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    Where $5 Trillion in Pandemic Stimulus Money Went

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    At the outset of the pandemic, governments used the funds largely to cover virus-related costs.

    As the months dragged on, they found themselves covering unexpected shortfalls created by the pandemic, including lost revenue from parking garages and museums where attendance dropped off. They also funded longstanding priorities like upgrading sewer systems and other infrastructure projects.

    K-12 schools used early funds to transition to remote learning, and they received $122 billion from the American Rescue Plan that was intended to help them pay salaries, facilitate vaccinations and upgrade buildings and ventilation systems to reduce the virus’s spread. At least 20 percent must be spent on helping students recover academically from the pandemic.

    While not all of the state and local aid has been spent, the scope of the funding has been expansive:

    Utah set aside $100 million for “water conservation” as it faces historic drought conditions.

    Texas has designated $100 million to “maintain” the Bob Bullock Texas State History Museum in Austin.

    The San Antonio Independent School District in Texas plans to spend $9.4 million on increasing staff compensation, giving all permanent full-time employees a 2 percent pay raise and lifting minimum wages to $16 an hour, from $15.

    Alabama approved $400 million to help fund 4,000-bed prisons.

    Summerville, S.C., allocated more than $1.3 million for premium pay for essential workers.

    What was the impact?

    The aim of the money was to prevent the kind of painful budget cuts that state and local governments were forced to make in the wake of the Great Recession, when revenues plunged and costs soared, a recipe that prolonged America’s sluggish recovery and hampered some local economies for years.

    Economists largely agree that the money helped local governments shoulder significant pandemic-related costs, and many governments avoided deep budget cuts. Many states have even reported surpluses.

    But federal rules prevented local governments from using CARES Act funds to fill budget shortfalls, and state and local governments wound up slashing hundreds of thousands of public sector jobs anyway. Several states have sued the Biden administration over restrictions it imposed on the use of funds.

    What hasn’t been spent?

    A significant portion has yet to be spent, in part because more than $100 billion remains to be distributed by the Treasury Department. Only 19 states, plus Washington, D.C., received their entire allotments of American Rescue Plan funds in 2021. A second batch will be distributed this year.

    Governments have until 2026 tospend the funds, and disagreements over where the money should go and who has authority to spend it have slowed planning in some communities.

    School districts have until January 2025 to spend the money allocated to them. But even with several years left, schools have voiced concerns about meeting that deadline as many districts struggle with labor shortages and supply-chain delays. More

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    Modern Monetary Theory Got a Pandemic Tryout. Inflation Is Now Testing It.

