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    World Economic Outlook Dims as War and Pandemic Cast a Pall

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    The International Monetary Fund’s new World Economic Outlook expects growth to slow to 3.6 percent this year. The group is one of many to slash their forecasts recently.WASHINGTON — The world economy has entered a period of intense uncertainty as a capricious pandemic and the fallout from Russia’s war in Ukraine combine to fuel rapid inflation and weigh on an already fragile global recovery.These colliding challenges are confronting policymakers and central bankers in the United States and Europe as they seek to bring down inflation without slowing growth so much that their economies tip into recession.In the last week, international organizations and think tanks have begun slashing their forecasts for growth and trade as they assess the war’s disruptions to global energy, food and commodity supplies, as well as China’s sweeping lockdowns to contain a renewed coronavirus outbreak.The pall over the world economy was underscored on Tuesday by the International Monetary Fund, which said in its World Economic Outlook that global output was expected to slow this year to 3.6 percent, from 6.1 percent in 2021. That is a downgrade from a January forecast of 4.4 percent growth this year.“Global economic prospects have been severely set back, largely because of Russia’s invasion of Ukraine,” Pierre-Olivier Gourinchas, the I.M.F.’s chief economist, said at a news briefing on Tuesday. “This crisis unfolds as the global economy has not yet fully recovered from the pandemic.”The impact of Russia’s war on the global economy will be a central topic for policymakers convening in Washington this week for the spring meetings of the International Monetary Fund and the World Bank.As the meetings got underway, policymakers grappled with how to maintain pressure on Russia while keeping the economic recovery on track and protecting the world’s poor from rising prices. While some countries that export commodities will benefit from a period of higher fuel and food prices, for most economies the disruptions weigh heavily.“The war has made an already dire situation worse,” Treasury Secretary Janet L. Yellen said in a speech about rising food insecurity on Tuesday. “Price and supply shocks are already materializing, adding to global inflationary pressures, creating risks to external balances, and undermining the recovery from the pandemic.”On Wednesday, Ms. Yellen plans to attend an opening session that will include Ukraine’s finance minister as the United States looks to stand with allies in opposition to Russia’s invasion, a Treasury official said. However, Ms. Yellen will not attend some Group of 20 sessions, such as those on international financial architecture and sustainable finance, if Russians are participating.Against that backdrop, the I.M.F.’s new data revealed a daunting set of economic headwinds. Mr. Gourinchas said the war was slowing growth and spurring inflation, which he described as a “clear and present danger” for many countries. He added that disruptions to Russian supplies of oil, gas and metals, along with Ukrainian exports of wheat and corn, will ripple through commodities markets and across the global economy “like seismic waves.”He acknowledged that the trajectory of the global economy would depend on how the war proceeded and the ultimate breadth of the sanctions that the United States and its allies in Europe and Asia imposed on Russia.“Uncertainty around these projections is considerable, well beyond the usual range,” Mr. Gourinchas said. “Growth could slow down further while inflation could exceed our projections if, for instance, sanctions extend to Russian energy exports.”Ukraine and Russia are facing the most dire economic consequences from the war. The I.M.F. expects the Ukrainian economy to contract by 35 percent this year, while Russia’s economy is projected to shrink 8.5 percent. Mr. Gourinchas noted that the Russian authorities had so far managed to prevent a collapse of their financial system and avoided bank failures but said further sanctions targeting Russia’s energy industry could have a significant impact on its economy.The sweeping sanctions that America and its allies have already imposed on Russia are the main factor contributing to the downward revision of the I.M.F.’s global growth outlook, Mr. Gourinchas said. He added that a tightening of restrictions on Russian energy exports would be an “adverse scenario” that would further slow output around the world.Rising prices around the world show no signs of abating, the I.M.F. said, even if supply chain problems ease. It expects inflation to remain elevated throughout the year, projecting it at 5.7 percent in advanced economies and 8.7 percent in emerging markets. Inflation hit 8.5 percent in the United States last month, the fastest 12-month pace since 1981.An empty street in Shanghai this week. The World Bank warned that the lingering pandemic and Covid-19 lockdowns in China could amplify income inequality and poverty rates.Aly Song/ReutersOther international organizations and research groups have also pared back their global growth forecasts. Economists at the Peterson Institute for International Economics, a Washington think tank, expect global growth to decline from a rapid 5.8 percent in 2021 to 3.3 percent annually in 2022 and 2023.The World Bank also expressed alarm this week about the state of the global economy, warning that the lingering pandemic, Covid-19 lockdowns in China and higher inflation could amplify income inequality and poverty rates. It lowered its 2022 growth forecast to 3.2 percent from 4.1 percent.“I’m deeply concerned about developing countries,” David Malpass, the World Bank president, said on Monday. “They’re facing sudden price increases for energy, fertilizer and food, and the likelihood of interest rate increases. Each one hits them hard.”According to the Bank of International Settlements, more than half of emerging economies have inflation rates above 7 percent. And 60 percent of “advanced economies,” including the United States and the euro area, have inflation over 5 percent, the largest share since the 1980s, the bank said.In Britain, inflation climbed to 7 percent in March, the highest level in 30 years.An April 12 survey of global investors by BofA Securities found that more than two-thirds were pessimistic about global growth prospects in the months ahead.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Fuel Prices Send Airfares Higher, but Travelers Seem Ready to Pay

