Daly, Mary C

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The Fed Wants to Quash Inflation. But Can It Do It More Gently?

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Federal Reserve officials have raised rates five times this year as they try to beat back the worst inflation in 40 years, and the past three moves have been especially rapid. That has prompted Wall Street and policymakers to contemplate when the Fed might start to slow down.Jerome H. Powell, the Fed chair, has signaled that moving less rapidly will be appropriate at some point in the future, though he has declined to put a date on when that might begin. On Thursday, Lisa D. Cook, one of the Fed’s newest governors, echoed that stance, saying that “at some point” the central bank will decide to “slow the pace of increases while we assess the effects of our cumulative tightening on the economy and inflation.”Based on the central bank’s statements and economic projections, markets are betting heavily that the pace will not step down until December. But a debate is beginning to firm up ahead of the central bank’s meeting in early November: Some officials are open to a potential slowdown as soon as the meeting next month, while others believe that the central bank needs to push ahead with very rapid policy adjustments as it races to control inflation.Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said she could potentially support a half-point move at the central bank’s meeting next month. While still a larger increase than in normal times, a half-point move would be less aggressive than the three-quarter-point change the Fed made at each of its last three meetings.Ms. Daly is less aggressive than the majority of her colleagues, favoring one percentage point of further rate increases before the end of the year — less than the at least 1.25 percentage points that most people on the committee view as warranted.“I think we don’t need to signal that we’re resolute anymore; I think people really understand that we’re resolute,” Ms. Daly said during an interview with The New York Times this week. “I am very open to stepping down the pace. But the data will help me determine whether I’m supportive of 75 followed by 25, or whether I’m supportive of 50 followed by 50.”Christopher Waller, a Fed governor, said on Thursday that inflation had not shaped up the way he would want “to support a slower pace of rate hikes” than the Fed had previously projected, and argued that a few more data points were unlikely to change his mind.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    A Fed Pivot? Not Yet, Policymakers Suggest, as Rapid Inflation Lingers.

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    Federal Reserve officials on Tuesday made clear that they expected to continue raising rates to try to choke off the most rapid inflation in decades, putting them at odds with investors who had become more sanguine about the outlook for interest rate moves.Stocks prices rose following the Fed’s meeting last week, as investors celebrated what some interpreted as a pivot: Jerome H. Powell, the Fed chair, said the central bank would begin making rate decisions on a meeting-by-meeting basis, which Wall Street took as a signal that its rate moves might soon slow down.But a chorus of Fed officials has since made clear that a lurch away from rate increases is not yet in the cards.Mary C. Daly, the president of the Federal Reserve Bank of San Francisco, said in an interview on LinkedIn on Tuesday that the Fed was “nowhere near” done raising interest rates. Charles L. Evans, the president of the Federal Reserve Bank of Chicago, told reporters that he would favor a half- or even a three-quarter-point rate increase in September.Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, said in an interview late last week that he did not understand why markets were dialing back their expectations for Fed rate increases.8 Signs That the Economy Is Losing SteamCard 1 of 9Worrying outlook. More

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    Federal Reserve Isn't Likely to Change Course After Ukraine Invasion

