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The Fed Wants to Fight Inflation Without a Recession. Is It Too Late?

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Federal Reserve officials took a while to recognize that inflation was lasting. The question is whether they can tame it gently now.The Federal Reserve is poised to set out a path to rapidly withdraw support from the economy at its meeting on Wednesday — and while it hopes it can contain inflation without causing a recession, that is far from guaranteed.Whether the central bank can gently land the economy is likely to serve as a referendum on its policy approach over the past two years, making this a tense moment for a Fed that has been criticized for being too slow to recognize that America’s 2021 price burst was turning into a more serious problem.The Fed chair, Jerome H. Powell, and his colleagues are expected to raise interest rates half a percentage point on Wednesday, which would be the largest increase since 2000. Officials have also signaled that they will release a plan for shrinking their $9 trillion balance sheet starting in June, a policy move that will further push up borrowing costs.That two-front push to cool off the economy is expected to continue throughout the year: Several policymakers have said they hope to get rates above 2 percent by the end of 2022. Taken together, the moves could prove to be the fastest withdrawal of monetary support in decades.The Fed’s response to hot inflation is already having visible effects: Climbing mortgage rates seem to be cooling some booming housing markets, and stock prices are wobbling. The months ahead could be volatile for both markets and the economy as the nation sees whether the Fed can slow rapid wage growth and price inflation without constraining them so much that unemployment jumps sharply and growth contracts.“The task that the Fed has to pull off a soft landing is formidable,” said Megan Greene, chief global economist at the Kroll Institute, a research arm of the Kroll consulting firm. “The trick is to cause a slowdown, and lean against inflation, without having unemployment tick up too much — that’s going to be difficult.”Optimists, including many at the Fed, point out that this is an unusual economy. Job openings are plentiful, consumers have built up savings buffers, and it seems possible that growth will be resilient even as business conditions slow somewhat.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: Times readers sent us their questions about rising prices. Top experts and economists weighed in.Interest Rates: As it seeks to curb inflation, the Federal Reserve announced that it was raising interest rates for the first time since 2018.How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.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.But many economists have said cooling price increases down when labor is in demand and wages are rising could require the Fed to take significant steam out of the job market. Otherwise, firms will continue to pass rising labor costs along to customers by raising prices, and households will maintain their ability to spend thanks to growing paychecks.“They need to engineer some kind of growth recession — something that raises the unemployment rate to take the pressure off the labor market,” said Donald Kohn, a former Fed vice chair who is now at the Brookings Institution. Doing that without spurring an outright downturn is “a narrow path.”Fed officials cut interest rates to near-zero in March 2020 as state and local economies locked down to slow the coronavirus’s spread at the start of the pandemic. They kept them there until March this year, when they raised rates a quarter point.But the Fed’s balance-sheet approach has been the more widely criticized policy. The Fed began buying government-backed debt in huge quantities at the outset of the pandemic to calm bond markets. Once conditions settled, it bought bonds at a pace of $120 billion, and continued making purchases even as it became clear that the economy was healing more swiftly than many had anticipated and inflation was high.Late-2021 and early-2022 bond purchases, which are what critics tend to focus on, came partly because Mr. Powell and his colleagues did not initially think that inflation would become longer lasting. They labeled it “transitory” and predicted that it would fade on its own — in line with what many private-sector forecasters expected at the time.When supply chain disruptions and labor shortages persisted into the fall, pushing up prices for months on end and driving wages higher, central bankers reassessed. But even after they pivoted, it took time to taper down bond buying, and the Fed made its final purchases in March. Because officials preferred to stop buying bonds before lifting rates, that delayed the whole tightening process.The central bank was trying to balance risks: It did not want to quickly withdraw support from a healing labor market in response to short-lived inflation earlier in 2021, and then officials did not want to roil markets and undermine their credibility by rapidly reversing course on their balance sheet policy. They did speed up the process in an attempt to be nimble.Under Jerome H. Powell, the Fed, which meets on Wednesday, is trying to walk a thin line.Nate Palmer for The New York Times“In hindsight, there’s a really good chance that the Fed should have started tightening earlier,” said Karen Dynan, an economist at the Harvard Kennedy School and a former Treasury Department chief economist. “It was really hard to judge in real time.”Nor was the Fed’s policy the only thing that mattered for inflation. Had the Fed begun to pull back policy support last year, it might have slowed the housing market more quickly and set the stage for slower demand, but it would not have fixed tangled supply chains or changed the fact that many consumers have more cash on hand than usual after repeated government relief checks and months spent at home early in the pandemic.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Biden Administration Plays Down Growth Decline in G.D.P. Report