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    Supplies are not keeping up with demand, and costs may go higher, experts say.A stunning rise in the cost of jet fuel has sent airfares soaring, and industry experts say they are likely to go higher. For now, though, travel-starved consumers seem more than willing to pay up.Jet fuel prices have settled somewhat since Russia’s invasion of Ukraine sent them skyrocketing last month, but the market remains extremely volatile. The problem is particularly severe in New York, where the cost of the fuel rose about fourfold to just over $7.50 a gallon before dipping back to $5.30 in recent days.Supply is broadly constrained and prices have spiked across the country. The Energy Department this week said that the inventory level for East Coast jet fuel stood at 6.5 million barrels, the lowest since the agency began keeping track in 1990.“Jet fuel has made the most parabolic move I’ve ever seen for any transportation fuel,” said Tom Kloza, global head of energy analysis at Oil Price Information Service. “It’s just insane.”The surge in prices has implications not only for airfares but also for the already high costs of global shipping. On Wednesday, for example, Amazon announced plans to impose its first “fuel and inflation surcharge” for sellers whose goods it stores and delivers.Airlines have been able to pass on some of their added fuel expense to consumers, many of whom are more than eager to travel after being denied the opportunity for two years.At the start of this year, the average cost of a round-trip domestic flight was $235, according to Hopper, an airfare-tracking app. Since then, ticket prices have risen 40 percent, to $330. Adit Damodaran, an economist at Hopper, which tracks prices for flights and hotels, said the company expects another 10 percent rise, to $360, by the end of May, before prices drop again in the summer.“Not only are the current prices that travelers are paying extremely high compared to historic price data, but the rate of increase has also been particularly steep since January,” he said.In addition to the rising cost of jet fuel, Mr. Damodaran said, the surge in airfares can also be attributed to typical seasonal patterns and the fact that demand was suppressed at the start of the year as the Omicron coronavirus variant spread.Some airlines have also cut flights in response to persistent staff shortages, creating greater competition and driving up fares for the flights that remain.Carriers typically pass on to consumers as much as 60 percent of a volatile rise in the price of fuel, experts said, a process that usually takes months. This time, however, the industry has been able to pass along costs more quickly, in large part because of high demand and a shift in consumer behavior during the pandemic toward buying tickets closer to the date of travel.“We are successfully recapturing a significant portion of the run-up in fuel,” Ed Bastian, the chief executive of Delta Air Lines, told investment analysts and reporters on a call on Wednesday. “This is occurring almost in real time, given the strong demand environment.”Mr. Bastian said that Delta, the first major carrier to report financial results for the first three months of this year, had seen a strong rebound so far and that it was preparing for a robust spring and summer.Delta paid an average price of $2.79 per gallon of jet fuel in the quarter, up 33 percent from the last quarter of last year. The price included a saving of 7 cents per gallon from the airline’s oil refinery outside Philadelphia. Delta said it expected the price of fuel to rise another 15 to 20 percent over the next three months, to between $3.20 and $3.35 per gallon, a range that includes an approximately 20-cent savings attributable to the refinery.Prices for jet fuel, like gasoline and diesel, generally go up and down with crude oil.In February, American Airlines reported that the price it paid per gallon of jet fuel had risen more than a third over the past year, from $1.48 in 2020 to $2.04 in 2021. At the time, it said that each sustained one-cent rise in the per-gallon price would increase its fuel expense for 2022 by about $40 million. This week, American estimated that it had paid $2.80 to $2.85 per gallon in the first quarter of the year.Rising fuel costs and fares seem to be doing little to dissuade consumers. Mr. Bastian said Wednesday that March was Delta’s best sales month ever, beating a record set in 2019, despite having 10 percent fewer seats available. That comes as fares for domestic flights were up about 20 percent across the board between March 2019 and March 2022, according to an analysis by the Adobe Digital Economy Index, which draws on online sales from six of the top 10 U.S. airlines.Refueling at San Francisco International Airport. Some jet fuel shipments were diverted from the East Coast to the West as California prices began to climb.Justin Sullivan/Getty Images“We’ve all been stuck at home for two years, and I think now that we have the opportunity to get out, there’s going to be a lot of willingness to pay,” said Joe Rohlena, lead airline analyst for Fitch Ratings. “If it remains expensive to travel further out, then you may see that kind of willingness to pay higher ticket prices back off.”The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Supply Chain Hurdles Will Outlast Covid Pandemic, White House Says

