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    Inflation Holds Roughly Steady Ahead of Fed Meeting

    Consumer prices rose 3.1 percent in the year through November, and a closely watched core index was roughly the same rate as the previous month.Inflation data released on Tuesday showed that price increases remained moderate in November, the latest sign that inflation has cooled substantially from its June 2022 peak. That’s likely to keep the Federal Reserve on track to leave interest rates unchanged at its final meeting of the year, which takes place this week.The Consumer Price Index came out just hours before the Fed began its two-day gathering, which will conclude with the release of an interest rate decision and a fresh set of quarterly economic projections at 2 p.m. on Wednesday. Jerome H. Powell, the Fed chair, is then scheduled to hold a news conference.Central bankers have embraced a recent slowdown in price increases, and Tuesday’s data largely suggested that inflation remains lower than earlier this year. Overall inflation climbed 0.1 percent on a monthly basis, making for a 3.1 percent increase compared to a year earlier.That was cooler than 3.2 percent in October, and it is down notably from a peak above 9 percent in the summer of 2022.But some of the report’s underlying details could keep Fed officials wary as they contemplate what to do next with interest rates. Investors expect central bankers to begin lowering borrowing costs within the first half of 2024, though officials have been trying to keep their options open.After stripping out volatile food and fuel to give a clearer sense of underlying inflation trends, so-called core inflation climbed more quickly on a monthly basis. And a closely watched measure that tracks housing expenses also climbed more quickly; that measure is called “owners’ equivalent rent” because it estimates how much it would cost someone to rent a home that they own, and economists have been expecting it to decline.“It reinforces this idea that it’s going to be a bumpy road to disinflation,” said Blerina Uruci, chief U.S. economist at T. Rowe Price. “The Fed cannot cut interest rates too soon in the face of resilient services inflation.”Core inflation was up by 4 percent compared to a year earlier, holding steady from October. That pace remains well above the roughly 2 percent pace that was normal before the onset of the pandemic. More

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    Inflation Slowdown Remains Bumpy, September Consumer Price Data Shows

    Prices are rising at a pace that is much less rapid than in 2022, but signs of stalling progress are likely to keep Federal Reserve officials wary.Consumer prices grew at the same pace in September as they had in August, a report released on Thursday showed. The data contained evidence that the path toward fully wrangling inflation remains a long and bumpy one.The Consumer Price Index climbed 3.7 percent from a year earlier. That matched the August reading, and it was slightly higher than the 3.6 percent that economists had predicted.The report did contain some optimistic details. After cutting out food and fuel prices, both of which jump around a lot, a “core” measure that tries to gauge underlying price trends climbed 4.1 percent, which matched what economists had expected and was down from 4.3 percent previously. And inflation is still running at a pace that is much less rapid than in 2022 or even earlier this year.Even so, several signs in the report suggested that recent progress toward slower price increases may be stalling out — and that could help to keep officials at the Federal Reserve wary.The S&P 500 fell 0.6 percent and the yield on 10-year Treasuries rose on Thursday to 4.7 percent, as investors worried that September’s inflation report showed less progress than they had hoped for, both in rents and a measure of inflation that strips out volatile goods and services.Fed policymakers have been raising interest rates in an effort to slow economic growth and wrestle inflation under control. They have already lifted borrowing costs to a range of 5.25 to 5.5 percent, up sharply from near-zero 19 months ago. Now, they are debating whether one final rate move is needed.Given the fresh inflation data, economists predict that policymakers are likely to keep the door open to that additional rate increase until they can be more confident that they are well on their way to winning the battle against rising prices. Inflation has begun to flag, but the September data served as a reminder that it is not yet clearly vanquished.“This report still suggests that we have stepped out of the higher inflation regime,” said Laura Rosner-Warburton, a senior economist at MacroPolicy Perspectives. Still, “we’re not out of the woods — there are still some sticky corners of inflation.” More

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    U.S. Government Shutdown Could Delay Key Economic Data

