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    U.S. income growth slowed in July, and consumer spending barely grew.

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    Americans’ incomes rose more slowly last month — but, for once, those gains weren’t swallowed up by higher prices.Personal income, after taxes, rose 0.2 percent in July, the Commerce Department said Friday. That was slower than the 0.7 percent gain in June. But while the gains in June were more than offset by sharply higher prices, in July, Americans saw their inflation-adjusted incomes rise 0.3 percent as lower gas prices led to a respite from inflation.Consumer spending also cooled in July, as Americans pulled back on purchases of goods. Overall consumer spending rose 0.1 percent, the weakest showing since a decline in December and down from a 1 percent gain in June. Spending on services, which has rebounded sharply as the pandemic has ebbed, continued to rise, but more slowly than in prior months.The moderation in spending could be welcome news for policymakers at the Federal Reserve, who have been trying to tamp down demand without pushing the recovery into reverse.Income and spending, adjusted for inflation, are also among the indicators that economists at the National Bureau of Economic Research use to determine when a recession has begun. The gains in July are the latest evidence that the economy, though slowing, is not in a recession.Economists warn that the reprieve from inflation may prove temporary. But they say households should be able to keep spending as long as employers keep hiring and pay keeps rising. Income from wages and salaries rose 0.8 percent in July, the biggest gain since February. The Labor Department will provide data on employment and wages for August at the end of next week.Diane Swonk, chief economist at the accounting firm KPMG, said the underlying strength of the consumer economy reflected a handoff from the government, which helped support households and businesses with record spending earlier in the pandemic, to the private sector, which has roared back over the past year and a half.“We have seen the private sector really pick up that baton, which has been amazing,” she said. More

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    Retailers Stumble Adjusting to More Selective Shoppers

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    In earnings reports this week, companies showed it has been a struggle to adapt to a consumer mind-set that is vastly different from what it was during much of the pandemic.This hasn’t been the year retailers planned for.After two years of navigating the pandemic — which brought record online sales and shoppers willing to buy all manners of items, to the point that the global supply chain became strained — executives knew a new normal would take shape.Sales might slow, the thinking went, but people would still want TVs, fashionable dresses and throw pillows. So, with supply chain issues in mind, companies stocked up. But this spring it became clear that those items weren’t selling quickly enough. As people watched the prices of food and gas rise, their spending became more selective, leaving retailers with shelves of inventory they couldn’t get rid of.The magnitude of the miscalculation was crystallized this week in a batch of quarterly earnings from major retailers like Walmart and Target, which showed a mix of declining sales of discretionary goods and lower profits. A number revised their guidance, lowering expectations for both sales and profits for the rest of the year. A glut of inventory weighed on companies’ balance sheets: Inventory at Walmart rose 25 percent from this time last year. At Target, it increased 36 percent. And Kohl’s said inventory was up 48 percent. “Since our last earnings call in May, a weakening environment, high inflation and dampened consumer spending are having broad implications across much of retail, especially in discretionary categories like apparel,” Michelle Gass, the chief executive of Kohl’s, said on a call with analysts. “Given our penetration in these categories, this is disproportionately impacting Kohl’s.”Taken together, the results show that the robust sales retailers grew accustomed to during the course of the pandemic have ceased — and the consumer landscape that awaits may be more austere than what they prepared for. (There were exceptions. Home Depot, for instance, said sales were still strong, driven by home improvement projects.) On earnings calls, executives said lower- to middle-income consumers were the most hesitant to spend. Stores are responding by pushing more discounts and highlighting private-label brand to shoppers, and, in some cases, canceling billions of dollars’ worth of orders with vendors. It remains to be seen which strategies will be most effective.Inflation F.A.Q.Card 1 of 5Inflation F.A.Q.What is inflation? More

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    How This Economic Moment Rewrites the Rules