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    The sun was sinking low over Long Island Sound as Stephanie Kelton, wearing the bright red suit jacket she had donned to give a virtual guest lecture to university students in London that morning, perched before a pillow fort she had constructed atop the heavy wooden desk in her home office.The setup was meant to keep out noise as she recorded the podcast she co-hosts, a MarketWatch production called the “Best New Ideas in Money.” The room was hushed except for Ms. Kelton, who bantered energetically with the producers she was hearing through noise-blocking headphones, sang a Terri Gibbs song and made occasional edits to the script. At one point, she muttered, “That sounds like Stephanie.”What Stephanie Kelton sounds like, circa early 2022, is the star architect of a movement that is on something of a victory lap. A victory lap with an asterisk.Ms. Kelton, 52, is the most familiar public face of Modern Monetary Theory, which posits that if a government controls its own currency and needs money — to make sure its citizens have food and places to live when, say, a global pandemic pushes many out of work — it can just print it, as long as its economy has the ability to churn out the needed goods and services.In the M.M.T. view of the world, “How will you pay for it?” is a vapid policy question. Real-world resources and political priorities determine how much lawmakers can and should spend.It is an idea that was forged, and put to something of a test, during a low-inflation era.When Ms. Kelton’s book, “The Deficit Myth,” was published in June 2020 and shot onto best seller lists, inflation had been weak for decades and had dropped below 1 percent as consumers retrenched in the pandemic. The government had begun to spend rapidly to try to prop up flailing households.When Ms. Kelton appeared on a Bloomberg podcast episode, “How M.M.T. Won the Fiscal Policy Debate,” in early 2021, inflation had bounced back to around 2 percent.But by a chilly January afternoon, as ducks flew over the frosty estuary outside Ms. Kelton’s house near Stony Brook University, where she teaches, inflation had rocketed up to 7 percent. The government’s debt pile has exploded to $30 trillion, up from about $10 trillion at the start of the 2008 downturn and $5 trillion in the mid-1990s.The good news: The government has had no trouble selling bonds to fund its spending, contrary to the direst projections of deficit scolds.The bad news: Some economists blame big spending in the pandemic for today’s rapid price increases. The government will release fresh Consumer Price Index data this week, and it is expected to show inflation running at its fastest pace since 1982.And that may be why Ms. Kelton, and the movement she has come to represent, now seem anxious to control the narrative. The pandemic spending wasn’t entirely consistent with M.M.T principles, they say — it wasn’t assessed carefully for its inflationary effects as it was being drawn up, because it was crisis policy. But the situation has underlined how hard it is to know just where the economy’s constraints lay, and how difficult it is to fix things once you run into them.Last summer, Ms. Kelton called inflation a temporary sign of “growing pains.” By the fall, she painted it as a good problem to solve, compared with a continued weak economy. As it lingers, she has argued that diagnosing what is causing it is key.“Can we blame ‘MMT’ for the run-up in inflation?” she tweeted rhetorically last month, just hours before her podcast recording.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.“Of course not.”Emon Hassan for The New York TimesThe economy is the limitTo understand how M.M.T. fits in with other dominant ways of thinking, it’s helpful to take a trip to the beach.In economics, there’s a school of thought sometimes called “freshwater.” It’s the set of ideas that became popular at inland universities in the 1970s, when they began to embrace rational markets and limited government intervention to fight recessions. There’s also “saltwater” thinking, an updated version of Keynesianism that argues that the government occasionally needs to jump-start the economy. It has traditionally been championed in the Ivy League and other top-ranked schools on the coasts.You might call the school of thought Ms. Kelton is popularizing, from a bay that feeds into the East River, brackish economics.M.M.T. theorists argue that society should feel capable of spending to achieve its goals to the extent that there are resources available to fulfill them. Deficit spending need not be constrained to recessions, even theoretically. Want to build a road? No problem, so long as you have asphalt and construction workers. Want to feed children free lunches? Also not a problem, so long as you have the food and the cafeteria workers.What became Modern Monetary Theory began to percolate among a small group of academics when Ms. Kelton, a former military brat and one-time furniture saleswoman, was a graduate student.She had a gap period between graduating with a bachelor’s degree from California State University, Sacramento and attending Cambridge University on a Rotary scholarship, and her college economics professor recommended that she spend the time studying with L. Randall Wray, an early pioneer in the set of ideas.They hit it off. She remained in Mr. Wray’s circle, and he — and Warren Mosler, a hedge fund manager who had written a book on what we get wrong about money — convinced her that the way America understood cash, revenues and budgeting was all backward.Ms. Kelton earned her doctorate at The New School, long a booster of out-of-mainstream economic thinking, and went on to teach at the University of Missouri-Kansas City. She, Mr. Wray, who was there at the time, and their colleagues mentored doctoral students and began to write academic papers on the new way of thinking.But academic missives reached only a small circle of readers. After the 2008 financial crisis punched a hole in the economy that would take more than a decade to fill, Ms. Kelton and her colleagues, invigorated with a new urgency, began a blog called “New Economic Perspectives.” It was a bare bones white, red and black layout, using a standard WordPress template, that served as a place for M.M.T. writers to make their case (and, in its early days, featured a #Occupy[YourCityHere] tab).The theory picked up some fervent followers but limited popular acceptance, charitably, and outright derision, uncharitably. Mainstream economists panned it as overly simplistic. Many were confused about what it was arguing.“I have heard pretty extreme claims attributed to that framework and I don’t know whether that’s fair or not,” Jerome H. Powell, the Fed chair, said in 2019. “The idea that deficits don’t matter for countries that can borrow in their own currency is just wrong.”Ms. Kelton kept the faith. She and her colleagues held conferences, including one in 2018 at The New School where she gave a lecture on “mainstreaming M.M.T.”Rohan Grey organized the conference and a media reception afterward at an Irish pub (“‘Shades of Green,’ monetary pun intended,” he said). It was attended by organizers, academics, “lay people” and lots of journalists. At the happy hour — which lasted until 1 a.m. — Ms. Kelton was mobbed when she walked in the door. “She was already on her way to super celebrity status at that point,” said Mr. Grey, an assistant professor at Willamette Law.When she gave presentations on her ideas, Ms. Kelton would occasionally display a quote often attributed to Mahatma Gandhi: “First they ignore you, then they laugh at you, then they fight you. Then you win.”And her star was rising more broadly. She advised Bernie Sanders’ presidential campaigns in 2016 and 2020, getting to know the Vermont senator. He never fully publicly embraced M.M.T., but he nevertheless advanced policies — like Medicare for All — that reflected its ideals.She amassed a following of tens of thousands, later growing to 140,000, on Twitter. Her first handle, @deficitowl, prompted ardent fans to gift her wise bird figurines, some of which are still on display in her home office. She cultivated a small coterie of prominent journalists who were interested in the idea, most notably Joe Weisenthal at Bloomberg. She signed a book deal. She was regularly talking to Democratic lawmakers, sometimes in groups.Her idea percolated through Washington’s media and liberal policy circles. Mainstream economic predictions that huge debt loads would come back to haunt nations like Japan had not played out, the anemic rebound from 2008 had scarred society and called the size of the crisis response into question. Ms. Kelton and her colleagues were ensuring that their theory on benign deficits was an ever-present feature of the blossoming debate.Then the pandemic hit, and suddenly the theoretical question of just how much the government could spend before it ran into limits faced a real-world experiment.The $1.9 Trillion FloorWithout thinking about paying for it, Donald J. Trump’s government quickly passed a $2.3 trillion relief package in late March 2020. In December, it followed that up with another $900 billion. President Biden took office in early 2021, and promptly added $1.9 trillion more.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Democrats Blast Corporate Profits as Inflation Surges