    A lapse in funding would delay data on unemployment and inflation as policymakers try to avoid a recession.A federal government shutdown would cut off access to key data on unemployment, inflation and spending just as policymakers are trying to guide the economy to a “soft landing” and avoid a recession.Federal statistical agencies, including the Bureau of Labor Statistics, the Census Bureau and the Bureau of Economic Analysis, will suspend operations unless Congress reaches a deal before Sunday to fund the government. Even a short shutdown would probably delay high-profile data releases — including the monthly jobs report, scheduled for Oct. 6, and the Consumer Price Index, scheduled for Oct. 12.This isn’t the first time government shutdowns have threatened economic data. The 16-day lapse in funding in 2013 delayed dozens of releases, including the September employment report. A longer but less extensive shutdown in 2018 and 2019 spared the Bureau of Labor Statistics but held up reports from the Commerce Department, including data on gross domestic product.But this shutdown, if it occurs, comes at a particularly sensitive time for the economy. Policymakers at the Federal Reserve have been trying to tame inflation without causing a recession — a balancing act that requires central bankers to fine tune their strategy based on how the economy responds.“Monetary policy, even in normal times, is a complicated undertaking — we are not in a normal time now,” said David Wilcox, a longtime Fed staff member who is now an economist at the Peterson Institute for International Economics and Bloomberg Economics. “It’s not a good strategy to take a task that is so difficult and make it harder by restricting the information flow to monetary policymakers at this delicate moment.”A short shutdown, similar to the one a decade ago, would delay data releases but probably wouldn’t do much longer-term damage. Data for the September jobs report, for example, has already been collected; it would take government statisticians only a few days to finish the report and release it after the government reopened. In that situation, most major statistics would probably be updated by the time the Fed next meets on Oct. 31 and Nov. 1.But the longer a shutdown goes on, the more lasting the potential damage. Labor force statistics, for example, are based on a survey conducted in the middle of each month — if the government doesn’t reopen in time to conduct the October survey on schedule, the resulting data could be less accurate, as respondents struggle to recall what they were doing weeks earlier. Other data, such as information on consumer prices, could be all but impossible to recover after the fact.“If we miss two months of collecting data, we’re never getting that back,” said Betsey Stevenson, a University of Michigan economist who was a member of President Barack Obama’s Council of Economic Advisers during the 2013 shutdown. “This thing gets more and more and more problematic as the duration goes on.”A longer shutdown would also increase the risk that policymakers misread the economy and make a mistake — perhaps by failing to detect a reacceleration in inflation, or by missing signs that the economy is slipping into a recession.“The thought of the Fed trying to make such an important, critical decision without big pieces of information is just downright terrifying,” said Ben Harris, who was a top official at the Treasury Department until early this year and is now at the Brookings Institution. “It’s like a pilot trying to land a plane without knowing what the runway looks like.”Policymakers wouldn’t be flying completely blind. The Fed, which operates independently and would not be affected by the shutdown, would continue to publish its own data on industrial production, consumer credit and other subjects. And private-sector data providers have expanded significantly in both breadth and quality in recent years, offering alternative sources of information on job openings, employment, wages and consumer spending.“The Fed has always done what it can to gather information from other sources, but now there are more of those sources it can turn to,” said Erica Groshen, a Cornell University economist who served as commissioner of the Bureau of Labor Statistics during the 2013 shutdown. “That will make the very data-dependent parts of the policy world and the business community a little less bereft of timely data.”Still, Ms. Groshen said, private data cannot match the breadth, transparency and reliability of official statistics. She recalled that in 2013, Fed officials contacted her department to see if the central bank could provide funding to get the jobs report out on time — a proposal that administration officials ultimately concluded would be illegal.Policymakers aren’t the only ones who will be affected by the lack of data. Trucking companies base fuel surcharges on diesel prices published by the Energy Information Administration. Inventory and sales data from the Census Bureau can influence businesses’ decisions on when to place orders. And the Social Security Administration can’t settle on the annual cost-of-living increase in benefits without October consumer price data. More

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    The Fed’s Preferred Inflation Gauge Ticked Up in July