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    The administration’s economic advisers see climate change and other factors complicating global trade patterns for years to come.The coronavirus pandemic and its ripple effects have snarled supply chains around the world, contributing to shipping backlogs, product shortages and the fastest inflation in decades.But in a report released Thursday, White House economists argue that while the pandemic exposed vulnerabilities in the supply chain, it didn’t create them — and they warned that the problems won’t go away when the pandemic ends.“Though modern supply chains have driven down consumer prices for many goods, they can also easily break,” the Council of Economic Advisers wrote. Climate change, and the increasing frequency of natural disasters that comes with it, will make future disruptions inevitable, the group said.White House economists analyzed the supply chain as part of the Economic Report of the President. The annual document, which this year runs more than 400 pages, typically offers few new policy proposals, but it outlines the administration’s thinking on key economic issues facing the country, and on how the president hopes to address them.This year’s report focuses on the role of government in the economy, and calls for the government to do more to combat slowing productivity growth, declining labor force participation, rising inequality and other trends that long predated the pandemic.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.“The U.S. is among and remains one of the strongest economies in the world, but if we look at trends over the last several decades, some of those trends threaten to undermine that standing,” Cecilia Rouse, chair of the Council of Economic Advisers, said in an interview. The problem is in part that “the public sector has retreated from its role.”The report dedicates one of its seven chapters to supply chains, noting that the once-esoteric subject “entered dinner-table conversations” in 2021. In recent decades, Ms. Rouse and the report’s other authors write, U.S. manufacturers have increasingly relied on parts produced in low-cost countries, especially China, a practice known as offshoring. At the same time, companies have adopted just-in-time production strategies that minimize the parts and materials they keep in inventory.The result, the authors argue, are supply chains that are efficient but brittle — vulnerable to breaking down in the face of a pandemic, a war or a natural disaster.“Because of outsourcing, offshoring and insufficient investment in resilience, many supply chains have become complex and fragile,” they write, adding: “This evolution has also been driven by shortsighted assumptions about cost reduction that have ignored important costs that are hard to turn into financial measures, or that spilled over to affect others.”But some economists noted that making supply chains more resilient could carry its own costs, making products more expensive when inflation is already a major concern.Adam S. Posen, the president of the Peterson Institute for International Economics in Washington, said the pandemic and Russia’s invasion of Ukraine might lead companies to locate at least some of their supply chains in places that were more politically stable and less strategically vulnerable. But pushing companies to duplicate production could waste taxpayer dollars and introduce inefficiencies, raising prices for consumers and lowering growth.“At best you’re paying an insurance premium,” he said. “At worst you’re doing something for completely political reasons that’s very economically inefficient.”Other economists have emphasized that global supply chains are not always a source of fragility — sometimes they can be a source of resilience, too.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Few Cars, Lots of Customers: Why Autos Are an Inflation Risk

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    Economists are betting that supply chains for all kinds of goods will heal, shortages will ease and price gains will slow. Cars are a wild card in those forecasts.Corina Diehl is eager for more sedans and pickup trucks to sell her customers in and around the Pittsburgh area, but as the pandemic enters its third year, cars remain in short supply and the squeeze on inventory shows no sign of abating.“If I could get 100 Toyotas today, I would sell 100 Toyotas today,” Ms. Diehl said. Instead, she said, she’s lucky to have three. “It’s the same with every brand I have.”Dealerships like Ms. Diehl’s are wrestling with inventory shortages — the result of a dearth of computer chips, production disruptions and other supply chain snarls. That’s not a problem just for car buyers, who are paying more; it’s also a problem for economic policymakers as they try to wrestle the fastest inflation in four decades under control.Car prices have helped push inflation sharply higher over the past year, and economists have been counting on them to level off and even decline in 2022, allowing the rising Consumer Price Index to moderate markedly.Rapid Car Inflation Year-over-year change in select automotive categories of the Consumer Price Index

    Source: Bureau of Labor Statistics, accessed via FREDBy The New York TimesBut it is increasingly unclear how much and how quickly car prices will slow their ascent, because of repeated setbacks that threaten to keep the market under pressure. While price increases are showing some early signs of slowing and used car costs, in particular, are unlikely to climb at the same breakneck pace as last year, continued shortfalls of new vehicles could keep prices elevated — even rising — longer than many economists expected.“We’ve stumbled into another pattern of a series of unfortunate events,” said Jonathan Smoke, the chief economist at Cox Automotive, an industry consulting firm. Shutdowns meant to contain the coronavirus in China, computer chip factory disruptions tied to a recent earthquake in Japan, the aftereffects of the trucker strike in Canada and the war in Ukraine are adding up to slow production.Mr. Smoke expects new car prices to keep rising this year — perhaps even at nearly the same pace as last year — and used cars to begin to depreciate again, but said the shortage of new cars could spill over to blunt that weakening. And used cars may not fall in price at all if rental companies begin to snap them up as they did in 2021.“If the supply situation gets worse, it’s still possible that we repeat some of what we had last year,” he said.Mr. Smoke’s predictions — and worries — are more grim than what many economists are penciling into their forecasts.Alan Detmeister, a senior economist at UBS and former chief of the Federal Reserve Board’s wages and prices section, said he expected a 15 percent decline in used car prices by the end of the year, with new car prices falling 2.5 to 3 percent.Those estimates are predicated on an increase in supply.