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    Politicians are placing more blame on greedy companies as prices stay high. But booming consumer demand is enabling firms to charge more.Inflation remains rapid as the economy enters 2022, and Democrats have begun pointing to a new culprit for the high and lasting price increases: Greedy corporations.Senator Sherrod Brown of Ohio, Senator Elizabeth Warren of Massachusetts, and the White House spokeswoman, Jen Psaki, have been among those pointing to excessive profits in certain industries as one thing jacking up costs for consumers. They don’t blame overall inflation on price-gouging businesses — but the implication is that higher prices are partly the product of corporate opportunism.The explanation for inflation is the latest in a string Democrats have offered since price gains shot up to uncomfortably high levels last year. It is partly grounded in economic reality, partly in political necessity: Rising prices are burdening and unsettling consumers, making them a liability for a party with a tenuous hold on Congressional control headed into 2022 midterm elections.Prices are increasing at the fastest pace since 1982, and while inflation is broadly expected to fade in the year ahead, the speed and extent of that moderation is uncertain. Even if price gains slow down, they could remain a headache for the Biden administration if they continue to rise more rapidly than was normal before the pandemic — which is what economists increasingly expect. They had hovered around or below 2 percent for years, but Federal Reserve officials think they will reach an average of 2.6 percent by the end of this year.The administration has limited power over prices: It is making tweaks around the edges to help to tamp them down, but keeping a lid on inflation is mostly the job of the Fed, which has signaled it expects to begin raising interest rates this year to help control it.Still, as consumers feel the pinch of higher prices for food, gas and household goods, it’s creating a political messaging problem for Democrats. Lawmakers and the White House had initially argued that fast inflation was a sign that airfares and hotel rates were bouncing back and would fade quickly, but supply chain snarls and booming consumer demand for goods kept them elevated throughout 2021. More recently, price pressures have begun to broaden to service categories, like rent, in which increases tend to be long-lasting — and as wages climb swiftly, it raises the possibility that companies will keep lifting prices to cover their costs.As inflation proves stubbornly sticky, administration officials and prominent lawmakers have refined their message to focus more blame on corporations, especially those in concentrated industries with a handful of powerful firms, like meat processing or gas.Many companies — from car dealerships to beauty stores and beef sellers — are raking in bigger profits as they successfully raise their prices or discount less while still managing to sell as much or more. But economists have pointed out that in many cases, blaming big firms for worsening inflation is overly simplistic. Industries have been relatively concentrated for years, but businesses now have the wherewithal to charge more because consumers are spending strongly. That owes partly to government stimulus checks and other benefits that have put more money in shoppers’ pockets.“It’s what you would fully expect when demand goes up,” said Jason Furman, a Harvard economist and a former chairman of the White House Council of Economic Advisers during the Obama administration.The laws of supply and demand have not stopped many on the political left from calling companies out.What to Know About Inflation in the U.S.Inflation, Explained: What is inflation, why is it up and whom does it hurt? We answered some common questions.The Fed’s Pivot: Jerome Powell’s abrupt change of course moved the central bank into inflation-fighting mode.Fastest Inflation in Decades: The Consumer Price Index rose 6.8 percent in November from a year earlier, its sharpest increase since 1982.Why Washington Is Worried: Policymakers are acknowledging that price increases have been proving more persistent than expected.The Psychology of Inflation: Americans are flush with cash and jobs, but they also think the economy is awful.“Profits at the biggest U.S. companies shot above $3 trillion this year, and the margins keep growing,” Mr. Brown, chairman of the Senate Banking Committee, said during a recent hearing. “Mega corporations would rather pass higher costs on to consumers than cut into their profits.”Ms. Warren has pointed to robust corporate profits as a sign that companies are partly to blame for rising costs.“Corporations are exploiting the pandemic to gouge consumers with higher prices on everyday essentials, from milk to gasoline,” she posted on Twitter on Nov. 26. “American families shouldn’t be bankrolling corporate America’s record-high profits.”And White House economic advisers have pointed to what they have called price gouging behavior in a few specific, concentrated industries. Mr. Biden has publicly encouraged an examination of oil company pricing, and the administration has announced measures to try to combat price fixing in meat processing, pointing out that four large companies control 85 percent of the beef market.“When too few companies control such a large portion of the market, our food supply chains are susceptible to shocks,” the administration said in a Jan. 3 release, repeating an argument administration officials have increasingly highlighted. “Mega corporations would rather pass higher costs on to consumers than cut into their profits,” Senator Sherrod Brown has said.Tom Brenner for The New York Times“I would say there are some areas where we have seen corporations benefit, profit from the pandemic,” Ms. Psaki said at a news conference in December.It is the case that big company profits are surging across many industries, a sign that companies are either selling more goods and services or are managing to eke more profit out of each unit that they are selling thanks to higher prices or better productivity. Based on corporate earnings calls and a spate of data, it’s likely a combination of those factors.Using data reported by Standard & Poor’s, the market analyst Edward Yardeni estimates that 2021 was a year of robust profit margins — the amount companies earn after subtracting their costs. After contracting sharply early in the pandemic, margins jumped to a record-high 13.7 percent in the second quarter before ticking down to 13.6 percent in the third.He thinks that owes partly to efficiency improvements, and partly to the fact that some firms have raised prices by more than their costs have climbed, something that they had previously struggled to do without losing customers.“It kind of became culturally acceptable to raise prices,” Mr. Yardeni said. “Consumers could understand that many corporations are under pressure to pass on their costs.”Inflation F.A.Q.Card 1 of 6What is inflation? More

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    The Path Ahead for Biden: Overcome Manchin’s Inflation Fears