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    Federal Reserve officials are turning a wary eye to Russia’s invasion of Ukraine, though several have signaled in recent days that geopolitical tensions are unlikely to keep them from pulling back their support for the U.S. economy when the job market is booming and prices are climbing rapidly.Stock indexes are swooning, and the prices of key commodities — including oil and gas — have risen sharply and could continue to rise as Russia, a major producer, responds to American and European sanctions.That makes the invasion a complicated risk for the Fed: On one hand, its fallout is likely to further push up price inflation, which is already running at its fastest pace in 40 years. On the other, it could weigh on growth if stock prices continue to plummet and nervous consumers in Europe and the United States pull back from spending.The magnitude of the potential economic hit is far from certain, and for now, central bank officials have signaled that they will remain on track to raise interest rates from near zero in a series of increases starting next month, a policy path that will make borrowing money more expensive and cool down the economy.Loretta Mester, president of the Federal Reserve Bank of Cleveland, said during a speech on Thursday that she still expected it “will be appropriate to move the funds rate up in March and follow with further increases in the coming months.”But she noted that the invasion could inform how quickly the Fed moved over a longer time frame.“The implications of the unfolding situation in Ukraine for the medium-run economic outlook in the U.S. will also be a consideration in determining the appropriate pace at which to remove accommodation,” Ms. Mester said.Her comments were in line with those that many of her colleagues have made this week, including on Thursday after the invasion: Central bankers are monitoring the situation, but with inflation rapid and likely to head higher yet, they are not preparing to cancel their plans to pull back economic support.“I see the geopolitical situation, unless it would deteriorate substantially, as part of the larger uncertainty that we face in the United States and our U.S. economy,” Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said Wednesday at an event hosted by the Los Angeles World Affairs Council. “We’ll have to navigate that as we go forward.”But Ms. Daly said she did not “see anything right now” that would disrupt the Fed’s plan to lift interest rates.Thomas Barkin, president of the Federal Reserve Bank of Richmond, said during an appearance Thursday that “time will tell” if the policy path needed to adjust. Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said during a separate speech on Thursday that it was not his baseline expectation that the Ukraine conflict would affect the timing of the central bank’s first rate increase.Even if it is not enough to shake the Fed from its course, some analysts are warning that the fallout of the conflict could be meaningful.“Normally geopolitical crises ultimately turn out to be a fade for financial markets and a buying opportunity for investors willing to look past the headlines,” Krishna Guha at Evercore ISI wrote in a research note Thursday morning. “We are very wary of taking that line today.”Mr. Guha noted that the invasion could disrupt the post-Cold War world order and warned that the jump in energy prices and fallout from sanctions “will complicate the ability of central banks on both sides of the Atlantic to engineer a soft landing from the pandemic inflation surge.”Economists have been warning that a “soft landing” — in which central banks guide the economy onto a sustainable path without causing a recession — might be difficult to achieve when prices have taken off and monetary policies across much of Europe and North America may need to readjust substantially.“The shock of war adds to the enormous challenges facing central banks worldwide,” Isabel Schnabel, an executive board member at the European Central Bank, said during a Bank of England event on Thursday. She added that policymakers were monitoring the situation in Ukraine “very closely.”Inflation is high around much of the world, and though it is slightly less pronounced in Europe, and E.C.B. policymakers are reacting more slowly to it than some of their global counterparts, recent high readings there have prompted some officials to edge toward policy changes.In America, the Fed has sometimes reacted to global problems by cutting borrowing costs, making money cheaper and easier to obtain, rather than by lifting interest rates and making credit conditions tighter. But economists said this time was likely to be different.Russia’s Attack on Ukraine and the Global EconomyCard 1 of 6A rising concern. More

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    January Fed Minutes Show Concern About Inflation's Spread