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    The White House dismissed a slump in first-quarter growth that was driven by a quirk in inventories and a jump in imports, emphasizing that Thursday’s report on gross domestic product also pointed to underlying strength in consumer spending.G.D.P. declined 0.4 percent in the first quarter after adjusting for inflation, or 1.4 percent on an annualized basis, the Commerce Department said Thursday. Companies had stockpiled inventories in the fourth quarter and built them more slowly at the start of the year, and imports far outstripped exports as Americans bought goods from abroad, driving the decline.“While last quarter’s growth estimate was affected by technical factors, the United States confronts the challenges of Covid-19 around the world, Putin’s unprovoked invasion of Ukraine, and global inflation from a position of strength,” President Biden said in a statement following the release, referring to President Vladimir V. Putin of Russia. Mr. Biden also noted that “consumer spending, business investment, and residential investment increased at strong rates.”Mr. Biden and Democrats are facing a challenging midterm election year as inflation runs at its fastest pace in four decades, chipping away at household budgets and eroding consumer confidence. At the same time, the Federal Reserve is raising interest rates to try to keep rapid price increases from becoming permanent, which could begin to meaningfully cool down the economy just as voters head to the polls.The administration has tried to pin high inflation on Russia’s invasion of Ukraine. While the war has pushed gas and other commodity prices higher, inflation was high even before Russia’s attack.Republicans have seized on rising prices to blast Mr. Biden’s economic policies. The decline in growth at the start of the year gave them room to ramp up that criticism.“Accelerating inflation, a worker crisis, and the growing risk of a significant recession are the signature economic failures of the Biden administration,” Representative Kevin Brady, a Texas Republican, said in a news release on Thursday.Representative Kevin McCarthy of California, the House Republican leader, also blamed Democrats for the drop in growth and 40-year high inflation levels.“In 15 months, one-party Democrat rule has squandered America’s recovery and left you paying the price,” Mr. McCarthy wrote on Twitter.The Biden administration’s 2021 economic stimulus, which sent checks to households and provided other relief at a time when the job market was already recovering, has been criticized by economists for helping to stoke excessively strong consumer demand. That probably ramped up inflationary pressures as the economy reopened, some research has suggested.Republicans often seize on that to argue that the burst in inflation is the administration’s fault. But administration officials point out that their policies helped to drive a swift recovery, came at an uncertain moment, and built on a pandemic response started under the Trump administration.In a speech on Thursday, Treasury Secretary Janet L. Yellen defended the scale of the efforts to support the economy. She recalled the dire economic projections in the early days of the pandemic and said that the spending was needed to avert a worst-case scenario, though some economists warned that the final installation in 2021 was too much and too poorly targeted even at the time of its passage.“Throughout 2020, and into 2021, the path of the pandemic, including its severity and the role of future viral strains could not be predicted,” Ms. Yellen said at an event at the Brookings Institution held by the Hamilton Project and Hutchins Center. “Given this uncertainty, the recovery packages sought to protect against tail risk.” More

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    Economy Contracted in the First Quarter, but Underlying Measures Were Solid

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    The U.S. economy contracted in the first three months of the year, but strong consumer spending and continued business investment suggested that the recovery remained resilient.Gross domestic product, adjusted for inflation, declined 0.4 percent in the first quarter, or 1.4 percent on an annualized basis, the Commerce Department said Thursday. That was down sharply from the 1.7 percent growth (6.9 percent annualized) in the final three months of 2021, and was the weakest quarter since the early days of the pandemic.The decline was mostly a result of the two most volatile components of the quarterly reports: inventories and international trade. Lower government spending was also a drag on growth. Measures of underlying demand showed solid growth.Most important, consumer spending, the engine of the U.S. economy, grew 0.7 percent in the first quarter despite the Omicron wave of the coronavirus, which restrained spending on restaurants, travel and similar services in January.“Consumer spending is the aircraft carrier in the middle of the ocean — it just keeps plowing ahead,” said Jay Bryson, chief economist for Wells Fargo.But choppy waters may lie ahead. The first-quarter data mostly predates the spike in gas prices that has accompanied Russia’s invasion of Ukraine and the lockdowns in China that have threatened to further disrupt global supply chains. The Federal Reserve in March raised interest rates for the first time since the pandemic began, and several more rate increases are expected this year as policymakers seek to tame the fastest inflation in four decades.“We are watching a bunch of seismic changes in real time,” said Wendy Edelberg, director of the Hamilton Project, an economic policy arm of the Brookings Institution.The biggest challenge facing the economy is inflation. Consumer prices rose at a 7 percent annual rate in the first quarter, and Americans’ after-tax incomes, adjusted for inflation, fell for the fourth quarter in a row. So far, higher prices have done little to dampen consumers’ willingness to spend, but that will change if inflation keeps outpacing income gains, said Beth Ann Bovino, chief U.S. economist for S&P Global.“There’s a tipping point,” she said. Sometime this year, she added, “I’m expecting to see households starting to respond either by trading down, looking for deals, being less willing to pay higher prices.” More