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    Jobs aplenty. Sizzling demand. If the United States is headed into a recession, it is taking an unusual route, with many markers of a boom.To understand the strange, conflicting signals being sent by the U.S. economy right now, it helps to look at Williston, N.D., in about 2010.North Dakota was in the midst of an oil boom. Scores of rigs were drilling hundreds of wells, filling up train cars with crude because there hadn’t been time to build a pipeline. Pretty much anyone who wanted a job could find one, even the teenagers who dropped out of high school to work in the oil fields. Wages soared. Fast-food restaurants offered signing bonuses. State coffers filled up with tax revenue.Yet as good as the economy was, it also felt unstable. Restaurants couldn’t hire enough workers. Housing was in short supply, and costly. Local infrastructure couldn’t withstand the sudden surge in demand. Prices for practically everything soared.“It was chaotic,” said David Flynn, an economist at the University of North Dakota who lived through the boom and has studied it. “The economy was doing well, revenues for the local areas were up across the board, but you were still short of workers and businesses were having trouble.”“That sounds a lot like the stories you’ve been hearing at the national level for the past couple years,” he added.Economists and politicians have spent weeks arguing about whether the United States is in a recession. If it is, the recession is unlike any previous one. Employers added more than half a million jobs in July, and the unemployment rate is at a half-century low.Typically, in recessions, the problem is that businesses don’t want to hire and consumers don’t want to spend. Right now, businesses want to hire, but can’t find the workers to fill open jobs. Consumers want to spend, but can’t find cars to buy or flights to book.Recessions, in other words, are about too much supply and too little demand. What the U.S. economy is facing is the opposite. Just like North Dakota in 2010.The underlying causes are different, of course. Williston was hit by a surge in demand as companies and workers flooded into what had been a small city in the Northern Plains. The United States was hit by a pandemic, which caused a shift in demand and disrupted supply chains around the world. And the comparison goes only so far: Williston’s population roughly doubled from 2010 to 2020. No one expects that to happen to the country as a whole.Still, whether local or national, the most obvious consequence is the same: inflation. When demand outstrips supply — whether for steel-toe boots in an oil boomtown or for restaurant seats in the aftermath of a pandemic — prices rise. Mr. Flynn recalled going out to eat during the boom and discovering that hamburgers cost $20, a feeling of sticker shock familiar to practically any American these days.There is also a subtler consequence: uncertainty. No one knows how long the boom will last, or what the economy will look like on the other side of it, which makes it hard for workers, businesses and governments to adapt. In Williston, companies and governments were reluctant to invest in the apartment buildings, elementary schools and sewage-treatment plants that the community suddenly needed — but might not need by the time they were complete.A family at a Williston campground in 2010. The local infrastructure couldn’t withstand the sudden surge in demand.Todd Heisler/The New York TimesThe full parking lot of the El Rancho Motel in Williston in 2010.Todd Heisler/The New York Times“Think of it as a situation of every day, seemingly, was a new shock, so you couldn’t even adjust before a new one was hitting,” Mr. Flynn said. “It’s that constant adjustment. Completely unpredictable.”Businesses have now spent two and a half years in a state of constant adjustment. In early 2020, practically overnight, Americans traded restaurant meals for home-baked bread, and gym memberships for socially distanced bike rides. Those shifts caused huge disruptions, in part because businesses were reluctant to make long-term investments to address short-term spikes in demand.“That was always going to cause its own problems on prices and shortages,” said Adam Ozimek, chief economist for the Economic Innovation Group, a Washington research organization. “Businesses were never going to be like, ‘I’m going to build 10 new bicycle factories right now because we’re in a long-term bicycling boom.’”Some other shifts caused by the pandemic are likely to prove longer lasting. But it is hard for businesses to know which.“I think businesses are correct that the current state of the economy can’t really hold — something has to give,” Mr. Ozimek said.To most people, of course, this doesn’t feel like a boom. Measures of consumer confidence are at record lows, and Americans overwhelmingly say they are dissatisfied with the economy. That perception is grounded in reality: High inflation is eroding — and in some cases erasing — the benefits of a strong job market for many workers. Hourly earnings, adjusted for inflation, are falling at their fastest pace in decades.