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    Officials at the Federal Reserve expressed concern about inflation at their meeting in January, in particular that it had spread beyond pandemic-affected sectors into other areas, and agreed it would be warranted to begin scaling back their support for the economy faster than they previously had anticipated, minutes of the meeting released Wednesday showed.Fed officials noted that the labor market remained strong, though the Omicron wave of the coronavirus had worsened supply chain bottlenecks and labor shortages, and that inflation continued to significantly exceed the levels the central bank targets.Most officials still expect inflation to moderate over the year as pandemic-related supply bottlenecks ease and the Fed removes some of its support for the economy. But some participants warned that inflation could continue to accelerate, pointing to factors like rising wages and rents. If inflation does not move down as they expect, most Fed officials agreed that they might need to pare back their support for the economy even more quickly, though that could carry some risk.The outlook for inflation could be worsened by China’s zero-tolerance policy toward Covid, which has led to expansive lockdowns that have shuttered factories; a clash in Ukraine that could push up global energy prices; or the spread of another variant, they said.The central bank emphasized that the pace of interest rate increases would hinge on how the economy developed. But most officials agreed that the Fed should take a faster approach to cooling the economy than it did in 2015, when it began raising rates at a slow and plodding pace in the wake of the Great Recession.“Most participants suggested that a faster pace of increases in the target range for the federal funds rate than in the post-2015 period would likely be warranted, should the economy evolve generally in line with the committee’s expectation,” the minutes read.Fed officials also agreed that it was appropriate to proceed with plans to trim the nearly $9 trillion in securities that the central bank holds. Most officials preferred to keep to a schedule announced in December, which would end such purchases starting next month, though some viewed an earlier end to the program as warranted and a way to signal that they were taking a stronger stance to fight inflation.Policymakers said the labor market had made “remarkable progress in recovering from the recession associated with the pandemic and, by most measures, was now very strong.”The January meeting solidified what markets had been anticipating: that the Fed was on track to raise interest rates in March. The question now is how quickly, and by how much. Many investors have speculated that the Fed could raise its interest rate by half a percentage point in March, instead of its usual quarter-point increase.In a statement after their two-day policy meeting in January, Fed officials laid the groundwork for higher borrowing costs “soon.” Jerome H. Powell, the Fed chair, said at a news conference after the meeting that “I would say that the committee is of a mind to raise the federal funds rate at the March meeting, assuming that the conditions are appropriate for doing so.”Inflation has continued to run hot since the Fed’s last meeting, and wage growth remains elevated. A key inflation measure released last week showed that prices were climbing at the fastest pace in 40 years and broadening beyond pandemic-affected goods and services, a sign that rapid gains could prove longer lasting and harder to shake off.January’s Consumer Price Index showed prices jumping 7.5 percent over the year and 0.6 percent from the prior month, exceeding forecasts. A separate inflation gauge that the Fed prefers also showed that prices remained elevated at the end of 2021. Overall, prices have been climbing at the fastest pace since 1982.Wall Street is now anticipating that interest rates could rise to more than 1.75 percent by the end of the year, up from near zero now. Markets began to bet on a double-size rate increase after January’s inflation data came in surprisingly strong. But some Fed officials have been tempering those expectations, saying they need to take a steady approach.Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said on Sunday that the Fed needed to get moving but that its approach ought to be “measured.”“I see that it is obvious that we need to pull some of the accommodation out of the economy,” Ms. Daly said on “Face the Nation.” “But history tells us with Fed policy that abrupt and aggressive action can actually have a destabilizing effect on the very growth and price stability we’re trying to achieve.” More

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    Fed Officials Make It Clear on Inflation: This Time Is Different

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    Federal Reserve officials are preparing to pull back their economic help as inflation remains stubbornly high and the labor market swiftly heals, and they are signaling clearly that the last business cycle is a poor template for what comes next.During the economic expansion that stretched from the global financial crisis to the start of the pandemic, the Fed acted very gradually — it slowly dialed back bond buying meant to help the economy, then only ploddingly shrank its balance sheet of asset holdings. Central bankers increased borrowing costs sporadically between 2015 and the end of 2018, raising them at every other meeting at the very fastest.But inflation was muted, the labor market was slowly crawling out of an abyss, and business conditions needed the Fed’s support. This time is different, a series of Fed presidents emphasized on Monday — suggesting that the pullback in policy support is likely to be quicker and more decisive.Four of the central bank’s 12 regional presidents spoke on Monday, and all suggested that the Fed could soon begin to cool off the economy. Central bankers are widely expected to make a series of interest rate increases starting in March, and could soon thereafter begin to fairly rapidly shrink their balance sheet holdings. The pace of policy retreat is still up for debate and officials reiterated that it will hinge on incoming data — but several also noted that economic conditions are unusually strong.“The economy is far stronger than it has been, during any of my time in this role, and certainly, during any of the recoveries that we’ve been trying to navigate our policy through in recent memory,” Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said in an interview with Yahoo Finance. Any risks “that our policies are going to lead to a contraction in the economy, I think they’re relatively far off.”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.While it took the Fed a long time to begin shrinking its balance sheet last time, the central bank will probably move more promptly in 2022, Esther George, president of the Federal Reserve Bank of Kansas City, suggested during a speech.“With inflation running at close to a 40-year high, considerable momentum in demand growth, and abundant signs and reports of labor market tightness, the current very accommodative stance of monetary policy is out of sync with the economic outlook,” said Ms. George, who votes on monetary policy this year.Tricky questions lie ahead about how big the balance sheet should be, she noted. The Fed’s holdings have swollen to nearly $9 trillion, more than twice its size before the pandemic.Ms. George estimated that the Fed’s big bond holdings were weighing down longer-term interest rates by roughly 1.5 percentage points — nearly cutting the interest rate on 10-year government debt in half. While shrinking the balance sheet risks roiling markets, she warned that if the Fed remains a big presence in the Treasury market, it could distort financial conditions and imperil the central bank’s prized independence from elected government.“While it might be tempting to err on the side of caution, the potential costs associated with an excessively large balance sheet should not be ignored,” she said. She suggested that shrinking the balance sheet could allow policymakers to raise rates, which are currently set near-zero, by less.Mary C. Daly, the president of the Federal Reserve Bank of San Francisco, also argued for an active — albeit still gradual — path toward removing policy help.The Fed is not behind the curve, she said on a Reuters webcast, but it needs to react to the reality that the labor market appears at least temporarily short on workers and inflation is running hot. Prices picked up by 5.8 percent in the year through December, nearly three times the 2 percent the Fed aims for on average and over time.“We’re not trying to combat some vicious wage-price spiral,” Ms. Daly said. Still, she said she could support a rate increase as soon as March, and hinted that four rate increases could be reasonable, a path that would slow things down while “not pulling away the punch bowl completely and causing disruptions.”Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Fed Officials Make It Clear: This Time Is Different

