the implosion of Silicon Valley Bank in March. Lenders of its size faced less oversight because they were not viewed as a huge risk to the banking system if they collapsed. The bank’s implosion required a sweeping government intervention, proving that theory wrong.Mr. Barr does not seem, at first glance, like someone who would be the main character in a regulatory knife fight.The Biden administration nominated him to his role, and Democrats tend to favor tighter financial rules — so he was always expected to be harder on banks than his predecessor, a Trump nominee. But the Fed’s vice chair for supervision, who was confirmed to his job in July 2022, has a knack for coming off as unobtrusive in public: He talks softly and has a habit of smiling as he speaks, even when challenged.If the proposal is adopted, it would mark both the completion of a process toward tighter bank oversight that started in the wake of the 2008 financial crisis and the beginning of the government’s regulatory response to a series of bank blowups earlier this year.Stephen Crowley/The New York TimesAnd Mr. Barr came into his job with a reputation — correct or not — for being somewhat moderate. As a top Treasury official, he helped design the Obama administration’s regulatory response to the 2008 financial crisis and then negotiated what would become the 2010 Dodd-Frank law.The changes that he and his colleagues won drastically ramped up bank oversight — but the Treasury Department, then led by Secretary Timothy Geithner, was often criticized by progressives for being too easy on Wall Street.That legacy has, at times, dogged Mr. Barr. He was in the running for a seat on the Fed’s Board of Governors in 2014, but progressive groups opposed him. When he was floated as the likely candidate to lead the Office of the Comptroller of the Currency in 2021, a similar chorus objected, with powerful Democrats including Senator Sherrod Brown, the chair of the Banking Committee, lining up behind another candidate.Mr. Barr’s chance to break back into Washington policy circles came when Sarah Bloom Raskin, a law professor nominated for vice chair for supervision at the Fed, was forced to drop out. In need of a new candidate, the Biden administration tapped Mr. Barr.Suddenly, the fact that he had just been accused of being too centrist to lead the Office of the Comptroller of the Currency was a boon. He needed a simple majority in the 100-seat Senate to pass, and received 66 votes.By then, the idea that he would have a mild touch had taken hold. Analysts predicted “targeted tweaks” to regulation on his watch. But banks and some lawmakers have found plenty of reasons to complain about him in the 14 months since.Wall Street knew that Mr. Barr would need to carry out the U.S. version of global rules developed by an international group called the Basel Committee on Banking Supervision. Banks initially expected the American version to look similar to, perhaps even gentler than, the international standard.But by early this year, rumors were swirling that Mr. Barr’s approach might be tougher. Then came the collapse this spring of Silicon Valley Bank and other regional lenders — whose rules had been loosened under the Trump administration. That seemed destined to result in even tighter rules.In one of his first acts as vice chair, Mr. Barr wrote a scathing internal review of what had happened, concluding that “regulatory standards for SVB were too low” and bluntly criticizing the Fed’s own oversight of the institution and its peers.Mr. Barr’s conclusions drew some pushback: Ms. Bowman said his review relied “on a limited number of unattributed source interviews” and “was the product of one board member, and was not reviewed by the other members of the board prior to its publication.”But that did little to stop the momentum toward more intense regulation.When Jerome H. Powell, the Fed chair, gave his regular testimony on the economy before Congress in June, at least six Republicans brought up the potential for tighter regulation, with several warning against going too far.After Silicon Valley Bank and other regional lenders collapsed this spring, Mr. Barr wrote a scathing internal review concluding that “regulatory standards for SVB were too low.” Jim Wilson/The New York TimesAnd when the proposal was finally released in July, it was clear why banks and their allies had worried. The details were meaningful. One tweak would make it harder for banks to game their assessments of their own operational risks — which include things like lawsuits. Both that and other measures would prod banks to hold more capital.The plan would also force large banks to treat some — mostly larger — residential mortgages as a riskier asset. That raised concerns not just from the banks but from progressive Democrats and fair housing groups, who worried that it could discourage lending to low-income areas. News of the measure came late in the process — surprising even some in the White House, according to people familiar with the matter.Representative Andy Barr, a Kentucky Republican, said that aspects of the proposal went beyond the international standard, which “caught a lot of people off guard,” and that the Fed had not provided a clear cost-benefit analysis.“Vice Chair Barr is using some of the bank failures as a pretext,” he said.The banks “feel like he’s being obstinate,” said Ian Katz, an analyst at Capital Alpha Partners, a research firm in Washington. “They feel like he’s the guy making the decisions, and there are not a lot of workarounds.”Andrew Cecere, the chief executive of U.S. Bancorp, said of Mr. Barr, “We may not agree on everything, but he tries to understand.”Andrew Harnik/Associated PressBut he does have fans. Andrew Cecere, the chief executive of U.S. Bancorp and a member of a Fed advisory council, said Mr. Barr was “quite collaborative” and “a good listener.”“We may not agree on everything, but he tries to understand,” Mr. Cecere said.The Fed did not provide a comment for this article.The question now is whether the proposal will change before it is final: Bankers have until Nov. 30 to offer suggestions for how to adjust it. Colleagues who worked with Mr. Barr the last time he was reshaping America’s bank regulations — in the wake of the 2008 financial collapse — suggested that he could be willing to negotiate but not when he viewed something as essential.Amias Gerety, a Treasury official during the Obama administration, joined him and other government policymakers for those discussions over consumer protection and big bank oversight. He watched Mr. Barr leave some ideas on the cutting-room floor (such as an online marketplace that would allow consumers to compare credit card terms), while fighting aggressively for others (such as a powerful structure for the then-nascent Consumer Financial Protection Bureau).When people disagreed with Mr. Barr, even loudly, he would politely listen — often before forging ahead with the plan he thought was best.“Sometimes to his detriment, Michael is who he is,” Mr. Gerety said. “He is very willing to sacrifice small-p interpersonal politics to achieve policy goals that he thinks are good for people.”Some tweaks to the current proposal are expected: The residential mortgage suggestion is getting a closer look, for instance. But several analysts said they expected the final rule to remain toothy.In the meantime, Mr. Barr appears to have shaken his reputation for mildness. Dean Baker, an economist at a progressive think tank who, in 2014, was quoted in a news article saying Mr. Barr could not “really be trusted to go after the industry,” said his view had shifted.“I definitely have had a better impression of him over the years,” Mr. Baker said. More