“I know people will hear today’s extraordinary jobs report and say they don’t see it, they don’t feel it in their own lives,” President Biden said Friday. “I know how hard it is. I know it’s hard to feel good about job creation when you already have a job and you’re dealing with rising prices — food and gas and so much more. I get it.”Tara Sinclair, an economist at George Washington University, said the United States wasn’t experiencing a true boom. That would imply a virtuous circle, in which prosperity begets investment, which begets more prosperity and makes the economy more productive in the long term — a rising tide that lifts all boats.The State of Jobs in the United StatesEmployment gains in July, which far surpassed expectations, show that the labor market is not slowing despite efforts by the Federal Reserve to cool the economy.July Jobs Report: U.S. employers added 528,000 jobs in the seventh month of the year. The unemployment rate was 3.5 percent, down from 3.6 percent in June.Care Worker Shortages: A lack of child care and elder care options is forcing some women to limit their hours or has sidelined them altogether, hurting their career prospects.Downsides of a Hot Market: Students are forgoing degrees in favor of the attractive positions offered by employers desperate to hire. That could come back to haunt them.Slowing Down: Economists and policymakers are beginning to argue that what the economy needs right now is less hiring and less wage growth. Here’s why.Instead, the lingering disruptions of the pandemic, uncertainty over what the post-Covid economy will look like and fears of a recession have made businesses reluctant to make bets on the future. Business investment fell in the most recent quarter. Employers are hiring, but they are leaning heavily on one-time bonuses rather than permanent pay increases.“It’s not an economic boom in the sense of wanting to invest long term,” Ms. Sinclair said. “It’s a boomtown situation where everyone’s just waiting for it to get cut off.”The current economic climate doesn’t feel like a boom to many, with measures of consumer confidence at record lows.Hiroko Masuike/The New York TimesIndeed, the Federal Reserve is trying to cut it off. Jerome H. Powell, the Fed chair, has described the labor market, with twice as many open jobs as unemployed workers, as “unsustainably hot,” and is trying to cool it through aggressive interest rate increases. He and his colleagues have argued repeatedly that a more normal economy — less like a boomtown, with lower inflation — will be better for workers in the long term.“We all want to get back to the kind of labor market we had before the pandemic, where differences between racial and gender differences and that kind of thing were at historic minimums, where participation was high, where inflation was low,” Mr. Powell said last month. “We want to get back to that. But that’s not happening. That’s not going to happen without restoring price stability.”Mr. Biden and his advisers, too, have argued that a cooling economy is inevitable and even necessary as the country resets from its reopening-fueled surge. In an opinion article in The Wall Street Journal in May, Mr. Biden warned that monthly job growth was likely to slow, to around 150,000 a month from more than 500,000, in “a sign that we are successfully moving into the next phase of the recovery.”So far, that transition has been elusive. Forecasters had expected hiring to slow in July, to a gain of about 250,000 jobs. Instead, the figure was above 500,000, the highest in five months, the Labor Department reported on Friday. But the labor force — the number of people who are either working or actively looking for work — shrank and remains stubbornly below its prepandemic level, a sign that the supply constraints that have contributed to high inflation won’t abate quickly.Ms. Sinclair said it shouldn’t be surprising that it was taking time to readjust after the coronavirus disrupted nearly every aspect of life and work. As of July, the U.S. economy, in the aggregate, had recovered all the jobs lost during the early weeks of the pandemic. But beneath the surface, the situation looks drastically different from what it was in February 2020. There are nearly half a million more warehouse workers today, and nearly 90,000 fewer child care workers. Millions of people are still working remotely. Others have changed careers, started businesses or stopped working.“We have to remember that we are still sorting that out,” Ms. Sinclair said. “It was a big economic shock, and the fact that we came out of it as quickly as we did is still incredibly impressive. These residual pains are us just still adjusting to it.”Jim Tankersley More