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    A key Democrat’s decision to pull support from the president’s sprawling climate and social agenda is rooted in the scope of the bill.WASHINGTON — Senator Joe Manchin III, the West Virginia Democrat, effectively killed President Biden’s signature domestic policy bill in its current form on Sunday, saying he was convinced the spending and tax cuts in the $2.2 trillion legislation will exacerbate already hot inflation.Economic evidence strongly suggests Mr. Manchin is wrong. A host of economists and independent analyses have concluded that the bill is not economic stimulus, and that it will not pump enough money into consumer pocketbooks next year to raise prices more than a modest amount.The reason has to do with the pace at which the bill spends money and how much it raises through tax increases that are intended to pay for that spending. The legislation spends funds over a decade, allowing the taxes it raises on wealthy Americans and businesses, which will siphon money out of the economy, to help counteract the boost from spending and tax cuts.The bill also does not provide the type of direct stimulus included in the $1.9 trillion pandemic aid package Mr. Biden signed in March — and which Mr. Manchin supported. Some of its provisions would give money directly to people, like a continued expanded child tax credit, but others would fund programs that would take time to ramp up, like universal prekindergarten.Economists say the net result is likely to be at most a tenth of a percentage point or two increase in the inflation rate. That would be a relatively small effect at a time when supply chain crunches, surging global oil demand and a pandemic shift among consumers away from travel and dining out and toward durable goods have combined to raise the annual inflation rate to 6.8 percent, its fastest pace in nearly 40 years.For months, Mr. Manchin has warned the president and congressional leaders that he was uncomfortable with the breadth of what had become a $2.2 trillion bill to fight climate change, continue monthly checks to parents, establish universal prekindergarten and invest in a wide range of spending and tax cuts targeting child care, affordable housing, home health care and more. He has cited both the risks of inflation and his fear that the package could further balloon the federal budget deficit, saying several programs that are now estimated to end in a few years would likely be made permanent.Over the past week, he has insisted that the bill shrink to fit the framework of less than $2 trillion that Mr. Biden announced this fall, and that — crucially — the legislation not use budget gimmicks to artificially lower the bill’s effect on the budget deficit.In a statement on Sunday, Mr. Manchin said Democrats “continue to camouflage the real cost of the intent behind this bill.”White House officials have tried to promote the idea that the bill would reduce price pressures right away — an outcome economists have not entirely bought into. But the general economic consensus finds little evidence to suggest the bill risks exacerbating rising food, gasoline and other prices.Today’s inflationary surge stems from a confluence of factors, many of them related to the pandemic. The coronavirus has caused factories to shutter and clogged ports, disrupting the supply of goods that Americans stuck at home have wanted to buy, like electronics, televisions and home furnishings.That high demand has been fueled in part by consumers who are flush with cash after months of lockdown and repeated government payments, including stimulus checks. Research from the Federal Reserve has shown that inflation is most likely getting a temporary increase from the coronavirus relief package in March, which included $1,400 direct checks to families and generous unemployment benefits. But Mr. Biden’s social policy bill would do relatively little to spur increased consumer spending next year and not enough to offset the loss of government stimulus to the economy as pandemic aid expires.White House aides have tried to make that case to Mr. Manchin — and the public — in recent weeks, pointing to a series of analyses that have dismissed inflationary fears pegged to the bill. That includes analysis from a pair of Democratic economists who warned about rising inflation earlier this year — Harvard’s Lawrence H. Summers and Jason Furman — and from the nonpartisan Penn Wharton Budget Model at the University of Pennsylvania. All of those analyses conclude that the bill would add little or nothing to inflation in the coming year.The disconnect between economic reality and Mr. Manchin’s stated concerns has exasperated the White House, which is struggling with voter discontent toward Mr. Biden over rising prices, as well as an unyielding pandemic.In a scathing statement about Mr. Manchin on Sunday, the White House press secretary, Jen Psaki, noted that the Penn Wharton analysis found Mr. Biden’s bill “will have virtually no impact on inflation in the short term, and in the long run, the policies it includes will ease inflationary pressures.”White House officials, who along with party leaders have spent weeks trying to bring Mr. Manchin to a place of comfort with Mr. Biden’s bill, registered a sense of betrayal after the senator’s declaration.Ms. Psaki said Mr. Manchin had last week personally submitted to the president an outline for a bill “that was the same size and scope as the president’s framework, and covered many of the same priorities.” He had also promised to continue discussions toward an agreement, she said.Republicans celebrated Mr. Manchin’s statement as evidence that the bill, which Democrats were attempting to pass along party lines, was full of inflationary policies that even the president’s own party could not get behind.Biden’s ​​Social Policy and Climate Bill at a GlanceCard 1 of 7The centerpiece of Biden’s domestic agenda. 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    Stocks Hit a Record as Investors See Progress Toward a Spending Deal

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    After weeks of fluctuations driven in part by Washington gridlock, share prices hit another high and put a dismal September in the rearview mirror.Wall Street likes what it’s hearing from Washington lately.The S&P 500 inched to a new high on Thursday, continuing a rally aided by signs of progress in spending talks that could pave the way for an injection of some $3 trillion into the U.S. economy.The index rose 0.3 percent to 4,549.78, its seventh straight day of gains and a fresh peak after more than a month of volatile trading driven by nervousness over the still-wobbly economic recovery and policy fights in Washington.The S&P 500’s performance this year