    Overall inflation climbed to 3.3 percent, from 3 percent previously, underscoring the Fed’s long road back to 2 percent price increases.The Federal Reserve has warned for months that wrestling rapid inflation back to a normal pace was likely to be a bumpy process, a reality underscored by fresh data on Thursday that showed a closely watched inflation gauge picking back up in July.The Personal Consumption Expenditures index climbed 3.3 percent in the year through July, up from 3 percent in the previous reading. While that is down from a peak last summer of 7 percent, it is still well above the 2 percent growth rate that the Fed targets.Central bankers tend to more closely monitor a measure of core inflation that strips out volatile food and fuel prices to give a clearer sense of the underlying price trend. That measure also climbed, touching 4.2 percent after 4.1 percent the previous month.Inflation is expected to slow later this year and into 2024, so Thursday’s report marks a bump in the road rather than a reversal of recent progress toward cooler prices. But as inflation figures bounce around, Fed officials have been hesitant to declare victory.Their wariness has only been reinforced by other recent economic data, which has shown that the economy retains a surprising amount of momentum after a year and half in which Fed policymakers have ratcheted up interest rates. The Fed’s policy rate is now set at 5.25 to 5.5 percent, up from near-zero in March 2022, which is making it more expensive to borrow to buy a house or car or to expand a business.Despite that, the job market has remained strong and consumers continue to shop. An employment report set for release on Friday is expected to show that while businesses added fewer jobs in August, the unemployment rate remained very low at 3.5 percent. And fresh consumption data released Thursday showed that Americans continued to open their wallets: Personal spending climbed by 0.8 percent in July from the month before, more than economists expected and a solid pace. Even after adjusting for inflation, it was up 0.6 percent, a pop from 0.4 percent in the previous report.The tick higher in P.C.E. inflation was widely expected: Various data points that feed into the number, including the Consumer Price Index inflation report, come out earlier in the month. Even so, the measure remains a point of focus on Wall Street and in policy circles because it is the one the Fed uses to define its official inflation goal.Fed officials will be watching data over the next few weeks as they consider what to do with interest rates at their meeting on Sept. 20. Policymakers have said that the meeting is a “live” one, meaning that they could either lift interest rates or keep them on hold, but several have suggested that at this point they feel that they can be patient in making a move.“Given how far we have come, at upcoming meetings we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks,” Jerome H. Powell, the Fed chair, said in a high-profile speech last week.Many investors do anticipate a final rate increase later this year, but later on — perhaps at the central bank’s November gathering. And even if the Fed does not lift borrowing costs in a few weeks, policymakers will release a fresh set of economic projections that will show both whether they expect to nudge rates higher and by how much they expect inflation to slow both by the end of 2023 and into 2024. More

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    Inflation Has Been Easing Fast, but Wild Cards Lie Ahead