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    Is America’s Economy Entering a New Normal?

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    Policymakers are wrestling with the reality that the pandemic may mark a turning point in the nation’s economic plot.The pandemic, and now the war in Ukraine, have altered how America’s economy functions. While economists have spent months waiting for conditions to return to normal, they are beginning to wonder what “normal” will mean.Some of the changes are noticeable in everyday life: Work from home is more popular, burrito bowls and road trips cost more, and buying a car or a couch made overseas is harder.But those are all symptoms of broader changes sweeping the economy — ones that could be a big deal for consumers, businesses and policymakers alike if they linger. Consumer demand has been hot for months now, workers are desperately wanted, wages are climbing at a rapid clip, and prices are rising at the fastest pace in four decades as vigorous buying clashes with roiled supply chains. Interest rates are expected to rise higher than they ever did in the 2010s as the Federal Reserve tries to rein in inflation.History is full of big moments that have changed America’s economic trajectory: The Great Depression of the 1930s, the Great Inflation of the 1970s and the Great Recession of 2008 are examples. It’s too early to know for sure, but the changes happening today could prove to be the next one.Economists have spent the past two years expecting many of the pandemic-era trends to prove temporary, but that has not yet been the case.Forecasters predicted that rapid inflation would fade in 2021, only to have those expectations foiled as it accelerated instead. They thought workers would jump back into the labor market as schools reopened from pandemic shutdowns, but many remain on its sidelines. And they thought consumer spending would taper off as government pandemic relief checks faded into the rearview mirror. Shoppers have kept at it.Now, Russia’s invasion of Ukraine threatens the global geopolitical order, yet another shock disrupting trade and the economic system.For Washington policymakers, Wall Street investors and academic economists, the surprises have added up to an economic mystery with potentially far-reaching consequences. The economy had spent decades churning out slow and steady growth clouded by weak demand, interest rates that were chronically flirting with rock bottom and tepid inflation. Some are wondering if, after repeated shocks, that paradigm could change.“For the last quarter century, we’ve had a perfect storm of disinflationary forces,” Jerome H. Powell, the Fed chair, said in response to a question during a public appearance this week, noting that the old regime had been disrupted by a pandemic, a large spending and monetary policy response and a war that was generating “untold” economic uncertainty. “As we come out the other side of that, the question is: What will be the nature of that economy?” he said.The Fed began to raise interest rates this month in a bid to cool the economy down and temper high inflation, and Mr. Powell made clear this week that the central bank planned to keep lifting them — perhaps aggressively. After a year of unpleasant price surprises, he said, the Fed will set policy based on what is happening, not on an expected return to the old reality.“No one is sitting around the Fed, or anywhere else that I know of, just waiting for the old regime to come back,” Mr. Powell said.The prepandemic normal was one of chronically weak demand. The economy today faces the opposite issue: Demand has been supercharged, and the question is whether and when it will moderate.Before, globalization had weighed down both pay and price increases, because production could be moved overseas if it grew expensive. Gaping inequality and an aging population both contributed to a buildup of savings stockpiles, and as money was held in safe assets rather than being put to more active use, it seemed to depress growth, inflation and interest rates across many advanced economies.Japan had been stuck in the weak-inflation, slow-growth regime for decades, and the trend seemed to be spreading to Europe and the United States by the 2010s. Economists expected those trends to continue as populations aged and inequality persisted.Then came the coronavirus. Governments around the world spent huge amounts of money to get workers and businesses through lockdowns — the United States spent about $5 trillion.The era of deficient demand abruptly ended, at least temporarily. The money, which is still chugging out into the U.S. economy from consumer savings accounts and state and local coffers, helped to fuel strong buying, as families snapped up goods like lawn mowers and refrigerators. Global supply chains could not keep up.The combination pushed costs higher. As businesses discovered that they were able to raise prices without losing customers, they did so. And as workers saw their grocery and Seamless bills swelling, airfares climbing and kitchen renovations costing more, they began to ask their employers for more money.Companies were rehiring as the economy reopened from the pandemic and to meet the burst in consumption, so labor was in high demand. Workers began to win the raises they wanted, or to leave for new jobs and higher pay. Some businesses began to pass rising labor costs along to customers in the form of higher prices.The world of slow growth, moderate wage gains and low prices evaporated — at least temporarily. The question now is whether things will settle back down to their prepandemic pattern.The argument for a return to prepandemic norms is straightforward: Supply chains will eventually catch up. Shoppers have a lot of money in savings accounts, but those stockpiles will eventually run out, and higher Fed interest rates will further slow spending.As demand moderates, the logic goes, forces like population aging and rampant inequality will plunge advanced economies back into what many economists call “secular stagnation,” a term coined to describe the economic malaise of the 1930s and revived by the Harvard economist Lawrence H. Summers in the 2010s.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Why Is the Fed Raising Interest Rates?