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    As Inventory Piles Up, Liquidation Warehouses Are Busy

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    PITTSTON, Pa. — Once upon a time, when parents were scrambling to occupy their children during pandemic lockdowns, bicycles were hard to find. But today, in a giant warehouse in northeastern Pennsylvania, there are shiny new Huffys and Schwinns available at big discounts.The same goes for patio furniture, garden hoses and portable pizza ovens. There are home spas, Rachael Ray’s nonstick pans and a backyard firepit, which promises to make “memories every day.”The warehouse is run by Liquidity Services, a company that collects surplus and returned goods from major retailers like Target and Amazon and resells them, often for cents on the dollar. The facility opened last November and is operating at exceptionally high volumes for this time of year.The warehouse offers a window into a reckoning across the retail industry and the broader economy: After a two-year binge of consumer spending — fueled by government checks and the ease of e-commerce — a nasty hangover is taking hold.The warehouse is nearly the size of two football fields.With consumers cutting down on discretionary purchases because of high inflation, retailers are now stuck with more inventory than they need. While overall spending rebounded last month, some major retailers say shoppers are buying less clothing, gardening equipment and electronics and focusing instead on basics like food and gas.Adding to that glut are all the things people bought during the pandemic — often online — and then returned. In 2021, shoppers returned an average of 16.6 percent of their purchases, up from 10.6 percent in 2020 and more than double the rate in 2019, according to an analysis by the National Retail Federation, a trade group, and Appriss Retail, a software and analytics firm.Last year’s returns, which retailers are not always able to resell themselves, totaled $761 billion in lost sales. That, the retail federation noted, is more than the annual budget for the U.S. Department of Defense.It’s becoming clear that retailers badly misjudged supply and demand. Part of their miscalculation was caused by supply chain delays, which prompted companies to secure products far in advance. Then, there is the natural cycle of booms — whether because of optimism or greed, companies rarely pull back before it’s too late.“It is surprising to me on some level that we saw all that surge of buying activity and we weren’t collectively able to see that it was going to end at some point,” J.D. Daunt, chief commercial officer at Liquidity Services, said in an interview at the Pennsylvania warehouse earlier this month.“You would think that there would be enough data and enough history to see that a little more clearly,” he added. “But it also suggests that times are changing and they are changing fast and more dramatically.”Strong consumer spending may have saved the economy from ruin during the pandemic, but it has also led to enormous excess and waste.Retailers have begun to slash prices on inventory in their stores and online. Last Monday, Walmart issued the industry’s latest warning when it said that its operating profits would drop sharply this year as it cut prices on an oversupply of general merchandise.The warehouse opened in November and is operating at exceptionally high volumes.Adding to the glut are the things people bought during the pandemic and then returned.Many companies cannot afford to let discounted items ‌linger on their shelves because they have to make room for new seasonal goods and the necessities that consumers now prefer. While some retailers are discounting the surplus within their stores, many would rather avoid holding big sales themselves for fear of hurting their brands by conditioning buyers to expect big price cuts as the norm. So retailers look to liquidators to do that dirty work.Additionally, industry executives say the glut is so large that some retailers could run out of space to house it all.“It’s unprecedented,” said Chuck Johnston, a former Walmart executive, who is now chief strategy officer at goTRG, a firm which helps retailers manage returns. “I have never seen the pressure in terms of excess inventory as I am seeing right now.”So, much of the industry’s flotsam and jetsam washes up in warehouses like this one, located off Interstate 81, a few exits from the President Biden Expressway in Scranton, the president’s hometown.The giant facility is part of an industrial park that was built above a reclaimed strip mine dating back to when this region was a major coal producer. Today, the local economy is home to dozens of e-commerce warehouses that cover the hilly landscape like giant spaceships, funneling goods to the population centers in and around New York and Philadelphia.Liquidity Services, a publicly traded company founded in 1999, decided to open its new facility as close as it could to the Scranton area’s major e-commerce warehouses, making it easy for retailers to dispense with their unwanted and returned items.Even before the inventory glut appeared this spring, returns had been a major problem for retailers. The huge surge in e-commerce sales during the pandemic — increasing more than 40 percent in 2020 from the previous year — has only added to it.The National Retail Federation and Appriss Retail calculate that more than 10 percent of returns last year involved fraud, including people wearing clothing and then sending it back or stealing goods from stores and returning them with fake receipts. But more fundamentally, industry analysts say the increasing returns reflect consumer expectations that everything can be taken back.