    Will inflation continue to slow at a solid pace? Economists are warily watching a few key areas, like housing and cars.President Biden has openly celebrated recent inflation reports, and Federal Reserve officials have also breathed a sigh of relief as rapid price gains show signs of losing steam.But the pressing question now is whether that pace of progress toward slower price increases — one that was long-awaited and very welcome — can persist.The Fed’s preferred inflation measure, the Personal Consumption Expenditures index, is expected to tick up to 4.2 or 4.3 percent in a report on Thursday, after volatile food and fuel costs are stripped out. That would be an increase from 4.1 percent for the core measure in June. And while it would still be down considerably from a peak of 5.4 percent last summer, such a reading would underscore that inflation remains stubbornly above the Fed’s 2 percent goal and that its path back to normal is proving bumpy.Most economists are not hugely concerned. They still expect inflation to ease later this year and into 2024 as pandemic disruptions fade and as consumers become less willing to accept ever-higher prices for goods and services. American shoppers are feeling the squeeze of both shrinking savings and higher Fed interest rates.But as price increases slow in fits and starts, they are keeping economic officials wary. Big uncertainties loom, including a few that could help inflation to fade faster and several that could keep it elevated.The Base Case: Inflation is Expected to Cool.Price increases have slowed across a range of measures this summer. The overall Consumer Price Index — which feeds into the P.C.E. numbers and is released earlier each month, making it a focal point for both analysts and the media — has slowed to 3.2 percent from a 9.1 percent peak in June 2022.And as consumers have experienced less dramatic price jumps, their expectations for future inflation have come down. That’s good news for the Fed. Inflation expectations can be a self-fulfilling prophecy: If consumers expect prices to climb, they may both accept cost increases more easily and demand higher pay, making inflation harder to stamp out.Still, the moderation has not been enough for policymakers to declare victory. Fed officials have been trying to slow the economy and contain inflation since early 2022. Jerome H. Powell, the Fed chair, vowed during a speech last week at the Jackson Hole symposium that they will “keep at it” until they are positive inflation is coming under control.“Inflation is going the right way,” said Gennadiy Goldberg, a rates strategist at T.D. Securities. But it is like a fire, he said: “You want to kill its very last ember, because if you don’t, it can flare back up in an instant.”The Good News: Rents and China.There are reasons to believe that inflation is in the process of being sustainably doused.Slower rent increases should help to weigh down overall inflation for at least the next year, several economists said. Rents for newly leased apartments spiked in the pandemic as people moved cities and ditched their roommates. Market-based rents began to cool last year, a shift that is only now feeding its way into official inflation data as people renew their leases or move.The slowdown in inflation is also getting a helping hand from an unexpected source: China. The world’s second-largest economy is growing much more slowly than expected after reopening from pandemic lockdowns. That means that fewer people are competing globally for the same commodities, weighing on prices. And if Chinese officials respond to the slump by trying to ramp up exports, it could make for cheaper goods in the global marketplace.And more generally, Fed policy should help to pull down inflation in the months to come. The central bank has raised interest rates to a range of 5.25 to 5.5 percent over the past year and a half. Those higher borrowing costs are still trickling through the economy, reducing demand for big purchases made on credit and making it harder for companies to charge more.The Bad News: Gas, Travel Prices, Healthcare.Travelers at La Guardia Airport in New York. Rising fuel costs can feed into other prices, like airfares.Desiree Rios/The New York TimesBut a few key products could spell trouble for the inflation outlook. Gas is one.AAA data show gas prices have popped to more than $3.80 per gallon, up from about $3.70 a month ago, amid refinery shutdowns and global production cuts.Fed officials mostly ignore gas when they are thinking about inflation, because it jumps around thanks to factors that policymakers can’t do much about. But gas prices matter a lot to consumers, and their inflation expectations tend to increase when they pop — so central bankers can’t look past them entirely. Beyond that, gas prices can feed other prices, like airfares. Nor is it just gas and travel costs that could stop pulling inflation down so quickly. Economists at Goldman Sachs expect health care prices to pick up as hospitals try to make up for a recent pop in their labor costs, propping up services inflation.The Uncertain News: Cars and Growth.Used cars have also been helping to subtract from inflation, but it is increasingly uncertain how much they will help to pull it down going forward.Many economists think the trend toward cheaper used automobiles has more room to run. Dealers have been paying a lot less for used cars at auction this year, and that trend may have yet to fully reach consumers. Plus, some new car producers have rebuilt inventories after years of shortages, which could relieve pressure in the auto market as a whole (electric vehicles in particular are piling up on dealer lots).But, surprisingly, wholesale used car costs ticked up very slightly in the latest data.“The used car market is turning, and the reason for that is pretty simple: Demand has been way higher than dealers had expected,” said Omair Sharif, founder of Inflation Insights. Add to that the possibility of a United Auto Workers strike — the union’s contract expires in mid-September — and risks lay ahead for car inventories and prices, he said.In fact, sustained demand in the used car market is symptomatic of a broader trend. The economy seems to be holding up even in the face of much-higher interest rates. Home prices have climbed since the start of the year in spite of hefty mortgage rates, and data released Thursday is expected to show that consumer spending remains strong.That more general risk — the possibility of an economic acceleration — is perhaps the biggest wild card facing policymakers. If Americans remain willing to open their wallets in spite of swollen price tags and higher borrowing costs, it could make it difficult to tamp down inflation completely.“We are attentive to signs that the economy may not be cooling as expected,” Mr. Powell said last week. More