  • 138 Shares199 Views

    in Economy

    Fed Officials Firm Up Plans for Swift Pullback of Economic Help

    by

    Federal Reserve officials are coalescing around a plan to raise interest rates steadily starting in March and then move swiftly to shrink the central bank’s big bond holdings as policymakers look to cool the economy at a moment of rapid inflation.While policymakers are likely to keep an eye on the conflict in Ukraine as they proceed with those plans, for now geopolitical developments seem unlikely to be enough to derail the central bank’s campaign to beat back price increases.Policymakers have spent the past week broadcasting that the interest rate increase they plan to make at their March meeting — one that investors already fully expect — will be the first in a string of rate moves. Central bankers also appeared to be converging on a plan to promptly start shrinking the Fed’s holdings of government-backed debt, which were vastly expanded during the pandemic downturn as the Fed snapped up bonds in a bid to keep markets functioning and cushion the economy.The central bank bought $120 billion in Treasury and mortgage-backed securities for much of 2020 and 2021, but officials have been tapering those purchases and are on track to stop them entirely in March. By quickly pivoting to allow securities on its nearly $9 trillion balance sheet to expire without reinvestment — reducing its holdings over time — the Fed would take away an important source of demand for government-backed debt and push rates on those securities higher. That would work together with a higher Fed policy interest rate to make many types of borrowing more expensive.Higher borrowing costs should weigh on lending and spending, tempering demand and helping to slow price gains, which have been uncomfortably rapid. Data out this week is expected to show further acceleration in the central bank’s preferred inflation gauge, which was already running at its fastest pace in 40 years.Lael Brainard, a Fed governor who has been nominated by President Biden to serve as vice chair, said last week that she believed a “series” of rate increases were warranted.“I do anticipate that it will be appropriate, at our next meeting, which is in just a few weeks, to initiate a series of rate increases,” she said on Friday at a forum held by the University of Chicago’s Booth School of Business in New York. Ms. Brainard said the Fed would then turn to shrinking its balance sheet, a process that could be appropriate to start “in coming meetings.”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.Michelle Bowman, another Fed governor, echoed that balance sheet reduction could start imminently, saying in a speech on Monday that the Fed needs to begin to reduce its bond holdings “in the coming months.”The precise timing of shrinking the balance sheet is a topic of debate. John C. Williams, president of the Federal Reserve Bank of New York, suggested on Friday that the process could start “later this year,” which could suggest in coming months or slightly later. But officials have been uniformly clear that a pullback is coming, and likely more quickly than investors had expected until just recently.Although policymakers plan to shrink their holdings of Treasury bonds and mortgage-backed securities by allowing them to expire, rather than by selling the debt, the Fed’s latest meeting minutes suggested that officials could eventually move to outright sales of mortgage-tied securities. The minutes also suggested that officials thought “a significant reduction” in the balance sheet would be warranted.The pace of the moves would be rapid compared with the last time the Fed increased interest rates, from 2015 to the end of 2018. Then, officials shrank the balance sheet only gradually and pushed up interest rates glacially, once per quarter at fastest.Borrowing costs have already begun to rise as investors adjust to the Fed’s more rapid-fire plans. Markets expect six or seven quarter-point interest rate increases this year. The rate on a 30-year mortgage has climbed to 3.9 percent from about 2.9 percent last fall, when the Fed began its policy pivot.The Fed’s policy changes “will bring inflation down over time, while sustaining a recovery that includes everyone,” Ms. Brainard said, adding that as the Fed signals that it will raise rates, “the market is clearly aligned with that.”But tensions between Russia and Ukraine could create both additional inflationary pressures and risks to growth. So far, there has been little signal that the fallout will be enough to prompt the Fed to change course.