“This is a huge wild card in the forecast,” Mr. Detmeister said. But even if production doesn’t pick up, “it is extremely unlikely that we’ll see the kind of increases we saw last year,” he added, referring to prices.Omair Sharif, founder of Inflation Insights, a research firm, said he was still expecting improved supply and slower demand to help the used car market come into balance. While used car prices may rise for a few months as households spend tax refunds on automobiles, he expects the increase to be modest in part because they already nearly match new car prices.“I would be shocked if the used car market really accelerated,” he said. New car prices are a more complicated story, he added: “There, we have legitimately serious inventory problems.”Automakers are struggling to ramp up production. Russia’s invasion of Ukraine has created shortages in electrical components needed for cars, prompting S&P Global Mobility to cut its 2022 and 2023 forecasts for U.S. production. More critically, the chips needed to power everything from dashboards to diagnostics remain in short supply. Ford Motor and General Motors temporarily shut down some U.S. factories last week because of supply issues, and the industry broadly cannot ship as many cars as customers want to buy.In cars, “production remains below prepandemic levels, and an expected sharp decline in prices has been repeatedly postponed,” Jerome H. Powell, the Fed chair, said during a speech last month. He noted that while supply chain relief in general seemed likely to come over time, the timing and scope were uncertain.Cars loaded in Kansas City, Kan., for transport to a dealership in Wichita, Kan. Automakers are struggling to ramp up production as repeated shocks rock the industry.Chase Castor for The New York TimesAnalysts had been hoping that chip shortages, in particular, would ease up, but “we’ve got at least another year, if not more,” for the supply chain to heal, said Chris Richard, a principal in the supply chain and network operations practice at the consulting firm Deloitte.While smaller electronics producers may be able to find enough semiconductors, he said, cars contain hundreds or even thousands of chips — often different kinds — and many auto companies do not have direct and close relationships with their providers.The earthquake in Japan temporarily shut down chip plants that supply the auto industry, costing a few weeks of production at one. Making chips requires neon, and much of it comes from Ukraine. Lockdowns in Shanghai may reduce chip production at some Chinese factories.At the same time, demand is booming. Ford reported record retail vehicle orders in March, including for its F-series trucks, which remained in demand even as gas prices jumped.Car buying could begin to slow as the Fed raises interest rates, making car loans more expensive, but so far there is little sign that is happening. In fact, demand has been so strong that automakers have been cracking down on dealers that charge above list price, threatening to withhold fresh inventory.“I don’t see the prices subsiding. You don’t need them to subside,” said Joseph McCabe at AutoForecast Solutions, an industry analyst, explaining that dealer costs are increasing and companies want to protect their profits. “Prices will go up, and there will be less negotiating space for consumers, because there’s high demand and no availability.”Mr. McCabe does not think that car inventory will ever fully rebound: Dealers and automakers have learned that they make more money by effectively making cars to order and running with learner inventory. If that’s the case, the permanently restrained supply could have implications for the rental and used car markets.If car prices keep climbing briskly, it will be hard for inflation overall to moderate as much as economists expect — to around 4 to 4.5 percent as measured by the Consumer Price Index by the end of the year, according to a Bloomberg survey, down from 7.9 percent in February.That’s because prices for services, which make up 60 percent of the index, are also climbing robustly. They increased 4.8 percent in the 12 months through February, and could remain high or even continue to rise as labor shortages bite.Of the goods that make up the other 40 percent of the index, food and energy account for about half. Both have recently become markedly more expensive and, unless trends change, seem likely to contribute to high inflation this year. That puts the onus for cooling inflation on the products that make up the remainder of the index, like cars, clothing, appliances and furniture.While the Fed’s policy changes could tamp down demand and eventually slow prices, policymakers and economists had been hoping they would get some natural help as supply chains for cars and other goods worked themselves out.“We still expect some deflation in goods,” Laura Rosner-Warburton, an economist at MacroPolicy Perspectives, said of her forecast. She said that she expected fuel prices to moderate, and that her call included some “modest declines” in vehicle prices.It’s not just economists who are hoping that forecasts for a rebounding supply and more moderate car prices come true. Buyers and dealers are desperate for more vehicles. Ms. Diehl in Pittsburgh sells makes including Toyota, Volkswagen, Hyundai and Chevrolet, and companies have told her that inventory may begin to recover toward the end of the year — a reprieve that seems far away.Her customers are hungry for trucks, electric vehicles and whatever else she can get her hands on. When one of her dealerships lists a new car on its website in the evening, a buyer will show up first thing in the morning, she said. Her dealerships have a backlog of 400 to 500 parts to fix cars, up from 10 to 20 before the pandemic.“It’s absolute insanity at its finest,” Ms. Diehl said. “I don’t see an abundance of inventory before 2023 and 2024.” More

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    The US Economy Is Booming. Why Are Economists Worrying About a Recession?