“It’s getting worse and worse,” Mr. Johnston said.Some of the returns and excess inventory will be donated to charities or returned to the manufacturers. Others get recycled, buried in landfills or burned in incinerators that generate electricity.Early in the pandemic, children’s bicycles could be hard to find. Now, they’re available at big discounts.Liquidators say they offer a more environmentally responsible option by finding new buyers and markets for unwanted products, both those that were returned and those that were never bought in the first place. “We are reducing the carbon footprint,” said Tony Sciarrotta, executive director of the Reverse Logistics Association, the industry trade group. “But there is still too much going to landfills.”Retailers will probably receive only a fraction of the items’ original value from the liquidators but it makes more sense to take the losses and move the goods off the store shelves quickly.Still, liquidation can be a sensitive topic for the big companies that want customers to focus on their “A-goods,” not the failures.Mr. Sciarrotta calls it “the dark side” of retail.On a tour through the Pennsylvania warehouse, Mr. Daunt and the warehouse manager, Trevor Morgan, said they were not allowed to discuss where the products originated. But it was not difficult to figure out.An 85-inch flat-screen TV had an Amazon Prime sticker still on the box. Bathroom vanities came from Home Depot. There was a “home theater” memory foam futon with a built-in cup holder from a Walmart return center.Many unopened boxes on the warehouse floor carried the familiar bull’s-eye logo of Target. Air fryers, baby strollers and towering stacks of Barbie’s “Dream House,” which features a swimming pool, elevator and a home office. (Even Barbie, it seems, has grown tired of working from home.)When Target’s sales exploded during the first year of the pandemic, the company was a darling of Wall Street. But in May, the retailer said it was stuck with an oversupply of certain goods and the company’s stock price plummeted nearly 25 percent in one day. Other retailers’ share prices have also fallen.Walter Crowley regularly buys goods from the warehouse, focusing mostly on discounted home improvement goods, which he resells to local contractors.Target’s stumbles have been an opportunity for people like Walter Crowley.Mr. Crowley regularly rents a U-Haul and drives back and forth to the liquidation warehouse from his home near Binghamton, N.Y.Mr. Crowley, who turns 54 next month, focuses mostly on discounted home improvement goods, which he resells to local contractors, like the multiple pallets of discontinued garage door openers, originally priced at $14,000 that he got for $600.But on a sweltering day earlier this month, he stood outside the warehouse in his U-Haul loading up on items from Target.“I saw its stock got tanked,” said Mr. Crowley, a cigarette dangling from his mouth and sweat pouring down his face. “It’s an ugly situation for them.”He bought several cribs, a set of sheets for his own house and a pink castle for a girl in his neighborhood who just turned 5.“I end up giving a lot of it away to my neighbors, to be honest,” he said. “Some people are barely getting by.”The buyers bid for the goods through online auctions and then drive to the warehouse to pick up their winnings.It’s a diverse group. There was a science teacher who stocked up on plastic parts for his class, as well as a woman who planned to resell her purchases — neon green Igloo coolers, a table saw, baby pajamas — in the Haitian and Jamaican communities of New York. She ships other items to Trinidad.The Pennsylvania warehouse, one of eight that Liquidity Service operates around the country, employs about 20 workers, some of whom have been hired on a temporary basis. The starting pay is $17.50 an hour.Charles Benincasa, a temporary worker at the warehouse, said he’s watched the boxes pile up and worries about the implications for the economy.Charles Benincasa, 39, is a temporary worker who has had numerous “warehousing” jobs, the most recent at the Chewy pet food distribution center in nearby Wilkes-Barre.Mr. Benincasa said his friends and family had gotten in the habit of returning many of the goods they buy online. But as he’s watched the boxes pile up in the Liquidity Services warehouse, he worries about the implications for the economy.“Companies are losing a lot of money,” he said. “There is no free lunch.” More