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    Federal Reserve officials are preparing to pull back their economic help as inflation remains stubbornly high and the labor market swiftly heals, and they are signaling clearly that the last business cycle is a poor template for what comes next.During the economic expansion that stretched from the global financial crisis to the start of the pandemic, the Fed acted very gradually — it slowly dialed back bond buying meant to help the economy, then only ploddingly shrank its balance sheet of asset holdings. Central bankers increased borrowing costs sporadically between 2015 and the end of 2018, raising them at every other meeting at the very fastest.But inflation was muted, the labor market was slowly crawling out of an abyss, and business conditions needed the Fed’s support. This time is different, a series of Fed presidents emphasized on Monday — suggesting that the pullback in policy support is likely to be quicker and more decisive.Four of the central bank’s 12 regional presidents spoke on Monday, and all suggested that the Fed could soon begin to cool off the economy. Central bankers are widely expected to make a series of interest rate increases starting in March, and could soon thereafter begin to fairly rapidly shrink their balance sheet holdings. The pace of policy retreat is still up for debate and officials reiterated that it will hinge on incoming data — but several also noted that economic conditions are unusually strong.“The economy is far stronger than it has been, during any of my time in this role, and certainly, during any of the recoveries that we’ve been trying to navigate our policy through in recent memory,” Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said in an interview with Yahoo Finance. Any risks “that our policies are going to lead to a contraction in the economy, I think they’re relatively far off.”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.While it took the Fed a long time to begin shrinking its balance sheet last time, the central bank will probably move more promptly in 2022, Esther George, president of the Federal Reserve Bank of Kansas City, suggested during a speech.“With inflation running at close to a 40-year high, considerable momentum in demand growth, and abundant signs and reports of labor market tightness, the current very accommodative stance of monetary policy is out of sync with the economic outlook,” said Ms. George, who votes on monetary policy this year.Tricky questions lie ahead about how big the balance sheet should be, she noted. The Fed’s holdings have swollen to nearly $9 trillion, more than twice its size before the pandemic.Ms. George estimated that the Fed’s big bond holdings were weighing down longer-term interest rates by roughly 1.5 percentage points — nearly cutting the interest rate on 10-year government debt in half. While shrinking the balance sheet risks roiling markets, she warned that if the Fed remains a big presence in the Treasury market, it could distort financial conditions and imperil the central bank’s prized independence from elected government.“While it might be tempting to err on the side of caution, the potential costs associated with an excessively large balance sheet should not be ignored,” she said. She suggested that shrinking the balance sheet could allow policymakers to raise rates, which are currently set near-zero, by less.Mary C. Daly, the president of the Federal Reserve Bank of San Francisco, also argued for an active — albeit still gradual — path toward removing policy help.The Fed is not behind the curve, she said on a Reuters webcast, but it needs to react to the reality that the labor market appears at least temporarily short on workers and inflation is running hot. Prices picked up by 5.8 percent in the year through December, nearly three times the 2 percent the Fed aims for on average and over time.“We’re not trying to combat some vicious wage-price spiral,” Ms. Daly said. Still, she said she could support a rate increase as soon as March, and hinted that four rate increases could be reasonable, a path that would slow things down while “not pulling away the punch bowl completely and causing disruptions.”Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Lingering Virus, Lasting Inflation: A Fed Official Explains Her Pivot