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    Inflation Rose to 3.2%, but Overall Price Trends Are Encouraging

    Economists looked past the first acceleration in overall inflation in more than a year and saw signs that price pressures continued to moderate in July.Fresh inflation data offered the latest evidence that price increases were meaningfully cooling, good news for consumers and policymakers alike more than a year into the Federal Reserve’s campaign to slow the economy and wrestle cost increases back under control.The Consumer Price Index climbed 3.2 percent in July from a year earlier, according to a report released on Thursday. That was the first acceleration in 13 months, and followed a 3 percent reading in June.But that tick up requires context. Inflation was rapid in June last year and slightly slower the next month. That means that when this year’s numbers were measured against 2022 readings, June looked lower and July appeared higher than if the year-earlier figures had been more stable.Economists were more keenly focused on another figure: the “core” inflation index, which strips out volatile food and fuel prices. That picked up by 4.7 percent from last July, down from 4.8 percent in June. And on a monthly basis, core inflation roughly matched an encouragingly low pace from the previous month.The upshot was that inflation continued to show signs of seriously receding after two years of rapid price increases that have bedeviled policymakers and burdened shoppers — and the details of the July report offered positive hints for the future. Rent prices have been moderating, a trend that is expected to persist in coming months and that should help to weigh down inflation overall. An index that tracks services prices outside of housing is picking up only slowly.“This is continuing the kind of progress I think that you want to see,” said Omair Sharif, the founder of Inflation Insights, a research firm. Airfares fell sharply, and hotel costs eased last month. Big drops in those categories may be difficult to sustain but are helping to limit price increases for now.Used cars were also cheaper last month, a trend that some economists expect to intensify in the months ahead, based on declines that have already materialized in the wholesale market where dealers purchase cars. More

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    Inflation Drops to 3% in June