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    There is little sign that a recession is imminent. But sky-high demand and supply shortages are testing the economy’s limits.Employers are adding hundreds of thousands of jobs a month, and would hire even more people if they could find them. Consumers are spending, businesses are investing, and wages are rising at their fastest pace in decades.So naturally, economists are warning of a possible recession.Rapid inflation, soaring oil prices and global instability have led forecasters to sharply lower their estimates of economic growth this year, and to raise their probabilities of an outright contraction. Investors share that concern: The bond market last week flashed a warning signal that has often — though not always — foreshadowed a downturn.Such predictions may seem confusing when the economy, by many measures, is booming. The United States has regained more than 90 percent of the jobs lost in the early weeks of the pandemic, and employers are continuing to hire at a breakneck pace, adding 431,000 jobs in March alone. The unemployment rate has fallen to 3.6 percent, barely above the prepandemic level, which was itself a half-century low.But to the doomsayers, the recovery’s remarkable strength carries the seeds of its own destruction. Demand — for cars, for homes, for restaurant meals and for the workers to provide them — has outstripped supply, leading to the fastest inflation in 40 years. Policymakers at the Federal Reserve argue they can cool off the economy and bring down inflation without driving up unemployment and causing a recession. But many economists are skeptical that the Fed can engineer such a “soft landing,” especially in a moment of such extreme global uncertainty.“It’s like trying to land during an earthquake,” said Tara Sinclair, a professor of economics at George Washington University.William Dudley, a former president of the Federal Reserve Bank of New York, called a recession “virtually inevitable.” He is among the economists arguing that if the Fed had begun raising interest rates last year, it might have been able to rein in inflation merely by tapping the brakes on the economy. Now, they say, the economy is growing so rapidly — and prices are rising so quickly — that the only way for the Fed to get control is to slam on the brakes and cause a recession.Still, a majority of forecasters say a recession remains unlikely in the next year. High oil prices, rising interest rates and waning government aid will all drag down growth this year, said Aneta Markowska, chief economist for Jefferies, an investment bank. But corporate profits are strong, households have trillions in savings, and debt loads are low — all of which should provide a cushion against any slowdown.“It’s easy to construct a very negative narrative, but when you actually look at the magnitude of all those impacts, I don’t think they’re significant enough to push us into a recession in the next 12 months,” she said. Recessions, almost by definition, involve job losses and unemployment; right now, companies are doing practically anything they can to retain workers.“I just don’t see what would cause businesses to do a complete 180 and go from ‘We need to hire all these people and we can’t find them’ to ‘We have to lay people off,’” Ms. Markowska said. Economists, however, are notoriously terrible at predicting recessions. So it makes sense to focus instead on where the recovery is right now, and on the forces that are threatening to knock it off course.The State of Jobs in the United StatesJob openings and the number of workers voluntarily leaving their positions in the United States remained near record levels in March.March Jobs Report: U.S. employers added 431,000 jobs and the unemployment rate fell to 3.6 percent ​​in the third month of 2022.A Strong Job Market: Data from the Labor Department showed that job openings remained near record levels in February.Wages and Inflation: Economists hoped that as households shifted spending back to services, price gains would cool. Rapid wage growth could make that story more complicated.New Career Paths: For some, the Covid-19 crisis presented an opportunity to change course. Here is how these six people pivoted professionally.Return to the Office: Many companies are loosening Covid safety rules, leaving people to navigate social distancing on their own. Some workers are concerned.Unionization Efforts: The pandemic has fueled enthusiasm for organized labor. But the pushback has been brutal, especially in the private sector.Growth will slow. That’s not necessarily a bad thing.Last year was the best year for economic growth since the mid-1980s, and the best for job growth on record. Those kinds of explosive gains — enabled by vaccines and fueled by trillions of dollars in government aid — were not likely to be repeated this year.In fact, some slowdown is probably desirable. The rapid rebound in consumer spending, especially on cars, furniture and other goods, has overwhelmed supply chains, driving up prices. Demand for workers is so strong that jobs are going unfilled despite rising wages. Jerome H. Powell, the Fed chair, said recently that the labor market had gotten “tight to an unhealthy level.”Some economists, particularly on the left, took issue with that claim, arguing that the hot labor market was good for workers. But even most of them said the recent pace of job growth was unsustainable for long.“We have torn back toward normal at a really fast pace, and it would be unrealistic to think that could continue,” said Josh Bivens, the director of research at the Economic Policy Institute, a progressive think tank. Even slower wage growth, he said, wouldn’t worry him, as long as pay increases didn’t fall further behind inflation.But some economists cautioned against rooting for a slowdown in a rare moment when low-wage workers were seeing substantial pay increases, and unemployment was falling for vulnerable groups. The unemployment rate among Black Americans fell to 6.2 percent in March, but was still nearly double that of white Americans.