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    Mary Daly, president of the Federal Reserve Bank of San Francisco, wanted to withdraw economic help slowly. Now, she might support a rate increase as soon as March.SAN FRANCISCO — Mary C. Daly was in line behind a woman in her neighborhood Walgreens in Oakland, Calif., this fall when she witnessed an upsetting consequence of inflation. The shopper, who was older, was shuffling uncomfortably as the clerk rang up her items.“She starts ruffling in her pockets, and in her purse,” Ms. Daly said in an interview. “And she says: This is a lot more expensive than it usually is. I buy these things — these are my monthly purchases.”The woman had to put something back — she chose potato chips — because she couldn’t afford everything in her basket.It would have been sobering to watch for anyone, but the moment hit especially hard for Ms. Daly, who is president of the Federal Reserve Bank of San Francisco. As one of the Fed’s 18 top officials, she is one of the people who sets economic policy to help to ensure a strong job market and to keep prices for goods and services stable.Like many of her colleagues, Ms. Daly initially expected inflation to fade relatively quickly in 2021 as the economy reopened and got back to normal. But continued waves of virus that have interrupted and complicated the recovery and increasingly broad price increases have made central bankers nervous that rapid inflation and pandemic-caused labor shortages might linger.Those risks have prompted the Fed to speed up its plans to pull back policies meant to stimulate the economy. Officials had previously suggested that they would keep interest rates low for a long time to allow more people who lost or quit their jobs during the pandemic to return to the job market. But in recent weeks, they announced a plan to more rapidly scale back their other main policy to boost the economy — large-scale bond purchases that have kept long-term borrowing costs low and kept money flowing around the financial system. Concluding that program promptly could put them in position to raise interest rates as soon as March.Ms. Daly, who spoke to The New York Times in two interviews in November and December, has shifted her tone particularly dramatically in recent weeks. How she came to change her mind highlights how policymakers have been caught off guard by the persistence of high inflation and are now struggling to strike the right balance between addressing it while not harming the labor market.As recently as mid-November, she had argued that the Fed should be patient in removing its support, avoiding an overreaction to inflation that might prove temporary and risk unnecessarily slowing the recovery of the labor market. But incoming data have confirmed that employers are still struggling to hire even as consumer prices are rising at the fastest clip in nearly 40 years. Rising rents and tangled supply chains could continue to push up inflation. And she’s running into more people like that woman in Walgreens.“My community members are telling me they’re worried about inflation,” Ms. Daly said last week. “What influenced me quite a lot was recognizing that the very communities we’re trying to serve when we talk about people sidelined” from the labor market “are the very communities that are paying the largest toll of rising food prices, transportation prices and housing prices.”Ms. Daly said she supported ending bond buying quickly so that officials were in a position to begin raising interest rates. A higher Fed policy rate would percolate through the economy, lifting the costs of mortgages, car loans and even credit cards and cooling off consumer and business demand. That would eventually tamp down inflation, while also likely slowing job growth.Ms. Daly said it was too early to know when the first rate increase would be warranted, but suggested she could be open to having the Fed begin raising rates as soon as March.“I’m comfortable with saying that I expect us to need to raise rates next year,” Ms. Daly said last week. “But exactly how many will it be — two or three — and when will that be — March, June, or in the fall? For me it’s just too early to know, and I don’t see the advantage of a declaration.”Many investors and economists now expect the Fed to lift rates from their current near-zero level in March, and Christopher Waller, a Fed governor, suggested last week that he could support a move then.That higher rates could be coming so soon is a big change from what officials were signaling — and what people who watch the Fed closely were expecting — until very recently.Fed officials have long said they want the economy to return to full employment before they lift interest rates. Early in the pandemic, many policymakers suggested that they would like to see the number of people with jobs rebound to levels approaching those that prevailed in early 2020, suggesting a long period of low rates would be needed.But increasingly, officials have argued that the economy is close to achieving their employment target by focusing on the overall unemployment rate and the rates for different racial groups.The jobless rate has fallen to 4.2 percent, and Fed officials expect it to drop to 3.5 percent next year. That would match the rate that prevailed before the pandemic, and would be a marked improvement from a pandemic high of 14.8 percent in April 2020. Black unemployment is dropping swiftly, too.“The economy has been making rapid progress toward maximum employment,” Jerome H. Powell, the Fed chair, said during a news conference this month.Yet that unemployment rate tells just part of the story, because it counts only people who are actively applying for jobs. The share of people in their prime employment ages, between 25 and 54, who are either working or looking for work has dropped notably, and is only starting to recover. Ms. Daly said she was thinking about the Fed’s full employment target in terms of what is achievable in the short term, as the coronavirus keeps many workers at home, and in the longer term, when more employees may be able to return because the virus is more under control.“There’s the labor market we can get eventually, after Covid,” she said. “And there’s the labor market that we have to deal with today.”For now, job openings far exceed the number of people applying for positions, and wages are climbing briskly, two signs that suggest that workers are — at least temporarily — scarce.It may be the case that “in the short run, this is all the workers we have,” Ms. Daly said. “But in the long run, we expect more workers to come.”Retailers in her area are cutting hours on busy shopping days because they can’t hire enough staff. Production lines are shuttered. And with virus infections rising again and the new Omicron variant spreading rapidly, there is no immediate end in sight.“If we get past Covid, inflation comes down, the labor supply recovers — then definitely we want more patience, because we want time for that to work itself through,” she said. “But we have Covid, and it won’t go away.” More