    The Consumer Price Index climbed far more slowly in June, a relief for shoppers and a hopeful — though inconclusive — sign that America might pull off a “soft landing.”Inflation cooled significantly in June, offering some of the most hopeful news since the Federal Reserve began trying to tame rapid price increases 16 months ago — and boosting the chances that the central bank might be able to stop raising interest rates after its meeting this month.The Consumer Price Index climbed 3 percent in the year through June, according to data released Wednesday, less than the 4 percent increase in the year through May and just a third of its roughly 9 percent peak last summer.That overall measure is being pulled down by big declines in gas prices that could prove ephemeral, which is why policymakers closely watch a more slimmed-down version: the change in prices after stripping out food and fuel costs. That metric, known as the core index, offered news that was even better than what economists had expected.The core index climbed 4.8 percent compared with the previous year, down from 5.3 percent in the year through May. Economists had forecast a 5 percent increase. And on a monthly basis, it climbed at the slowest pace since August 2021.Slower inflation is unquestionably good news, because it allows consumer paychecks to stretch further at the gas pump and in the grocery aisle. And if inflation can come down sustainably without a big increase in unemployment or a painful economic recession, it could allow workers to hang on to the major gains they have made over the past three years: progress toward better jobs and pay that has helped to chip away at income inequality.The White House, which has spent over a year on the defensive over rising prices, celebrated the fresh report, with President Biden calling the current economic moment “Bidenomics in action.” And stocks soared as investors bet that the Fed would be able to be less aggressive in its fight against inflation — even halting its interest rate increases after a final July move — in light of the new data.“This is very promising news,” said Laura Rosner-Warburton, senior economist and founding partner at MacroPolicy Perspectives. “The pieces of the puzzle are starting to come together. But it’s just one report, and the Fed has been burned by inflation before.”Fed officials are likely to avoid declaring victory just yet. Policymakers are still trying to assess whether the moderation is likely to be quick and complete. They do not want to allow price increases to linger at slightly elevated levels for too long, because if they do, consumers and businesses could adjust their behavior in ways that make more rapid inflation a permanent feature of the economy.That’s why officials have signaled in recent weeks that they are likely to raise interest rates at their meeting on July 25 and 26. Policymakers had also indicated that one or more additional rate moves could be warranted after that.“Inflation is too high,” Thomas Barkin, the president of the Federal Reserve Bank of Richmond, said Wednesday in a speech in Maryland, according to Bloomberg. “If you back off too soon, inflation comes back strong, which then requires the Fed to do even more.”But economists and investors saw less of a chance that the Fed would raise rates again later this year in light of the fresh data.Policymakers have already slowed down the pace of rate moves sharply, skipping an adjustment at the June meeting. Assuming they hold off again in September, that could mean it would be November before they have to seriously debate lifting borrowing costs again — and by then, success in tamping down inflation could be clear.“They don’t want to unleash animal spirits too quickly here and have everyone go bananas,” said Julia Pollak, chief economist at ZipRecruiter. But by November, “it may be clear in the data that their job is done.”The details of the June report offered reasons for optimism. Inflation slowed down as a few key products and services posted steep price declines. Airfares fell 8.1 percent from the previous month, and used cars and trucks were down 0.5 percent. New vehicle prices were flat compared with May.Not all of those changes will necessarily last: Airline tickets, for instance, are not expected to continue to decline as sharply as they did in this report. But for the Fed, there were other encouraging signs that the cool-down is broad enough to prove sustainable.For one thing, the cost of housing as measured by the Consumer Price Index — which relies on rent prices — is coming down sharply. That is expected to continue in coming months. An index tracking the rent of primary residences slowed to a 0.46 percent change in June, the weakest increase since March 2022.Car prices are also stabilizing, and in some cases falling. After years in which semiconductor shortages and other parts problems limited supply, making it hard to meet booming demand, discounting is making a comeback on car dealer lots. Inventories are rebounding, and consumers have a less voracious appetite for new cars in particular.“It’s different from the past couple of years, and even different from the fall,” said Beth Weaver, who runs a Buick GMC car dealership in Erie, Pa. “Interest rates have certainly weighed on demand.”And more broadly, price increases for a basket of services excluding energy, food and housing costs — a metric that the Fed watches very closely — continued to slow in June. That progress comes even as unemployment is hovering near its lowest level in half a century and hiring remains stronger than before the pandemic.“This is very promising news,” the economist Laura Rosner-Warburton said. “But it’s just one report, and the Fed has been burned by inflation before.”Amir Hamja/The New York TimesFed interest rate increases work to slow inflation partly by slowing the job market and holding back wage increases, so the Fed’s fight against inflation and the strength of the labor market are closely tied.“The economy is defying predictions that inflation would not fall absent significant job destruction,” Lael Brainard, the director of the National Economic Council, said during a speech on Wednesday. “This economy is delivering strong results for America’s middle class.”Republicans highlighted that inflation is still higher than usual — a fact that has been biting into consumer confidence, though it may become less salient as consumers feel relief from cheaper fuel and find that they can replace their aging cars without facing eye-popping price tags.“Inflation that is almost double the Federal Reserve’s target is not a win for American wallets and budgets,” Representative Jason Smith, a Missouri Republican and chairman of the House Ways and Means Committee, said in an emailed statement, referring to the core inflation rate.Inflation does remain above the rate of increase that was normal before the 2020 pandemic, and it is still much faster than the Fed’s 2 percent goal. The Fed defines that target using a separate inflation measure, the Personal Consumption Expenditures index. That gauge is also slowing notably, and its June reading is scheduled for release on July 28.Even if central bankers are taking the slowdown cautiously — cognizant that price increases have slowed and then accelerated again before — many commentators welcomed the fresh data point as the latest sign that the economy might be able to slow gently.Officials at the Fed have been trying to engineer a “soft landing,” in which inflation slows gradually and without requiring a big jump in the unemployment rate. Jerome H. Powell, the Fed chair, has repeatedly said there was a “narrow path” to achieving one: There are few if any historical examples of the Fed wrestling significant inflation lower without a downturn.Challenges continue to loom. The economy has momentum, and the job market is strong, which could give companies the wherewithal to keep increasing prices. The war in Ukraine could always intensify, pushing up commodity prices.But there are also factors that could help out: China’s rebound has been weaker than expected, which means that fewer buyers are competing for goods in global markets. Consumers are buying fewer retail goods, and while spending on services is not plummeting, it has been gradually slowing.And as those trends combine with inflation that is easing more convincingly, the odds of a gentle deceleration may be improving.“Powell’s saying is that ‘it’s a narrow path to a soft landing,’” said Michael Feroli, chief U.S. economist at J.P. Morgan. “It’s looking maybe a little wider now.”Alan Rappeport More