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    Prices for groceries, couches and rent are all climbing rapidly, and Federal Reserve officials have been warily eyeing that trend. On Wednesday, they are expected to take their biggest step yet toward counteracting it.Central bank officials — who have been signaling for months that they are preparing to pull back economic support — are expected to raise their policy interest rate by a quarter percentage point. That small change will carry with it a major signal. Policymakers are telling markets and the public that they have fully pivoted to inflation-fighting mode and will do what is necessary to make sure price gains do not remain hot for months and years to come.The Fed will release its decision at 2 p.m., and Jerome H. Powell, the central bank’s chair, will hold a news conference at 2:30 p.m.The Fed is acting at a tense moment for many consumers, when people are worrying about rising day-to-day expenses and trying to think through what higher interest rates could mean for their finances. Here’s a rundown of what is happening, why it is happening and what it is likely to mean for markets and the economy.The Fed is taking its foot off the accelerator. More

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    IMF Warns Ukraine-Russia War Will Likely Slow Global Growth

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    The war in Ukraine and the associated sanctions that countries around the world have imposed on Russia are likely to cause a downgrade of the International Monetary Fund’s global economic growth forecast, Kristalina Georgieva, the I.M.F.’s managing director, said on Thursday.The Ukraine crisis is another shock to a world economy that was just emerging from the coronavirus pandemic, and it has been compounding global supply chain disruptions and inflation headwinds that have been cause for concern. The full impact on the world economy remains uncertain, I.M.F. officials said, and will depend on the outcome of the war and how long sanctions remain.“We just got through a crisis like no other with the pandemic, and we are now in an even more shocking territory,” Ms. Georgieva told reporters. “The unthinkable happened — we have a war in Europe.”In January, the I.M.F. reduced its estimated global growth rate for 2022 to 4.4 percent, from the 4.9 percent it had projected last year, as a result of slowdowns in the United States and China.Ms. Georgieva said the most significant threat to the world economy was greater inflation coming from higher commodity prices as countries shifted consumption away from Russian oil and gas. This, in turn, could eat into consumer spending. Worsening financial conditions and business confidence also have the potential to weigh on growth.“The surging prices for energy and other commodities — corn, metals, inputs for fertilizers, semiconductors — they are coming, in many countries, on top of already high inflation and are causing grave concern in so many places around the world,” Ms. Georgieva said.The I.M.F. is working to develop a plan to provide more assistance for Ukraine’s eventual rebuilding effort, but said it was too soon to know the extent of the country’s needs. This week, the fund’s executive board approved $1.4 billion in emergency financing.Ukraine’s top economic adviser said earlier on Thursday that Russia had already destroyed $100 billion worth of the country’s assets.The fund is also assessing the impact of the sanctions on the economy of Russia. Much of its financial sector and its central bank has been blacklisted.“The Russian economy is contracting, and the recession in Russia is going to be deep,” Ms. Georgieva said. “That is already clear.”She said Russia was unlikely to have access to its emergency currency reserves because of sanctions.The I.M.F. has halted operations and programs in Russia. Ms. Georgieva said there had been no discussions about ending Russia’s membership in the fund. More

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    Covid, inflation and a loss of aid crimped American incomes in January.