“The Federal Reserve pays very close attention to geopolitical events, and this one of course in particular as it’s the most prominent at this point,” Ms. Bowman said on Monday, ahead of the escalation in tensions.“We do recognize that there are significant opportunities for potential impacts on the energy markets, as we’re moving forward, if things were to deteriorate,” she added.Oil and gas prices have already risen during the conflict and could continue to climb, leading to a higher peak in headline inflation, which includes prices at the pump. The Fed typically avoids reacting to fluctuations in energy prices when setting its policy, given their volatility, but the potential disruption could make inflation trends all the more painful for consumers.Inflation F.A.Q.Card 1 of 6What is inflation? More

  • 125 Shares199 Views

    in Economy

    Fed Officials Appear Unlikely to Change Course Amid Ukraine Conflict

    by

    Conflict in Ukraine appears unlikely to shake Federal Reserve officials from their plans to pull back support for the economy at this point, but the rapid escalation in tension is sure to draw policymaker attention and could make for even higher inflation in the near term.The central bank has two jobs — fostering full employment and stable prices — and it has been preparing to raise interest rates and make other policy adjustments too cool down the economy as inflation runs at its fastest pace in 40 years.Oil and gas prices have already risen during the conflict and could continue to climb, leading to a higher peak in headline inflation, which includes prices at the pump. The Fed typically avoids reacting to fluctuations in energy prices when setting its policy, given the volatility of fuel costs, but the potential disruption could make ongoing inflation trends all the more painful for consumers.“The Federal Reserve pays very close attention to geopolitical events, and this one of course in particular as it’s the most prominent at this point,” Michelle Bowman, a Fed governor, said on Monday.Ms. Bowman noted that the U.S. has minor banking, financial, and trade interests with Russia, and that “we don’t believe that would have a significant impact” on the economy given the small size of those relationships.“But we do recognize that there are significant opportunities for potential impacts on the energy markets, as we’re moving forward, if things were to deteriorate,” Ms. Bowman added. “Obviously we’ll continue to watch that, and if we believe that might have some influence on the global economy, we’ll take that into account as we’re going into our meetings and discussing the economy more broadly.”High fuel prices could weigh on consumer spending on other goods and services as families devote more of their monthly budgets to energy. If the potential for war makes consumers uncertain about the future or sends stock prices plummeting, it also could weigh on demand as nervous shoppers retrench.Central bankers noted in minutes of their most recent meeting that geopolitical risks “could cause increases in global energy prices or exacerbate global supply shortages,” but also that they were a risk to the outlook for growth.But officials have painted it as more of one risk among many than as a pivotal point of concern.“We actually have seen fighting in this area of the world in the past,” James Bullard, the president of the Federal Reserve Bank of St. Louis, said on CNBC last week. “I do think it’s quite an important foreign policy issue, but I’m not seeing it as a leading macroeconomic issue, at least at this point.”Assessing exactly what the conflict between Russia and Ukraine will mean for the American economy is challenging because it is unclear how much tensions will escalate and because it is not obvious how Russia might respond as the U.S. and Europe prepare sanctions.Plus, while rising fuel prices could push up inflation, global unease is likely to push the value of the dollar higher as global investors move into what they see as “safe-haven” assets. That could make imported goods cheaper, working in the opposite direction to rising fuel costs. More