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    Inflation Worries Dominated the Federal Reserve’s Last Meeting

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    Worries about inflation dominated the Federal Reserve’s November policy meeting, with some policymakers suggesting that the central bank should move more quickly to reduce its bond-buying program in order to give it flexibility to raise interest rates sooner if necessary, minutes from the Fed’s November meeting showed.The Fed has been buying $120 billion in bonds each month and has kept interest rates near zero, policy moves that have helped make borrowing cheap and keep money flowing through the economy. Earlier this month, the Fed took the first step toward withdrawing support for the economy when it announced that it would begin scaling back its Treasury bond and mortgage-backed security purchases by $15 billion a month starting in November.“Some participants suggested that reducing the pace of net asset purchases by more than $15 billion each month could be warranted so that the committee would be in a better position to make adjustments to the target range for the federal funds rate, particularly in light of inflation pressures,” the minutes showed, referring to the Federal Open Market Committee, which sets interest rates.Those comments reflected uncertainty at the central bank over how long supply chain kinks and elevated prices might continue. Fed officials maintained their expectation that inflation would diminish “significantly during 2022,” but policymakers “indicated that their uncertainty regarding this assessment had increased.”“Many participants pointed to considerations that might suggest that elevated inflation could prove more persistent,” officials said..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;}Inflation has picked up over the past year, posing a challenge for the Fed, which is responsible for maintaining stable prices and fostering maximum employment. Prices have continued to surge since the Fed’s last meeting, a trajectory that could push policymakers to reduce their economic support more quickly than previously expected.Inflation has climbed as supply-chain snarls, soaring demand for goods and wage hikes have pushed prices higher; policymakers noted that increased rent and energy prices have also played a role. Inflation has become a persistent issue for the White House, depressing President Biden’s approval ratings and complicating the path to a full economic recovery from the pandemic.Data released on Wednesday showed that prices were rising at the fastest pace in three decades as consumers face higher prices for gas and food. Prices climbed by 5 percent in the 12 months through October, according to the Personal Consumption Expenditures index, the Fed’s preferred measure of inflation.Richard H. Clarida, the Fed’s vice chair, hinted last week that it could be appropriate for policymakers to consider speeding up their process of slowing bond purchases at their next gathering, saying that he will be looking “closely at the data that we get between now and the December meeting.”Mary Daly, the president of the Federal Reserve Bank of San Francisco, told Yahoo Finance this week that she would be open to supporting a quicker end to the bond-buying program if economic trends did not improve.Understand the Supply Chain CrisisCard 1 of 5Covid’s impact on the supply chain continues. More