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    Soaring coronavirus caseloads, rising prices and a falloff in government aid combined to take a bite out of Americans’ incomes in January.After-tax income rose just 0.1 percent last month, the Commerce Department said Friday. That was the slowest growth since June. Adjusted for inflation, after-tax income fell 0.5 percent, the sixth consecutive monthly decline.Incomes were affected by the spike in coronavirus cases associated with the Omicron variant, which kept millions of employees home from work in January. Earlier data from the Labor Department showed that total hours worked fell early in the month, despite continued job growth.January was also the first month since mid-2021 in which parents did not receive payments under the expanded child tax credit, which expired at the end of last year. Income from government programs fell 1.3 percent last month.Yet despite the crimp in incomes, Americans continued to spend. Consumer spending rose 2.1 percent in January. Even after adjusting for inflation, spending was up 1.5 percent.Spending on goods was particularly strong, continuing the pandemic-era pattern that has put pressure on global supply chains. But spending on services also rose modestly, suggesting that the Omicron wave did not derail the recovery on the services side of the economy. More

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    Retail Sales Rebounded in January 2022, Jumping 3.8%

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    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

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    Omicron’s Economic Toll: Missing Workers, More Uncertainty and Higher Inflation (Maybe)

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    The Omicron wave of the coronavirus appears to be cresting in much of the country. But its economic disruptions have made a postpandemic normal ever more elusive.Forecasters have slashed their estimates for economic growth in the first three months of 2022. Some expect January to show the first monthly decline in employment in more than a year. And retail sales and manufacturing production fell in December, suggesting that the impact began well before cases hit their peak.“Those are Omicron’s fingerprints,” said Constance L. Hunter, chief economist for the accounting firm KPMG. “It will slow growth in the beginning of the first quarter.”On Monday, global markets were in a frenzy, with the S&P 500 plunging nearly 4 percent before recovering its losses. Market analysts said the early declines reflected fears that the Federal Reserve might need to respond more aggressively than expected to rapidly rising prices, a prospect that some economists say has been made more likely by Omicron.Recovery prospects in the longer run are uncertain. Some economists say even temporary job losses could force consumers to pull back their spending, especially now that federal programs that helped families early in the pandemic have largely ended. Others worry that Omicron could compound supply-chain backlogs both in the United States and overseas, prolonging the recent bout of high inflation and putting pressure on the Fed to act. But some see Omicron as the equivalent of a severe winter storm, causing disruptions and delays but ultimately doing little permanent economic damage. The recovery has proved resilient so far, they argue, and has enough underlying momentum to carry it through.“There are so many potential ways that this could go,” said Tara Sinclair, an economist at George Washington University. “We didn’t even agree on where we were going without Omicron, and then you throw Omicron on top.”Omicron is aggravating labor shortages.Travelers at Kennedy International Airport last month. Airlines canceled thousands of flights over the holidays because so many crew members were out sick.Karsten Moran for The New York TimesMore than 8.7 million Americans weren’t working in late December and early January because they had Covid-19 or were caring for someone who did, according to the latest estimate from the Census Bureau’s experimental Household Pulse Survey. Another 5.3 million were taking care of children who were home from school or day care. The cumulative impact is larger than at any other point in the pandemic.Covid-related absences are creating headaches for businesses that were struggling to hire workers even before Omicron. Restaurants and retail stores have cut back hours. Broadway shows called off performances. Airlines canceled thousands of flights over the holidays because so many crew members called in sick; on one day last month, nearly a third of United Airlines workers at Newark Liberty International Airport, a major hub, called in sick.The Status of U.S. JobsMore Workers Quit Than Ever: A record number of Americans — more than 4.5 million people — ​​voluntarily left their jobs in November.Jobs Report: The American economy added 210,000 jobs in November, a slowdown from the prior month.Analysis: The number of new jobs added in November was below expectations, but the report shows that the economy is on the right track.Jobless Claims Plunge: Initial unemployment claims for the week ending Nov. 20 fell to 199,000, their lowest point since 1969.At Designer Paws Salon, a pet grooming company with two locations in the Columbus, Ohio, area, business has been strong in recent months, thanks in part to a pandemic boom in pet ownership. But Misty Gieczys, the company’s founder and chief executive, has been struggling to fill 11 positions despite generous benefits and pay that can reach $95,000 a year in commissions and tips.Omicron has only made things worse, she said. Since Christmas, she has received only three job applications, and just one applicant got back to her after she reached out. Then Ms. Gieczys, who has two young daughters, got Covid-19 herself for the second time, forcing her to stay home. That, on top of day care shutdowns because of the virus, has meant she has spent a significant amount of time away from work.