  • 125 Shares199 Views

    in Economy

    Fed Unity Cracks as Inflation Rises and Officials Debate Future

    by

    Federal Reserve officials are debating what to do as price risks loom, even as its leaders and the White House say today’s surge will most likely cool.Federal Reserve officials spoke with one voice throughout the pandemic downturn, promising that monetary policy would be set to full-stimulus mode until the crisis was well and truly behind America. Suddenly, they are less in sync.Central bankers are increasingly divided over how to think about and respond to emerging risks after months of rising asset values and faster-than-expected price increases. While their political counterparts in the White House have been more unified in maintaining that the recent jump in price gains will fade as the economy gets past a reopening burst, Washington as a whole is wrestling with how to approach policy at a moment of intense uncertainty.The Fed’s top officials, including Chair Jerome H. Powell, acknowledge that a lasting period of uncomfortably high inflation is a possibility. But they have said it is more likely that recent price increases, which have come as the economy reopens from its coronavirus slumber, will fade.Other officials, like James Bullard, president of the Federal Reserve Bank of St. Louis, have voiced more pointed concern that the pickup in prices might persist and have suggested that the Fed may need to slow its support for the economy more quickly as a result.Unwanted and persistent inflation seemed like a fringe possibility earlier this year, but it is becoming a central feature of economic policy debates as prices rise for used cars, airline tickets and restaurant meals. For the Fed, the risk that some of the current jump could last is helping to drive the discussion about how soon and how quickly officials should slow down their enormous government-backed bond-buying program — the first step in the central bank’s plan to reduce its emergency support for the economy.Fed officials have said for months that they want to achieve “substantial further progress” toward their goals of full employment and stable inflation before slowing the purchases, and they are just beginning to discuss a plan for that so-called taper. They are now wrestling with the reality that the nation is still missing 7.6 million jobs while the housing market is booming and prices have moved up faster than expected, prompting a range of views to surface in public and private.The bubbling debate reinforces that the central bank’s easy money policies won’t last forever, and sends a signal to markets that officials are closely attuned to inflationary pressures.“A pretty substantial part — or perhaps all — of the overshoot in inflation comes from categories that are directly affected by the reopening of the economy,” said Jerome Powell, the Fed chair.Al Drago/The New York Times“I see the debate and disagreement as the Fed at its best,” said Robert S. Kaplan, who is president of the Federal Reserve Bank of Dallas and is one of the people pushing for the Fed to soon begin to pull back support. “In a situation this complex and this dynamic, if I weren’t seeing debate and disagreement, and there were unanimity, it would make me nervous.”The central bank’s 18 policy officials roundly say that the economy’s path is extremely hard to predict as it reopens from a once-in-a-century pandemic. But how they think about inflation after a string of strong recent price reports — and how they feel the Fed should react — varies.Inflation has spiked because of statistical quirks, but also because consumer demand is outstripping supply as the economy reopens and families open their wallets for dinners out and long-delayed vacations. Bottlenecks that have held up computer chip production and home-building should eventually fade. Some prices that had previously shot up, like those for lumber, are already starting to moderate.But if the reopening weirdness lasts long enough, it could cause businesses and consumers to anticipate higher inflation permanently, and act accordingly. Should that happen, or if workers begin to negotiate higher wages to cover the pop in living costs, faster price gains could stick around.“A new risk is that inflation may surprise still further to the upside as the reopening process continues, beyond the level necessary to simply make up for past misses to the low side,” Mr. Bullard said in a presentation last week. The Fed aims for 2 percent inflation as an average goal over time, without specifying the time frame.Other Fed officials have said today’s price pressures are likely to ease with time, but have not sounded confident that they will entirely disappear.“These upward price pressures may ease as the bottlenecks are worked out, but it could take some time,” Michelle Bowman, one of the Fed’s Washington-based governors, said in a recent speech.The Fed’s top leadership has offered a less alarmed take on the price trajectory. Mr. Powell and John C. Williams, president of the Federal Reserve Bank of New York, have said it is possible that prices could stay higher, but they have also said there’s little evidence so far to suggest that they will.