    Source: S&P Dow Jones IndicesBy The New York TimesBut even baby steps by lawmakers have helped end a market swoon that began in September.Share prices began to rise this month when congressional leaders struck a deal to allow the government to avoid breaching the debt ceiling, ending a standoff that threatened to make it impossible for the country to pay its bills. The rally has gained momentum as investors and analysts grow increasingly confident about a government spending package using a recipe Wall Street can live with: big enough to bolster economic growth, but with smaller corporate tax increases than President Biden’s original $3.5 trillion spending blueprint.“It seems like we’re kind of reaching a middle ground,” said Paul Zemsky, chief investment officer, multi-asset strategies at Voya Investment Management. “The president himself has acknowledged it’s not going to be $3.5 trillion, it’s going to be something less. The tax hikes are not going to be as much as the left really wanted.”Share prices had marched steadily higher for much of the summer, hitting a series of highs and cresting on Sept. 2. But a number of anxieties sapped their momentum as the certainty that markets crave began to evaporate. Gridlock over government spending, continuing supply chain snarls, higher prices for businesses and consumers and the Federal Reserve’s signals that it would begin dialing back its stimulus efforts all helped sour investor confidence. The S&P 500’s 4.8 percent drop in September was its worst month since the start of the pandemic.It has made up for it in October, rising 5.6 percent this month. But it’s not just updates out of Washington that have renewed investors’ optimism.The country has seen a sharp drop in coronavirus infections in recent weeks, raising, once again, the prospect that economic activity can begin to normalize. And the recent round of corporate earnings results that began in earnest this month has started better than many analysts expected. Large Wall Street banks, in particular, reported blockbuster results fueled by juicy fees paid to the banks’ deal makers, thanks to a surge of merger activity.Elsewhere, shares of energy giants have also buoyed the broad stock market. The price of crude oil recently climbed back above $80 a barrel for the first time in roughly seven years, translating into an instant boost to revenues for energy companies.But the recent rally seemed find its footing two weeks ago. On Oct. 6, word broke that Senator Mitch McConnell of Kentucky, the Republican leader, was willing to offer a temporary reprieve allowing Congress to raise the debt ceiling. The market turned on a dime from its morning slump, finishing the day in positive territory. That week turned out to be the market’s best since August.Once done as a matter of course in Washington, raising the debt ceiling has been an increasingly contentious issue in recent years — with sometimes serious implications for the market. In August 2011, a rancorous battle over the debt ceiling sent share prices tumbling sharply as investors began to consider the prospect that the United States could actually default on its debts.But the recent deal on the ceiling — even though it only pushed a reckoning into December — suggested to investors that there’s little appetite in Washington for a replay of a decade ago.“I think that let some pressure out of the system,” said Alan McKnight, chief investment officer of Regions Asset Management. “What it signaled to the markets was that you can find some area of agreement. It may not be very large. But at least they can come together.”With the impasse broken, the rally gained strength. Last Thursday, the S&P 500 jumped 1.7 percent — its best day in roughly seven months — as financial giants like Morgan Stanley and Bank of America reported stellar results.Potential progress on a deal in Washington has only brightened investors’ outlook.“Democrats are now moving in the same direction, and hard decisions are being made,” wrote Dan Clifton, an analyst with Strategas Research, who monitors the impact of policy on financial markets, in a note to clients on Wednesday.Understand the U.S. Debt CeilingCard 1 of 6What is the debt ceiling? More

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    Economic and Earnings Concerns Begin to Weigh on Stocks

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    After having few cares about the markets all year, investors are getting nervous as the Fed signals that harsher policies are on the way.Wall Street’s imperviousness to bad news, which enabled stocks to double in value from their pandemic panic lows, may be starting to crack.When the Federal Reserve signaled in September that it would soon tighten monetary policy by curtailing asset purchases, the stock market took it well, but not for long. The S&P 500 rose modestly for a few days before reversing course, pushing the index more than 5 percent below the high it set earlier in the month, which amounted to its biggest drop for the year.Despite that setback, the market managed to eke out a 0.2 percent gain for the third quarter.A stingier Fed is not the market’s only concern. Inflation, dismissed until recently by the Fed as a transitory artifact of the pandemic, is coming to be seen as more persistent as the prices of goods, services and labor increase. What is being acknowledged as transitory, though, is the jolt to economic growth and corporate profits provided by several trillion dollars of added spending by Congress.With a number of threats to prosperity becoming harder to ignore, many investment advisers have become less enthusiastic about stocks. They are revising return expectations down and recommending exposure only to narrow niches.“We’re not bullish today at all,” said David Giroux, head of investment strategy at T. Rowe Price. “What really drives the market is earnings growth,” he said. “We can’t repeat some of the things we’ve done this year. Earnings growth may slow in ’22, maybe dramatically.”After being a colossal boon for the economy, fiscal stimulus — in the form of enormous federal spending — may now prove to be three problems for the stock market in one. Government expenditure focused on the pandemic that boosted growth is ebbing. There is a broad consensus that taxes will rise soon to help pay for that spending. And, because many people took direct stimulus payments and invested them in the stock market, stocks ran up faster than they would otherwise.The positive effects of so much stimulus may have run their course, as domestic stock funds tracked by Morningstar lost 0.6 percent in the third quarter, with portfolios that focus on financial services among the few clear winners.The SPDR S&P 500 E.T.F. Trust, which tracks the index and is the largest exchange-traded fund, returned 0.6 percent in the quarter, beating the average actively managed mutual fund.The very fact that many investors until lately have seemed untroubled by the perils facing the economy is what some find troubling.