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    Fed Unity Cracks as Inflation Rises and Officials Debate Future

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    Federal Reserve officials are debating what to do as price risks loom, even as its leaders and the White House say today’s surge will most likely cool.Federal Reserve officials spoke with one voice throughout the pandemic downturn, promising that monetary policy would be set to full-stimulus mode until the crisis was well and truly behind America. Suddenly, they are less in sync.Central bankers are increasingly divided over how to think about and respond to emerging risks after months of rising asset values and faster-than-expected price increases. While their political counterparts in the White House have been more unified in maintaining that the recent jump in price gains will fade as the economy gets past a reopening burst, Washington as a whole is wrestling with how to approach policy at a moment of intense uncertainty.The Fed’s top officials, including Chair Jerome H. Powell, acknowledge that a lasting period of uncomfortably high inflation is a possibility. But they have said it is more likely that recent price increases, which have come as the economy reopens from its coronavirus slumber, will fade.Other officials, like James Bullard, president of the Federal Reserve Bank of St. Louis, have voiced more pointed concern that the pickup in prices might persist and have suggested that the Fed may need to slow its support for the economy more quickly as a result.Unwanted and persistent inflation seemed like a fringe possibility earlier this year, but it is becoming a central feature of economic policy debates as prices rise for used cars, airline tickets and restaurant meals. For the Fed, the risk that some of the current jump could last is helping to drive the discussion about how soon and how quickly officials should slow down their enormous government-backed bond-buying program — the first step in the central bank’s plan to reduce its emergency support for the economy.Fed officials have said for months that they want to achieve “substantial further progress” toward their goals of full employment and stable inflation before slowing the purchases, and they are just beginning to discuss a plan for that so-called taper. They are now wrestling with the reality that the nation is still missing 7.6 million jobs while the housing market is booming and prices have moved up faster than expected, prompting a range of views to surface in public and private.The bubbling debate reinforces that the central bank’s easy money policies won’t last forever, and sends a signal to markets that officials are closely attuned to inflationary pressures.“A pretty substantial part — or perhaps all — of the overshoot in inflation comes from categories that are directly affected by the reopening of the economy,” said Jerome Powell, the Fed chair.Al Drago/The New York Times“I see the debate and disagreement as the Fed at its best,” said Robert S. Kaplan, who is president of the Federal Reserve Bank of Dallas and is one of the people pushing for the Fed to soon begin to pull back support. “In a situation this complex and this dynamic, if I weren’t seeing debate and disagreement, and there were unanimity, it would make me nervous.”The central bank’s 18 policy officials roundly say that the economy’s path is extremely hard to predict as it reopens from a once-in-a-century pandemic. But how they think about inflation after a string of strong recent price reports — and how they feel the Fed should react — varies.Inflation has spiked because of statistical quirks, but also because consumer demand is outstripping supply as the economy reopens and families open their wallets for dinners out and long-delayed vacations. Bottlenecks that have held up computer chip production and home-building should eventually fade. Some prices that had previously shot up, like those for lumber, are already starting to moderate.But if the reopening weirdness lasts long enough, it could cause businesses and consumers to anticipate higher inflation permanently, and act accordingly. Should that happen, or if workers begin to negotiate higher wages to cover the pop in living costs, faster price gains could stick around.“A new risk is that inflation may surprise still further to the upside as the reopening process continues, beyond the level necessary to simply make up for past misses to the low side,” Mr. Bullard said in a presentation last week. The Fed aims for 2 percent inflation as an average goal over time, without specifying the time frame.Other Fed officials have said today’s price pressures are likely to ease with time, but have not sounded confident that they will entirely disappear.“These upward price pressures may ease as the bottlenecks are worked out, but it could take some time,” Michelle Bowman, one of the Fed’s Washington-based governors, said in a recent speech.The Fed’s top leadership has offered a less alarmed take on the price trajectory. Mr. Powell and John C. Williams, president of the Federal Reserve Bank of New York, have said it is possible that prices could stay higher, but they have also said there’s little evidence so far to suggest that they will.