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    Inflation Has Eased, but Economists Are Still Worried

    Inflation has come down from its 2022 heights, but economists are worried about its stubbornness.Inflation is beginning to abate meaningfully for American consumers. Gas is cheaper, eggs cost roughly half as much as they did in January and prices are no longer climbing as rapidly across a wide array of products.But at least one person has yet to express relief: Jerome H. Powell, the chair of the Federal Reserve.The Fed has spent the past 15 months locked in an aggressive war against inflation, raising interest rates above 5 percent in an attempt to get price increases back down to a more normal pace. Last week its officials announced that they were skipping a rate increase in June, giving themselves more time to see how the already enacted changes are playing out across the economy.But Mr. Powell emphasized that it was too early to declare victory in the battle against rapid price increases.The reason: While less expensive gas and slower grocery price adjustments have helped overall inflation to fall from its four-decade peak last summer, food and fuel costs tend to jump around a lot. That obscures underlying trends. And a measure of “core” inflation that strips out food and fuel is showing surprising staying power, as a range of purchases from dental care and hairstyling to education and car insurance continue to climb quickly in price.Last week, Fed officials sharply marked up their forecast of how high core inflation would be at the end of 2023. They now see it at 3.9 percent, higher than the 3.6 percent they predicted in March and nearly twice their 2 percent inflation target.The economic picture, in short, is playing out on something of a split screen. While the steepest price increases appear to be over for consumers — a relief for many, and a development that President Biden and his advisers have celebrated — Fed policymakers and many outside economists see continued reasons for concern. Between the subtle signs that inflation could stick around and the surprising resilience of the American economy, they believe that central bankers might need to do more to cool growth and rein in demand to prevent unusually elevated price increases from becoming permanent.“Big picture: We are making progress, but the progress is slower than expected,” said Kristin J. Forbes, a Massachusetts Institute of Technology economist and a former Bank of England policymaker. “Inflation is somewhat more stubborn than we had hoped.”A fresh Consumer Price Index inflation report last week showed that inflation continued to moderate sharply on an overall basis in May. That measure helps to feed into the Fed’s preferred measure, the Personal Consumption Expenditures index, which it uses to define its 2 percent target. The fresh P.C.E. figures will be released on June 30.White House officials, who have spent months on the defensive about the role that pandemic spending under Mr. Biden played in stoking demand and price increases, have greeted the recent cooling in inflation enthusiastically.“We have seen a very large reduction in inflation, by more than 50 percent,” Lael Brainard, the director of the White House National Economic Council, said in an interview. She added that the current trajectory on inflation offered reasons for optimism that it could return back to normal fairly quickly as the economy slowed, and expressed hope that crushing it would not necessarily require a big jump in unemployment — something that has historically accompanied the Fed’s campaigns to wrangle inflation.“The employment picture is very sustainable,” she said.But many economists are less sanguine. That’s partly because most of the factors that have helped inflation to fall so far have been widely anticipated, sort of the low-hanging fruit of disinflation.Supply chains were roiled by the pandemic and have since healed, allowing goods price increases to slow. A pop in oil prices tied to the war in Ukraine has faded.And there may be more to come: Rents jumped starting in 2021 as people moved out on their own or relocated amid the pandemic. They have since cooled as landlords found that renter demand was not strong enough to bear ever-higher prices, and the moderation is slowly feeding into official inflation data.