“If I wasn’t the owner, I think I would be fired, honestly,” she said.But while the Omicron wave has contributed to businesses’ staffing woes, there is little sign so far that it has set back the job market recovery more generally. New filings for unemployment insurance have risen only modestly in recent weeks, suggesting that employers are holding on to their workers. Job postings on the career site Indeed have edged down only slightly from record highs.“It’s a vast difference from 2020, where there were mass layoffs,” said Jason Furman, a Harvard economist who was an adviser to President Barack Obama. “Now employers are holding on to people because they expect to be in business in a month.”The new variant could make inflation worse (or maybe better).When the pandemic began in early 2020, it was a shock to both supply and demand, as companies and their customers pulled back in the face of the virus.With each successive wave, however, the impact on demand has gotten smaller. Businesses and consumers learned to adapt. Federal aid helped prop up people’s income. And more recently, the availability of vaccines and improved treatment options have made many people comfortable resuming more normal activities.Supply problems have been slower to dissipate, and in some cases have gotten worse as production and shipping backlogs have grown. If Omicron follows the same pattern, limiting the supply of goods and workers while doing little to dent consumers’ willingness to spend, it could lead to faster inflation.“What should happen is the supply shock should be much larger than the demand shock,” said Aditya Bhave, senior economist at Bank of America. “All of that just means more inflation.”But Omicron’s impact on inflation is not straightforward. Retail sales fell 1.9 percent in December, and restaurant reservations on OpenTable have fallen in January. That suggests that the record-breaking number of coronavirus cases is having an effect on demand, even if it is more muted than in past waves.The latest Covid surge is also the first to hit after the expiration of enhanced unemployment benefits, the expanded child tax credit and most other emergency federal aid programs. Nearly a quarter of private-sector workers get no paid sick time, meaning that even a temporary absence from work could force them to cut back spending now that government benefits aren’t replacing lost income.“That stimulus pay really helped push people past their reticence and say, ‘It’s OK to spend,’” said Nela Richardson, chief economist for ADP, the payroll company. “Now there’s no big push in stimulus, and so people might change their spending behavior.”One possibility is that Omicron could reduce inflation in the short term, as consumers pull back spending, but increase it in the longer run, as the virus leads to shutdowns in Asia that could prolong supply-chain disruptions.Increased uncertainty could cause longer-run damage.Testing facilities were inundated as the Omicron variant took off last month. Covid-related absences are creating headaches for businesses.Kim Raff for The New York TimesCozy Earth, a bamboo bedding and clothing company based in Salt Lake City, was poised to start 2022 on a strong note. Then Omicron “just hit the brakes on us,” said Tyler Howells, the company’s founder and president.Over a three-week period, roughly two-thirds of the company’s 50 employees contracted the virus. A group of web developers flew in for a meeting, but one tested positive, so the meeting had to be canceled. A contractor that was producing signs for an upcoming trade show put the order on hold for a few weeks because too many employees were sick. With so many people out sick in early January, Mr. Howells shut down the office for more than a week.Still, the direct damage to Cozy Earth’s business has been manageable, Mr. Howells said. He is more concerned about the subtler toll that each new false dawn takes on his business, and his ability to plan for the future.“If it continues, it will be a problem,” he said. “It will create damage to the business in terms of fits and starts.”Ms. Sinclair, the George Washington University economist, said the most lasting consequence of the Omicron wave might be the way it had again upended the plans of both businesses and workers. Every time that happens, she said, it increases the risk of permanent damage: Project delays turn into cancellations; expansion plans are abandoned; people who had been thinking about returning to work decide to retire instead.“This piling on of compounding uncertainty is causing further damage,” she said. “This uncertainty is particularly damaging because families aren’t able to make plans, businesses aren’t able to make plans, policymakers aren’t able to make plans.” More