“The recovery from my perspective is fairly robust, and so why not enjoy this right now?” said Michelle Holder, president of the Washington Center for Equitable Growth, a progressive think tank. She said that while economists were right to be concerned about high inflation, “I don’t think similar voices were this bent out of shape about high unemployment.”A slowdown doesn’t have to mean a recession. (In theory.)Rush-hour commuters are returning to New York City’s subways. The United States has regained more than 90 percent of the jobs lost in the early weeks of the pandemic.Gabby Jones for The New York TimesThe key question for policymakers is whether they can cool the economy without putting it into deep freeze. Mr. Powell argues that they can, though he acknowledges that it won’t be easy.His argument goes something like this: There are 11 million open jobs and fewer than six million unemployed workers. There are more would-be home buyers than there are homes to buy, and more would-be car buyers than available cars. By gradually raising interest rates and making it more expensive to borrow, the Fed is hoping to curb demand for workers and homes and cars, but not by so much that employers start cutting jobs.That is a tricky balance, and historically the Fed has failed to achieve it more often than not. But unlike after the last recession, when the grindingly slow recovery seemed at constant risk of stalling out, the current rebound is fast enough that it could lose substantial momentum without going into reverse. Employers could slash hiring plans, for example, and still have jobs for practically anyone who wanted one.Some economists also remain hopeful that supply constraints will ease as the pandemic recedes, which would allow inflation to cool without the Fed’s needing to do as much to reduce demand. There are some signs of that happening: More than 400,000 people rejoined the labor force in March, as falling coronavirus cases and more reliable school schedules allowed more people to return to work.Aaron Sojourner, an economist at the University of Minnesota, said policymakers shouldn’t think of the economy as “overheating” so much as “fevered,” its capacity limited by the pandemic.“When you have a fever, you can’t perform at the level that you can perform at when you’re healthy, and you break a sweat even when you’re doing less than what you used to be able to do,” he said. Improvements in the public health crisis, he said, should allow the fever to break.A lot could go wrong.For much of last year, Fed officials shared Mr. Sojourner’s view, seeing inflation as a result of pandemic-related disruptions that would soon dissipate. When those disruptions proved more persistent than expected, policymakers changed course, but too late to prevent inflation from accelerating beyond what they intended to allow.The challenge is that central bankers must make decisions before all the data is available.It is possible, for example, that the imbalances that led to rapid inflation are beginning to dissipate, largely on their own. Federal aid programs created early in the pandemic have mostly ended, and many families have drawn down their savings. That could bring down demand just as supply is starting to catch up. In that scenario, the Fed could short-circuit the recovery if it acts too aggressively.But it is also possible that strong job growth and rising wages will keep consumer demand high, while supply-chain disruptions and labor shortages linger. In that case, if the Fed is too cautious, it runs the risk of letting inflation spiral further out of control. The last time that happened, the Fed under Paul A. Volcker had to induce a crippling recession in the early 1980s to bring inflation to heel.Mr. Powell has argued it is not too late to prevent such a “hard landing.” But even if a recession is inevitable, it isn’t likely to happen overnight.“I don’t think we’re going to go into a recession in the next 12 months,” said Megan Greene, a senior fellow at Harvard’s Kennedy School and global chief economist for the Kroll Institute. “I think it’s possible in the 12 months after that.”Global turmoil makes everything more complicated. Soaring oil prices and global instability have led forecasters to lower their estimates of economic growth this year.Gabby Jones for The New York TimesWhen this year began, forecasters pegged February or March as the moment when major inflation indexes would hit their peak and begin to fall. But the war in Ukraine, and the resulting spike in oil prices, dashed those hopes. The year-over-year rate of inflation hit a 40-year high in February, and almost certainly accelerated further in March as gas prices topped $4 a gallon in much of the country.The pandemic itself also remains a wild card. China in recent weeks has imposed strict lockdowns in parts of the country in an effort to stop the spread of coronavirus cases there, and a new subvariant has led to a rise in cases in Europe. That could prolong supply-chain disruptions globally, even if the United States itself avoided another coronavirus wave.“The biggest unknown is global supply chains and how we manage all of those because it’s contingent on Chinese Covid policy and a war in Europe,” Ms. Greene said.There is little sign so far that rising gas prices, stock market volatility or fear of Covid has damped consumers’ willingness to spend, or businesses’ willingness to hire. But those factors are adding to uncertainty, making it harder for policymakers to discern where the economy is headed, and to decide how to react. More