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    Year-over-year percentage change in the Personal Consumption Expenditures index
    Source: Bureau of Economic AnalysisBy The New York TimesWhat linger are relatively rapid price increases in services outside of housing. That’s a broad category, and it includes purchases that tend to be labor-intensive, like hospital care, school tuition and sports tickets. Those prices tend to rise when wages climb, both because employers try to cover their higher costs and because consumers who are earning more have the ability to pay more without pulling back.“The big action is behind us,” said Olivier Blanchard, a former International Monetary Fund chief economist who is now at the Peterson Institute. “What remains is the pressure on wages.”

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    }

    Year-over-year percent change in the Personal Consumption Expenditures index by category
    Source: Bureau of Economic AnalysisBy The New York TimesDuring a news conference last week, Mr. Powell said that in the measure of inflation that excluded food and energy “you just aren’t seeing a lot of progress,” emphasizing that “getting wage inflation back to a level that is sustainable” could be an important part of lowering the remaining price increases.There are early signs that a labor market slowdown is underway. The Employment Cost Index measure of wages, which the Fed watches closely, is climbing much more rapidly than before the pandemic but has slowed from its mid-2022 peak. A measure of average hourly earnings has come down even more notably. And jobless claims have climbed in recent weeks.But hiring has remained robust, and the unemployment rate low — which is why economists are trying to figure out if the economy is cooling enough to guarantee that inflation will return fully to normal.Cylus Scarbrough, 42, has witnessed both features of today’s economy: fast wage growth and rapid inflation. Mr. Scarbrough works as an analyst for a homebuilder in Sacramento, and he said his skills were in such high demand that he could rapidly get a new job if he wanted. He got a 33 percent raise when he joined the company two years ago, and his pay has climbed more since.Cylus Scarbrough of Sacramento said he felt inflation was not eating into his budget the way it had before. “I don’t think about it every day,” he said.Rozette Halvorson for The New York TimesEven so, he’s racking up credit card debt because of higher inflation and because he and his family spend more than they used to before the pandemic. They have gone to Disneyland twice in the past six months and eat out more regularly.“It’s something about: You only live once,” he explained.He said he felt OK about spending beyond his budget, because he bought a house just at the start of the pandemic and now has about $100,000 in equity. In fact, he is not even worrying about inflation as much these days — it was much more salient to him when gas prices were rising quickly.“That was the time when I really felt like inflation was eating into our budget,” Mr. Scarbrough said. “I feel more comfortable with it now. I don’t think about it every day.”Fed officials are not yet comfortable, and they may do more to tame price increases. Officials predicted last week that they would raise interest rates to 5.6 percent this year, making two more quarter-point rate moves that would push rates to their highest level since 2000.Investors doubt that will happen. Given the recent cooling in inflation and signs that the job market is beginning to crack, they expect one more rate increase in July — and then outright rate cuts by early next year. But if that bet is wrong, the next phase of the fight against inflation could be the more painful one.As higher borrowing costs prod consumers and firms to pull back, they are expected to translate into less hiring and fewer job opportunities for people like Mr. Scarbrough. The slowdown might leave some people out of work altogether.Fed policymakers estimated that joblessness will jump to 4.5 percent by the end of next year — up somewhat from 3.7 percent now, but historically pretty low. But Mr. Blanchard thinks that the jobless rate might need to rise by one percentage point “and probably more.”Jason Furman, a Harvard economist, said he thought the unemployment rate could go even higher. While it is not his forecast, he said that in a bad scenario it was “possible” that it would take something like 10 percent unemployment for inflation to return totally to normal. That’s how high joblessness jumped at the worst point in the 2009 recession, and inflation came down by about two percentage points, he noted.In any case, Mr. Furman cautioned against jumping to early conclusions about the path ahead for inflation based on progress so far.“People have been so crazily premature to keep declaring victory on inflation,” he said. More