“There is complacency in a lot of things,” said Luca Paolini, chief strategist at Pictet Asset Management. He enumerated some of his worries: “‘Inflation is temporary.’ Maybe. Maybe not. Six months ago, consumption was booming. People had money and time. Now they have less money and less time. Earnings momentum has peaked, clearly, relative to six months ago. I’m concerned the market isn’t pricing in deterioration in the economic outlook.”By some measures, stocks are as expensive as at almost any time in history. The S&P 500 trades at about 34 times the last 12 months of earnings. Sarah Ketterer, chief executive of Causeway Capital Management, worries that corporate profits face numerous headwinds and that their impact on stocks could be especially high with valuations so rich.“Inflation is up, economic growth is down,” she said. “The supply chain disruption phenomenon is global, creating cost increases and margin pressure.” Companies in many industries have reported trouble sourcing some commodities and important components of manufactured goods, such as semiconductors, hindering production and making what they do produce more expensive.Rising prices have sent interest rates in the bond market higher, driving down bond prices and keeping a lid on bond funds in the third quarter. The average one rose 0.2 percent, dragged down by a 2.9 percent decline in emerging-market portfolios.“I’m hard pressed to find an area of costs that haven’t gone up, and this may continue for some time,” Ms. Ketterer said. “No one knows how long it will take to unravel the tangled supply chain situation.”The situation seems most tangled in Asia, where many raw and intermediate materials originate. China has been the source of several worrying recent events, including power cuts that have impeded manufacturing, and financial instability at the China Evergrande Group, a giant, heavily indebted developer.Some specialists in Asian markets see little chance of Evergrande’s woes spilling over to the wider Chinese financial system, let alone beyond. Matthews Asia, a mutual fund manager, said in a note to investors that mortgage lending standards in China are fairly tight, with large down payments required and the packaging of loans into securities sold to investors minimal.“Evergrande’s problems are unlikely to cause systemic problems and the likelihood of this devolving into a global financial problem is minuscule,” Matthews’s analysts said. But they added that restrictions could be placed on the property sector in coming quarters.Saira Malik, head of equities at Nuveen, an asset manager, likewise does not expect Evergrande to become a global problem, but she cautions that it is not China’s only problem.“The government is focusing on social issues, and some of that is leading to moderation in the growth rate” of China’s economy, she said. While more expansive central bank policies would be helpful, she added, “we think China could get worse before it gets better.”Funds that focus on Chinese stocks got worse in the third quarter, sinking 13.8 percent. International stock funds in general lost 2.9 percent.As prices and risks in stock markets at home and abroad rise, the opportunities for strong, relatively safe gains shrink.Mr. Giroux said he is “buying what the market is concerned about in the short term,” such as stocks in managed care providers, which are trading at a discount to the market because earnings growth has been subdued.He said he would avoid smaller companies, as well as companies that have benefited from fiscal stimulus programs, including automakers, heavy industrial companies and semiconductor manufacturers.Ms. Malik, who said she is “moderately bullish” overall, prefers smaller companies and European stock markets. She also likes makers of office software, such as Salesforce and HubSpot, and high-quality consumer cyclicals like Nike.Mr. Paolini also favors European stocks.“The case for Europe is quite solid,” he said. “Vaccination rates are high; the Covid story is over,” yet government stimulus continues across the region, so “they don’t have the same fiscal cliff as in the U.S. and U.K.”His other recommendations include financial stocks, which tend to benefit from higher interest rates, and drug makers.Ms. Ketterer thinks there is more potential for pandemic recovery stocks to appreciate. In particular, she expects Rolls-Royce, which makes jet engines, to benefit from an operational restructuring, and Air Canada, which cut costs during the pandemic and has a strong balance sheet and little competition, to do well as travel picks up.Ms. Ketterer remains resolute about trying to pick winners when there may not be many winners to pick.“What do we do?” she said. “We’re not going to hide. We don’t want to be in cash, and we don’t want to be in bonds if rates are rising.”Mr. Giroux said he doesn’t care much for bonds or cash — money-market funds — right now, either. He favors bank loans, floating-rate securities created by bundling loans that banks have made to corporate customers. They yield close to 4 percent, and that could increase if market interest rates rise. Default risk is mitigated because bank loans have a high place in corporate capital structures.The troubles in the stock market lately are barely a blip when viewed on a chart of the phenomenal last 18 months, so a single-digit percent return may seem meager. But it may start to look generous if the time has arrived for investors to learn to live with less.“The risk profile for equities over the next three to five years is not as good as it was a year ago because valuations are high, sentiment is good and earnings growth is likely to slow,” Mr. Giroux said. “We pull back on risk assets when things feel pretty good, and right now things feel pretty good.” More