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    Unemployment Nears Prepandemic Level

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    Federal Reserve officials are tasked with fostering “full employment,” and while it has been difficult to guess what that means as the economy recovers from huge job losses at the start of the pandemic, March hiring data seemed likely to reaffirm to policymakers that the labor market is running hot.Now, central bankers are hoping conditions settle into a more sustainable balance.The jobless rate declined to 3.6 percent in March from 3.8 percent in February, data released Friday showed. Unemployment is rapidly closing in on the 3.5 percent unemployment rate that prevailed before the pandemic.The unemployment rate continued to fall in March.The share of people who have looked for work in the past four weeks or are temporarily laid off, which does not capture everyone who lost work because of the pandemic. More

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    As Biden Pleads for More Covid Aid, States Are Awash in Federal Dollars

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    States pushed back on a plan to take back some of their stimulus money to fund President Biden’s emergency spending request. Now Congress is trying to find other ways to offset the cost.FRANKFORT, Ky. — Gov. Andy Beshear has been toting oversize checks around his state in recent weeks, handing them out to city and county officials for desperately needed water improvements.The tiny city of Mortons Gap got $109,000 to bring running water to six families who do not have it. The people of Martin County, whose water has been too contaminated to drink since a coal slurry spill two decades ago, got $411,000. The checks bear Mr. Beshear’s signature, but the money comes from the federal government, part of a huge infusion of coronavirus relief aid that is helping to fuel record budget surpluses in Kentucky and many other states.Therein lies a Washington controversy. The funds, which Congress approved at a moment when the pandemic was still raging, are allowed to be used for far broader purposes than combating the virus, including water projects like those in Kentucky. Most states will get another round of “fiscal recovery funds” — part of President Biden’s $1.9 trillion American Rescue Plan — next month.But in Washington, Mr. Biden is out of money to pay for the most basic means of protecting people during the pandemic — medications, vaccines, testing and reimbursement for care. Republicans have refused to sign off on new spending, citing the state recovery funds as an example of money that could be repurposed for urgent national priorities.“These states are awash in money — everybody from Kentucky to California,” said Scott Jennings, a former aide to Senator Mitch McConnell of Kentucky, the Republican leader. “People are like: ‘We’ve printed all this money; we’ve sent it out. These states have these massive surpluses, and now you need more?’”Republicans were never fans of Mr. Biden’s rescue plan, which Democrats muscled through Congress without their support. Despite the many ways it is benefiting his state, Mr. McConnell once called it a “multitrillion-dollar, nontargeted Band-Aid” that would dump “another huge mountain of debt on our grandkids.”On Capitol Hill on Thursday, a day after Mr. Biden made a public appeal to Congress for more money, Senate Republicans and Democrats were nearing a deal on a $10 billion emergency aid package — less than half of Mr. Biden’s initial request. But they had not resolved crucial differences over the size and how to pay for it. Republicans want to use unspent money already approved by Congress, but the parties have been unable to agree on which programs should be tapped.Since the outset of the pandemic, the Trump and Biden administrations have injected $5 trillion into the American economy, including the rescue plan. With midterm elections approaching, the gush of federal stimulus spending will draw even greater scrutiny as Republicans accuse Democrats of wasting funds and fueling inflation, and demand a precise accounting of how the money has been spent.David Adkins, the executive director and chief executive of the Council of State Governments, said such questions were inevitable now that policymakers could catch their collective breath.“We have to lean into the notion that states are laboratories of democracy,” Mr. Adkins said. “Some of these things will fail; some of this money will not be spent well. But that is the nature of trying to navigate disruptive times.”The rescue plan set aside $195 billion to help states recover from the economic and health effects of the pandemic. When Mr. Biden made his initial aid request, senior lawmakers in both parties negotiated a plan to pay for it partly by taking back $7 billion from states, as part of a $1.5 trillion spending bill.Governors and rank-and-file Democrats balked, saying that to do so would disproportionately hurt the 31 states that have not yet gotten all their rescue funds, and the deal fell apart. Now it appears the state funds will be spared, though the fracas has cast a sharp spotlight on how the fiscal recovery funds are being spent.