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    Highlights From Today’s G.D.P. Report

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    The top-line number for U.S. gross domestic product is a composite of positive and negative forces, and the details matter: Consumer spending, which powers the majority of the economy, rose 1 percent on an annualized basis, a marked slowdown from previous months as purchases of goods declined and spending on services grew only moderately.Home construction, also referred to as residential fixed investment, sagged 14 percent at an annual rate under the weight of rising interest rates, which have put mortgages beyond the reach of more would-be home buyers.Inventories, which measure the amount of stuff that’s been produced or imported but not yet sold, depressed the overall number by more than two percentage points on an annual basis. Companies still added to their inventories in the second quarter, but more slowly than in the first, which dragged down overall growth.Business construction, known as fixed investment in nonresidential structures, dove by 11.7 percent on an annual basis, as construction of factories and warehouses — also an interest rate-sensitive sector — slowed. Federal government spending shrank 3.2 percent on an annual basis, as stimulus money continues to fade out and oil was released from the Strategic Petroleum Reserve, although defense spending grew 2.5 percent as military aid flowed to Ukraine.Final sales to domestic purchasers, which some economists favor as a metric that cuts out volatile inventories and government spending, sank 0.3 percent.(All the figures are reported on a seasonally adjusted basis.) More

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    Federal Reserve Makes Another Supersized Rate Increase to Tame Inflation

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    The central bank raised rates by three-quarters of a percentage point and suggested additional large increases could be warranted.The Federal Reserve chair, Jerome H. Powell, spoke to reporters after officials met to raise rates.Jim Lo Scalzo/EPA, via ShutterstockWASHINGTON — The Federal Reserve continued its campaign of rapid interest rate increases on Wednesday, pushing up borrowing costs at the fastest pace in decades in an effort to wrestle inflation under control.Fed officials voted unanimously at their July meeting for the second supersized rate increase in a row — a three-quarter-point move — and signaled that another large adjustment could be coming at their next meeting in September, though that remains to be decided. The decision on Wednesday puts the Fed’s policy rate in a range of 2.25 to 2.5 percent.The central bank’s brisk moves are intended to slow the economy by making it more expensive to borrow money to buy a house or expand a business, weighing on the housing market and economic activity more broadly. Jerome H. Powell, the Fed chair, said during a news conference after the meeting that such a cool-down was needed to allow supply to catch up with demand so that inflation could moderate.Mr. Powell acknowledged that the Fed’s policy changes were likely to inflict some economic pain — in particular, weakening the labor market. That has made the central bank’s rate increases unwelcome among some Democrats, who argue that crushing the economy is a crude way to lower today’s inflation rate. But the Fed chair stressed that the economic sacrifice today was necessary to put America back on a sustainable longer-term path with slow and predictable price increases.“We need growth to slow,” Mr. Powell said. “We don’t want this to be bigger than it needs to be, but ultimately, if you think about the medium- to longer term, price stability is what makes the whole economy work.”Stocks surged after the Fed’s decision and Mr. Powell’s news conference. Some rates strategists asked why, because Mr. Powell’s comments aligned with the message Fed officials have consistently sent: Inflation is too high, the central bank is determined to crush it, and interest rates are likely to further increase this year.“There’s a lot of information between now and the September meeting, and I think markets will reassess,” said Priya Misra, head of Global Rates Strategy at TD Securities. “This is an even more data-dependent Fed — and it is going to come down to whether inflation gives them the space to slow down.”The Fed began raising interest rates from near-zero in March, and policymakers have picked up the pace sharply since in reaction to incoming economic data, as price increases have continued to accelerate at an alarming rate.After making a quarter-point move to start, the central bank raised rates by half a point in May and by three-quarters of a point in June, which was the largest single step since 1994. Officials could keep raising rates briskly in September, or they could ease off the pace, depending on how the economy evolves.“We might do another unusually large rate increase,” Mr. Powell said on Wednesday. “But that is not a decision we have made at all.”What the Fed’s Rate Increases Mean for YouCard 1 of 4A toll on borrowers. More