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    Federal Reserve Signals a Shift Away From Pandemic Support

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    The Fed said it could soon slow its large-scale purchases of government-backed bonds and indicated it might raise interest rates in 2022.Federal Reserve officials indicated on Wednesday that they expect to soon slow the asset purchases they have been using to support the economy and predicted they might raise interest rates next year, sending a clear signal that policymakers are preparing to curtail full-blast monetary help as the business environment snaps back from the pandemic shock.Jerome H. Powell, the Fed’s chair, said during a news conference that the central bank’s bond purchases, which have propped up the economy since the depths of the pandemic downturn, “still have a use, but it’s time for us to begin to taper them.”That unusual candor came for a reason: Fed officials have been trying to fully prepare markets for their first move away from enormous economic support. Policymakers could announce a slowdown to their monthly government-backed securities purchases as soon as November, the Fed’s next meeting, and the program may come to a complete end by the middle of next year, Mr. Powell later said. He added that there was “very broad support” on the policy-setting Federal Open Market Committee for such a plan.Nearly 20 months after the coronavirus pandemic first shook America, the Fed is trying to guide an economy in which business has rebounded as consumers spend strongly, helped along by repeated government stimulus checks and other benefits.Yet the virus persists and many adults remain unvaccinated, preventing a full return to normal activity. External threats also loom, including tremors in China’s real estate market that have put financial markets on edge. In the United States, partisan wrangling could imperil future government spending plans or even cause a destabilizing delay to a needed debt ceiling increase.Mr. Powell and his colleagues are navigating those crosscurrents at a time when inflation is high and the labor market, while healing, remains far from full strength. They are weighing when and how to reduce their monetary policy support, hoping to prevent economic or financial market overheating while keeping the recovery on track.“They want to start the exit,” said Priya Misra, global head of rates strategy at T.D. Securities. “They’re putting the markets on notice.”Investors took the latest update in stride. The S&P 500 ended up 1 percent for the day, slightly higher than it was before the Fed’s policy statement was released, and yields on government bonds ticked lower, suggesting that investors didn’t see a reason to radically change their expectations for interest rates.The Fed has been holding its policy rate at rock bottom since March 2020 and is buying $120 billion in government-backed bonds each month, policies that work together to keep many types of borrowing cheap. The combination has fueled lending and spending and helped to foster stronger economic growth, while also contributing to record highs in the stock market.But now, officials believe the time has come to tiptoe away from such full-fledged support. Late last year, policymakers laid out a lower bar for slowing purchases than for lifting interest rates. They simply wanted to see “substantial further progress” toward their goals of stable inflation and maximum employment before pulling back on asset buying. When it comes to lifting rates, officials indicated they would like to see inflation sustainably at their target and a labor market that is fully healed.Slowing their asset purchases in the near-term could give the Fed more room to be more nimble in the future. Policymakers have signaled that they want to stop buying securities before moving interest rates above zero.But Mr. Powell has tried to clearly separate the two decisions, signaling that changes to the policy interest rate — the Fed’s more traditional and more powerful tool — are not imminent.“You’re going to be well away from satisfying the liftoff test when we begin to taper,” he reiterated on Wednesday.Half of the Fed’s policymakers expect to lift rates from near-zero next year. Officials released a fresh set of economic projections on Wednesday, laying out their predictions for growth, inflation and the funds rate through the end of 2024. Those included the “dot plot” — a set of anonymous individual estimates showing where each of the Fed’s 18 policymakers expect their interest rate to fall at the end of each year.Where the Fed Stands on Future Interest Rates More