“I was never for giving this money to the states, but I was always of the belief that once you gave it to them, politics would not allow you to get it back,” Senator Roy Blunt of Missouri, the top Republican on the subcommittee that controls health spending, said in a recent interview.All told, the White House says 93 percent of the American Rescue Plan dollars that are currently available have been “legally obligated,” meaning they have either already been spent or are committed to being spent.Most states have either started spending their fiscal recovery funds, or have plans to do so. A recent analysis by the Center on Budget and Policy Priorities found that while most states are still developing budgets for the upcoming fiscal year, states have already budgeted 78 percent of their fiscal recovery fund allocation.Kentucky, where Mr. Beshear, a Democrat, is promoting record job growth and economic boom times, ended 2021 with a record $1.1 billion surplus, and another surplus is expected this year. The state has already received $1.1 billion in federal funds and expects another $1 billion in May. It is spending the money on broadband, bolstering tourism and shoring up the unemployment insurance fund as well as coronavirus testing, in addition to water improvements.Martin County recently received $411,000 in federal stimulus funds to help pay for desperately needed water improvements.Maddie McGarvey for The New York Times“These dollars are too important and too transformational to get caught up in a partisan fight,” Mr. Beshear said in an interview, adding: “These are dollars that are helping us as we emerge from Covid. We’ve got a choice to limp out of the pandemic or sprint out of the pandemic, and cutting off this aid only hurts the people that need it.”Congress specified four broad purposes for the money: to respond to the pandemic’s health and economic impacts; to provide bonus pay to essential workers; to prevent cuts in public services; and to invest in sewer, water or broadband infrastructure. But states can also use the funds to replace lost revenues, which gives them great flexibility in spending the money.Arkansas, for instance, has awarded $374,000 to a rape crisis center; $6.3 million to the Arkansas Coalition Against Sexual Assault; and another $6.3 million to the Arkansas Alliance of Boys & Girls Clubs. But the bulk of the money has gone toward improving broadband access and addressing the needs of the health care system.“The Omicron variant came in, cases skyrocketed, hospitals filled up and so we had to utilize a significant amount of our ARPA money for expanding hospital space, home testing and other public health response,” said Gov. Asa Hutchinson, a Republican, using the acronym for the rescue plan. “So that’s obviously the first responsibility, and then we looked at these other needs.”Other states are using the money in ways that are only tangentially related to Covid-19, but that are permissible under guidelines issued by the Treasury Department.Alabama devoted $400 million of its allocation, or roughly one-fifth, to building two new prisons, despite a public outcry from advocates for racial justice and civil liberties. Florida devoted $2 billion, nearly one-quarter of its $8.8 billion allotment, to highway construction — a decision that has drawn criticism from the nonpartisan Florida Policy Institute.“The intended purpose of the American Rescue Plan Act dollars was to ensure that individuals and communities could recover from the pandemic, and I think in many ways there were better uses for this money,” said Esteban Leonardo Santis, the group’s tax and revenue analyst.Twenty states, including Kentucky, spent a total of $15 billion to build up their depleted unemployment insurance trust funds. Independent analysts say that is effectively a tax break for businesses, which otherwise may have had to make up for the lost revenues. But Mr. Beshear defended it, saying that Kentucky businesses stepped up during the pandemic. A local Toyota plant made face shields, and bourbon distillers manufactured hand sanitizer, he said.The governor’s Twitter feed is rife with photos of big checks and smiling city and county officials; he is running for re-election in 2023.“If there’s one thing a governor knows how to do, it’s drive around their state and hand out huge checks and cut big ribbons with oversized scissors,” Mr. Jennings said. “They’re like game show hosts out there.”Chris McDaniel, a Kentucky state senator, spent much of this week immersed in budget talks, including planning how to use Kentucky’s next tranche of fiscal recovery funds.Luke Sharrett for The New York TimesExperts say, and the White House acknowledges, that the fiscal recovery funds have helped create state budget surpluses. Gene B. Sperling, a senior adviser to the president who is overseeing the American Rescue Plan, said the surpluses were proof that Mr. Biden’s stimulus package was working — and this was no time to pare back.“Ensuring that states and localities have a cushion for some pretty serious bumps in the road is smart policy,” Mr. Sperling said, “and a lesson learned from what happened after the Great Recession.”But those surpluses are likely to be temporary, and how states are using them has played into the controversy over Covid relief funds. The Center on Budget and Policy Priorities says 14 states are using temporary budget surpluses “to call for costly and permanent tax cuts targeted more to wealthy people” — a move the center described as a “bad choice.”Here in Frankfort, the state capital, Kentucky lawmakers in a hurry to wrap up their 2022 legislative session were working on pushing through a hefty income tax cut this week. But a proposal to use the state’s budget surplus to give Kentuckians a tax rebate of up to $500 seemed unlikely to pass, said its author, State Senator Chris McDaniel, the appropriations committee chairman.Mr. McDaniel, a Republican, spent much of this week immersed in budget talks, including planning how to use Kentucky’s next tranche of fiscal recovery funds. Another $1 billion is coming, and despite some philosophical misgivings, he said he saw no reason not to spend it.“I believe firmly that it was too much money that came down,” Mr. McDaniel said. “But I also believe that Kentuckians will bear the tax burden eventually, just like everyone else down the line, and I am not going to disadvantage future Kentuckians out of a point of philosophical pride.”Emily Cochrane More