“A pretty substantial part — or perhaps all — of the overshoot in inflation comes from categories that are directly affected by the reopening of the economy,” Mr. Powell said during congressional testimony on June 22.Mr. Williams has said there is even a risk that inflation could slow. The one-off factors pushing up prices now, like a surge in car prices, could reverse once supply recovers, dragging down future price gains.“You could see inflation coming in lower than expected,” he said last week.Which take on inflation prevails — risk-focused, watchful, or less fretful — will have implications for the economy. Officials are beginning to talk about when and how to slow down their $120 billion in monthly bond-buying, which is split between $80 billion in Treasury securities and $40 billion in government-backed mortgage debt.The Fed has held a discussion about slowing bond-buying before, after the global financial crisis, but that came during the rebound from a deep but otherwise more standard downturn: Demand was weak and the labor market climbed slowly back. This time, conditions are much more volatile since the recession was an anomaly, driven by a pandemic instead of a financial or business shock.In the current setting, officials who are more worried about prices getting out of hand may feel more urgency to dial back their economic stimulus, which stokes demand.“This is a volatile environment; we’ve got upside inflation risk here,” Mr. Bullard said at a separate event last week. “Creating some optionality for the committee might be really useful here, and that will be part of the taper debate going forward.”Mr. Kaplan said he had been vocal about his preferences on when tapering should start during private Fed discussions, though publicly he will say only that he would prefer to start cutting policy support “sooner rather than later.”“I see the debate and disagreement as the Fed at its best,” said Robert S. Kaplan, a Fed official who is pushing to start easing support.Edgard Garrido/ReutersHe thinks moving more quickly to slow bond purchases would take a “risk management” approach to both price gains and asset market excess: reducing the chances of a bad outcome now, which might mean the Fed doesn’t have to raise interest rates as early down the road.Several officials, including Mr. Kaplan and Mr. Bullard, have said it might be wise for the Fed to slow its purchases of mortgage debt more rapidly than they slow bond-buying overall, concerned that the Fed’s buying might be contributing to a hot housing market.But even that conclusion isn’t uniform. Lael Brainard, a Fed governor, and Mary C. Daly, president of the Federal Reserve Bank of San Francisco, have suggested that the mortgage-backed purchases affect financial conditions as a whole — suggesting they may be less keen on cutting them back faster.The price outlook will also inform when the Fed first raises interest rates. The Fed has said that it wants to achieve 2 percent inflation on average over time and maximum employment before lifting borrowing costs away from rock bottom.Rate increases are not yet up for discussion, but Fed officials’ published forecasts show that the policy-setting committee is increasingly divided on when that liftoff will happen. While five expect rates to remain unchanged through late 2023, opinions are otherwise all over the place. Two officials see one increase by the end of that year, three see two, three see three and another three see four. Two think the Fed will have raised rates six times.Both Fed policy debates will affect financial markets. Bond-buying and low rates tend to pump up prices on houses, stocks and other assets, so the Fed’s pullback could cause them to cool off. And they matter for the economy: If the Fed removes support too late and inflation gets out of control, it could take a recession to rein it in again. If it removes its help prematurely, the slowdown in demand could leave output and the labor market weak.The Fed will be working against a changing backdrop as it tries to decide what full employment and stable prices mean in a post-pandemic world. More money from President Biden’s $1.9 trillion economic aid bill will soon begin to flow into the economy. For example, the Treasury Department in July will begin depositing direct monthly payments into the accounts of millions of parents who qualify for an expanded child tax credit.But expanded unemployment insurance benefits are ending in many states. That could leave consumers with less money and slow down demand if it takes would-be workers time to find new jobs.As the trends play out, White House officials will also be watching to see whether the economy is hot or not. The administration is trying to pass a follow-up fiscal package that would focus on longer-term investments, and Republican opposition has centered partly on inflation risks.For Mr. Kaplan at the Fed, the point is to be watchful. He said it was important to learn from the lessons of the post-2008 crisis recovery, when monetary policy support was removed before inflation had meaningfully accelerated — but also to understand that this rebound is unique.“Realizing that this is a different situation is a wise thing,” Mr. Kaplan said. More