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    How Will Interest Rate Increases Impact Inflation?

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    The Federal Reserve is raising interest rates to fight inflation. Some economists want more; some politicians want less. What’s the logic?The Federal Reserve is expected to announce its fourth interest rate increase of 2022 on Wednesday as it races to tamp down rapid inflation. The moves have a lot of people wondering why rate increases — which raise the cost of borrowing money — are America’s main tool for cooling down prices.Senator Elizabeth Warren, the Massachusetts Democrat, wrote an opinion piece in The Wall Street Journal on Sunday arguing that the Fed’s demand-crushing rate increases are not the right policy to fight today’s inflation as fuel costs and supply chain turmoil push up prices. The policies will hurt workers, she said, and “it doesn’t have to be this way.”Others have argued that the Fed should continue to be forceful. Lawrence H. Summers, the former Democratic Treasury secretary, argued during an interview on CNN this week that the Fed needed to take “strong action” to control inflation and that allowing inflation to gallop out of control would be the “bigger mistake” than causing a recession.Onlookers could be excused for struggling to make sense of the debate. Fed officials themselves acknowledge that their tools are blunt, that they cannot fix broken supply chains and that it will be difficult to slow the economy enough without causing an economic downturn. So why is the Fed doing this?America’s central bank has for decades been what Paul Volcker, its chair in the 1980s, called “the only game in town” when it comes to fighting inflation. While there are things that elected leaders can do to combat rising prices — raising taxes to curb consumption, spending more on education and infrastructure to improve productivity, helping flailing industries — those targeted policies tend to take time. The things that elected policymakers can do quickly generally help mainly around the edges.But time is of the essence when it comes to controlling inflation. If price increases run fast for months or years on end, people begin to adjust their lives accordingly. Workers might ask for higher wages, pushing up labor costs and prompting businesses to charge more. Companies might begin to believe that consumers will accept price increases, making them less vigilant about avoiding them.By making money more expensive to borrow, the Fed’s rate moves work relatively quickly to temper demand. As buying a house or a car or expanding a business becomes pricier, people pull back from doing those things. With fewer consumers and companies competing for the available supply of goods and services, price gains are able to moderate.Unfortunately, that process could come at a hefty cost at a moment like this one. Bringing the economy into balance when supply is constrained — cars are hard to find because of semiconductor shortages, furniture is on back order, and jobs are more plentiful than laborers — could require a big decline in demand. Slowing the economy down that meaningfully could tip off a recession, leaving workers unemployed and families with lower incomes.Economists at Goldman Sachs, for example, estimate that the probability of a recession over the next two years is 50 percent. Already, signs abound that the economy is slowing as the Fed begins to push rates higher, with overall growth data, housing market trackers and some metrics of consumer spending showing a pullback.But central bankers believe that even if the risks are difficult to bear, they are necessary. A downturn that pushes unemployment higher would undoubtedly be painful, but inflation is also a major impediment for many families today. Getting it under control is critical to putting the economy back on a sustainable path, officials argue.“It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all,” Jerome H. Powell, the Fed chair, said at his news conference last month. More