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    Vast Expansion in Aid Kept Food Insecurity From Growing Last Year

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    Despite the economic downturn, government figures for 2020 show no overall rise in hunger of the sort typical in past recessions. But some groups still suffered.As 20 million jobs vanished at the start of the coronavirus pandemic and traffic jams formed outside food banks, many experts warned that the twin crises of unemployment and disease would produce soaring rates of hunger.But huge expansions of government aid followed, and data released on Wednesday suggests the extraordinary spending achieved a major goal: Despite shuttered businesses and schools, food insecurity remained unchanged from prepandemic levels. That result defied past experience, when recessions caused food hardship to spike.“This is huge news — it shows you how much of a buffer we had from an expanded safety net,” said Elaine Waxman, who researches hunger at the Urban Institute in Washington. “There was no scenario in March of 2020 where I thought food insecurity would stay flat for the year. The fact that it did is extraordinary.”The government found that 10.5 percent of American households were food insecure, meaning that at some point in the year, they had difficulty providing enough food to all members of the home because of a lack of money. It also found that 3.9 percent experienced “very low food security,” meaning the lack of resources caused them to reduce their food intake. That was statistically unchanged from the previous year.Food insecurity did rise among some groups, including households with children, households with Black Americans and households in the South. The gap between Black and white households, which was already large, widened further, with 21.7 percent of Black households experiencing food insecurity, compared with 7.1 percent of white households. That is a gap of 14.6 percentage points, up from 11.2 points in 2019, before the pandemic struck.Black households suffered disproportionately from job losses and school closings during the pandemic and had fewer assets with which to buffer a crisis.Still, the overall pattern — of hunger constrained — contrasted sharply with the country’s experience during 2008, when nearly 13 million additional Americans became food insecure at the start of the Great Recession. Last year, 38.3 million Americans lacked food security, a level far below the 50.2 million Americans in that situation at the recession’s peak.As President Biden pushes a $3.5 trillion plan to further expand the safety net over Republican opposition, the report on Wednesday from the Agriculture Department provided fodder for both sides. Supporters said it showed the value of increased aid, while critics said the unchanged rates of food hardship showed that further spending was not necessary.The aid expansions reflected in Wednesday’s report occurred early in the pandemic last year. They include the first round of stimulus checks and expanded unemployment benefits, which passed with support from both parties and President Donald J. Trump.Several large rounds of aid followed, most recently in a $1.9 trillion spending package in March that President Biden championed. It included a program of monthly payments to most families with children that Democrats hope to make permanent..css-1xzcza9{list-style-type:disc;padding-inline-start:1em;}.css-3btd0c{font-family:nyt-franklin,helvetica,arial,sans-serif;font-size:1rem;line-height:1.375rem;color:#333;margin-bottom:0.78125rem;}@media (min-width:740px){.css-3btd0c{font-size:1.0625rem;line-height:1.5rem;margin-bottom:0.9375rem;}}.css-3btd0c strong{font-weight:600;}.css-3btd0c em{font-style:italic;}.css-1kpebx{margin:0 auto;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1kpebx{font-family:nyt-cheltenham,georgia,’times new roman’,times,serif;font-weight:700;font-size:1.375rem;line-height:1.625rem;}@media (min-width:740px){#NYT_BELOW_MAIN_CONTENT_REGION .css-1kpebx{font-size:1.6875rem;line-height:1.875rem;}}@media (min-width:740px){.css-1kpebx{font-size:1.25rem;line-height:1.4375rem;}}.css-1gtxqqv{margin-bottom:0;}.css-19zsuqr{display:block;margin-bottom:0.9375rem;}.css-12vbvwq{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;}@media (min-width:740px){.css-12vbvwq{padding:20px;width:100%;}}.css-12vbvwq:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-12vbvwq{border:none;padding:10px 0 0;border-top:2px solid #121212;}.css-12vbvwq[data-truncated] .css-rdoyk0{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-12vbvwq[data-truncated] .css-eb027h{max-height:300px;overflow:hidden;-webkit-transition:none;transition:none;}.css-12vbvwq[data-truncated] .css-5gimkt:after{content:’See more’;}.css-12vbvwq[data-truncated] .css-6mllg9{opacity:1;}.css-qjk116{margin:0 auto;overflow:hidden;}.css-qjk116 strong{font-weight:700;}.css-qjk116 em{font-style:italic;}.css-qjk116 a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;text-underline-offset:1px;-webkit-text-decoration-thickness:1px;text-decoration-thickness:1px;-webkit-text-decoration-color:#326891;text-decoration-color:#326891;}.css-qjk116 a:visited{color:#326891;-webkit-text-decoration-color:#326891;text-decoration-color:#326891;}.css-qjk116 a:hover{-webkit-text-decoration:none;text-decoration:none;}“A lot of us warned that those further expansions were unnecessary and this provides additional support that that was true,” said Angela Rachidi, a hunger expert at the American Enterprise Institute. She said that progressives were pushing a narrative of exaggerated hardship to justify continued spending increases.In an economic crisis, food is often the first expense that a family with money troubles will cut. Unpaid rents risk eviction, but grocery purchases can be incrementally reduced and meals stretched.Though poverty and food insecurity are related, they are not synonymous. The poorer a household is, the more likely it is to experience food insecurity, but most of those suffering from food insecurity are not poor.Among households disclosing their incomes, 34 percent were poor while 32 percent had incomes greater than 185 percent of the poverty line (about $26,000 for a family of four), according to an analysis by Craig Gundersen, an economist at Baylor University.“There are a lot of Americans in precarious situations,” Mr. Gundersen said. “People are working, but one car repair or sick kid can send them into food insecurity.”The remarkable images of food lines at the pandemic’s start cast a spotlight on food hardship, while the large expansion of aid that followed turned the United States into a laboratory for antihunger policy. Among the lessons learned during the pandemic, researchers said the new report supported at least four.As aid rose, food insecurity fell.The relationship between higher spending and lower hardship may sound obvious. But some social problems prove difficult to address through federal aid. Congress has approved about $46 billion in emergency rental relief, but only a small portion has reached families in need.Wednesday’s report added to a growing body of research showing the opposite: that aid has led to quick reductions in food hardship. “This is not an intractable problem,” Mr. Gundersen said.Last year, the Brookings Institution found that a summer program that replaced school meals with electronic benefit cards led to substantial reductions in child hunger.Likewise, researchers at the University of Michigan, analyzing Census Bureau surveys, found the 2021 stimulus checks brought immediate reductions in food hardship. Most recently, a study by researchers at Columbia University found the same pattern after the introduction of the child tax credit in July, but only among households with children — the group eligible for the monthly payments.“We now have definitive evidence that food hardship is responsive to government aid,” said H. Luke Shaefer, a University of Michigan researcher who studied the stimulus checks. “The effect is crystal clear.”While Wednesday’s report was based on data collected in December 2020, Mr. Shaefer said other surveys showed hardship had continued to fall. “We could potentially be at the lowest level of food insecurity ever recorded, because of the government transfers,” he said.Schools play a vital role.Before the pandemic, school meals accounted for as much as 7 percent of economic resources among low-income households, according to one study.Max Whittaker for The New York TimesWhile food insecurity fell overall, it rose among households with children — to 7.6 percent last year, from 6.5 percent in 2019. One likely explanation is the widespread closure of schools, a reminder that they play a large, if often overlooked, role in delivering food aid.Before the pandemic, Judith Bartfeld, a researcher at the University of Wisconsin, found that school meals account for as much as 7 percent of economic resources among low-income households. That financial contribution approached the impact of the Supplemental Nutrition Assistance Program, or SNAP, the main federal antihunger program, which provided more than 10 percent of household resources but is larger and more visible.“One of the big lessons from the pandemic is the critical role that school meals play as part of the nutrition safety net,” Ms. Bartfeld said. “The value of school meals became transparent when the meals disappeared.”School closures may have also increased food hardship indirectly, by making it hard for parents to return to work.Among the pandemic-era programs is one that replaced the value of lost school meals with electronic benefit cards. Research found it reduced food hardship, though many states issued the aid after significant delays. Congress extended the program during the summers of 2020 and 2021, and the Biden administration wants to make the summer electronic benefit program permanent, to combat the rise in hunger that typically comes with the closure of schools.Most states participated in the summer program this year with the significant exception of Florida, where Gov. Ron DeSantis, a Republican, has declined without explanation to seek the $820 million the state could receive in federal aid.The gaps between Black and white Americans are large.The longstanding disparities in food insecurity between Black and white households had been narrowing in recent years. But last year, they widened again. Though the share of white households suffering food insecurity fell by 0.8 percentage points, it rose by 1.6 points in Hispanic households and by 2.6 points in Black households.One reason may be the nature of the recession, which disproportionately hurt Black workers, many of them in low-wage service jobs. It is also possible that Black and Latino families faced greater barriers than whites families in gaining access to government aid.A third potential explanation may be that Black families entered the recession with far fewer assets than white households and less access to credit, both of which can buffer food hardships.“This is the most disturbing part of the story,” said Ms. Waxman, the Urban Institute researcher. “Whatever we did wasn’t enough to support Black families during this period.”Charity plays an important but limited role.The crisis thrust the United States’ unusual network of private food banks into the spotlight. Able to respond more quickly than the government, they played a highly visible role in emergency aid. Feeding America, the national association of food banks, reported a 44 percent increase in meals served.But food banks are often among the first groups to call for expansions of government aid, arguing they can only complement the much larger public programs. Feeding American said SNAP, formerly known as food stamps, provides about nine times as many meals as food banks. The San Antonio Food Bank is among the places where lines stretched for miles in the spring of 2020. It went from feeding 60,000 people a week in early March to 120,000 in late April. It is still feeding about 90,000.But Eric Cooper, who runs the group, said the crisis reinforced both the fragility of the average household and the limited role that private charities can play.“It was the federal expansions that pulled people out of our parking lots and into grocery stores, which is where people should get their food,” he said. “We’re so small — the safety net is much larger.” More