“A pretty substantial part — or perhaps all — of the overshoot in inflation comes from categories that are directly affected by the reopening of the economy,” Mr. Powell said during congressional testimony on June 22.Mr. Williams has said there is even a risk that inflation could slow. The one-off factors pushing up prices now, like a surge in car prices, could reverse once supply recovers, dragging down future price gains.“You could see inflation coming in lower than expected,” he said last week.Which take on inflation prevails — risk-focused, watchful, or less fretful — will have implications for the economy. Officials are beginning to talk about when and how to slow down their $120 billion in monthly bond-buying, which is split between $80 billion in Treasury securities and $40 billion in government-backed mortgage debt.The Fed has held a discussion about slowing bond-buying before, after the global financial crisis, but that came during the rebound from a deep but otherwise more standard downturn: Demand was weak and the labor market climbed slowly back. This time, conditions are much more volatile since the recession was an anomaly, driven by a pandemic instead of a financial or business shock.In the current setting, officials who are more worried about prices getting out of hand may feel more urgency to dial back their economic stimulus, which stokes demand.“This is a volatile environment; we’ve got upside inflation risk here,” Mr. Bullard said at a separate event last week. “Creating some optionality for the committee might be really useful here, and that will be part of the taper debate going forward.”Mr. Kaplan said he had been vocal about his preferences on when tapering should start during private Fed discussions, though publicly he will say only that he would prefer to start cutting policy support “sooner rather than later.”“I see the debate and disagreement as the Fed at its best,” said Robert S. Kaplan, a Fed official who is pushing to start easing support.Edgard Garrido/ReutersHe thinks moving more quickly to slow bond purchases would take a “risk management” approach to both price gains and asset market excess: reducing the chances of a bad outcome now, which might mean the Fed doesn’t have to raise interest rates as early down the road.Several officials, including Mr. Kaplan and Mr. Bullard, have said it might be wise for the Fed to slow its purchases of mortgage debt more rapidly than they slow bond-buying overall, concerned that the Fed’s buying might be contributing to a hot housing market.But even that conclusion isn’t uniform. Lael Brainard, a Fed governor, and Mary C. Daly, president of the Federal Reserve Bank of San Francisco, have suggested that the mortgage-backed purchases affect financial conditions as a whole — suggesting they may be less keen on cutting them back faster.The price outlook will also inform when the Fed first raises interest rates. The Fed has said that it wants to achieve 2 percent inflation on average over time and maximum employment before lifting borrowing costs away from rock bottom.Rate increases are not yet up for discussion, but Fed officials’ published forecasts show that the policy-setting committee is increasingly divided on when that liftoff will happen. While five expect rates to remain unchanged through late 2023, opinions are otherwise all over the place. Two officials see one increase by the end of that year, three see two, three see three and another three see four. Two think the Fed will have raised rates six times.Both Fed policy debates will affect financial markets. Bond-buying and low rates tend to pump up prices on houses, stocks and other assets, so the Fed’s pullback could cause them to cool off. And they matter for the economy: If the Fed removes support too late and inflation gets out of control, it could take a recession to rein it in again. If it removes its help prematurely, the slowdown in demand could leave output and the labor market weak.The Fed will be working against a changing backdrop as it tries to decide what full employment and stable prices mean in a post-pandemic world. More money from President Biden’s $1.9 trillion economic aid bill will soon begin to flow into the economy. For example, the Treasury Department in July will begin depositing direct monthly payments into the accounts of millions of parents who qualify for an expanded child tax credit.But expanded unemployment insurance benefits are ending in many states. That could leave consumers with less money and slow down demand if it takes would-be workers time to find new jobs.As the trends play out, White House officials will also be watching to see whether the economy is hot or not. The administration is trying to pass a follow-up fiscal package that would focus on longer-term investments, and Republican opposition has centered partly on inflation risks.For Mr. Kaplan at the Fed, the point is to be watchful. He said it was important to learn from the lessons of the post-2008 crisis recovery, when monetary policy support was removed before inflation had meaningfully accelerated — but also to understand that this rebound is unique.“Realizing that this is a different situation is a wise thing,” Mr. Kaplan said. More