Economic Conditions and Trends

More stories

  • 138 Shares179 Views

    in Economy

    Who’s to Blame for a Factory Shutdown: A Company, or California?

    by

    VERNON, Calif. — Teresa Robles begins her shift around dawn most days at a pork processing plant in an industrial corridor four miles south of downtown Los Angeles. She spends eight hours on her feet cutting tripe, a repetitive motion that has given her constant joint pain, but also a $17.85-an-hour income that supports her family.So in early June, when whispers began among the 1,800 workers that the facility would soon shut down, Ms. Robles, 57, hoped they were only rumors.“But it was true,” she said somberly at the end of a recent shift, “and now each day inches a little closer to my last day.”  The 436,000-square-foot factory, with roots dating back nearly a century, is scheduled to close early next year. Its Virginia-based owner, Smithfield Foods, says it will be cheaper to supply the region from factories in the Midwest than to continue operations here.“Unfortunately, the escalating costs of doing business in California required this decision,” said Shane Smith, the chief executive of Smithfield, citing utility rates and a voter-approved law regulating how pigs can be housed.Workers and company officials see a larger economic lesson in the impending shutdown. They just differ on what it is. To Ms. Robles, it is evidence that despite years of often perilous work, “we are just disposable to them.” For the meatpacker, it is a case of politics and regulation trumping commerce.The cost of doing business in California is a longtime point of contention. It was cited last year when Tesla, the electric-vehicle maker that has been a Silicon Valley success story, announced that it was moving its headquarters to Texas. “There’s a limit to how big you can scale in the Bay Area,” said Elon Musk, Tesla’s chief executive, mentioning housing prices and long commutes.As with many economic arguments, this one can take on a partisan hue.Around the time of Tesla’s exit, a report by the conservative-leaning Hoover Institution at Stanford University found that California-based companies were leaving at an accelerating rate. In the first six months of last year, 74 headquarters relocated from California, according to the report. In 2020, the report found, 62 companies were known to have relocated.Dee Dee Myers, a senior adviser to Gov. Gavin Newsom, a Democrat, counters by pointing to California’s continued economic growth.“Every time this narrative comes up, it’s consistently disproven by the facts,” said Ms. Myers, director of the Governor’s Office of Business and Economic Development. The nation’s gross domestic product grew at an annual pace of 2 percent over a five-year period through 2021, according to Ms. Myers’s office, while California’s grew by 3.7 percent. The state is still the country’s tech capital.Still, manufacturing has declined more rapidly in California than in the nation as a whole. Since 1990, the state has lost a third of its factory jobs — it now has roughly 1.3 million, according to the Bureau of Labor Statistics — compared with a 28 percent decline nationwide.The Smithfield plant is an icon of California’s industrial heyday. In 1931, Barney and Francis Clougherty, brothers who grew up in Los Angeles and the sons of Irish immigrants, started a meatpacking business that soon settled in Vernon. Their company, later branded as Farmer John, became a household name in Southern California, recognized for producing the beloved Dodger Dog and al pastor that sizzled at backyard cookouts. During World War II, the company supplied rations to U.S. troops in the Pacific.Leo Velasquez, 62, started working at the plant in 1990. He had hoped to stay there until he was ready to retire.Mark Abramson for The New York TimesAlmost 20 years later, Les Grimes, a Hollywood set painter, was commissioned to create a mural at the plant, transforming a bland industrial structure into a pastoral landscape where young children chased cherubic-looking pigs. It became a sightseeing destination.More recently, it has also been a symbol of the state’s social and political turbulence.In explaining Smithfield’s decision to close the plant, Mr. Smith, the chief executive, and other company officials have pointed to a 2018 statewide ballot measure, Proposition 12, which requires that pork sold in the state come from breeding pigs housed in spaces that allow them to move more freely.The measure is not yet being enforced and faces a challenge before the U.S. Supreme Court this fall. If it is not overturned, the law will apply even to meat packed outside the state — the way Smithfield now plans to supply the local market — but company officials say that in any case, its passage reflects a climate inhospitable to pork production in California.Passions have sometimes run high outside the plant as animal rights activists have condemned the confinement and treatment of the pigs being slaughtered inside. Protesters have serenaded and provided water to pigs whose snouts stuck out of slats in arriving trucks.In addition to its objections to Proposition 12, Smithfield maintains that the cost of utilities is nearly four times as high per head to produce pork in California than at the company’s 45 other plants around the country, though it declined to say how it arrived at that estimate.John Grant, president of the United Food and Commercial Workers Local 770, which represents Ms. Robles and other workers at the plant, said Smithfield announced the closing just as the sides were to begin negotiating a new contract. “They’re kicking us out with no answers,” said Teresa Robles, who has worked at the factory for four years.Mark Abramson for The New York Times“A total gut punch and, frankly, a shock,” said Mr. Grant, who worked at the plant in the 1970s. He said wage increases were a priority for the union going into negotiations. The company has offered a $7,500 bonus to employees who stay through the closing and has raised the hourly wage, previously $19.10 at the top of the scale, to $23.10. (The rate at the company’s unionized Midwest plants is still a bit higher.)But Mr. Grant said the factory shutdown was an affront to his members, who toiled through the pandemic as essential workers. Smithfield was fined nearly $60,000 by California regulators in 2020 for failing to take adequate measures to protect workers from contracting coronavirus.“After all that the employees have done throughout the pandemic, they’re now all of a sudden going to flee? They’re destroying lives,” said Mr. Grant, adding that the union is working to find new jobs for workers and hopes to help find a buyer for the plant.Karen Chapple, a professor of city and regional planning at the University of California, Berkeley, said the closing was an example of “the larger trend of deindustrialization” in areas like Los Angeles. “It probably doesn’t make sense to be here from an efficiency perspective,” she said. “It’s the tail end of a long exodus.”Indeed, the number of food manufacturing jobs in Los Angeles County has declined 6 percent since 2017, according to state data.  And as those jobs are shed, workers like Ms. Robles wonder what will come next.More than 80 percent of the employees at the Smithfield plant are Latino — a mix of immigrants and first-generation native-born. Most are older than 50. The security and benefits have kept people in their jobs, union leaders say, but the nature of the labor has made it hard to recruit younger workers who have better alternatives.On a recent overcast morning, the air in Vernon was thick with the smell of ammonia. Workers wearing surgical masks and carrying goggles and helmets walked into the plant. The sound of forklifts hummed beyond a high fence.Massive warehouses line the streets in the area. Some sit vacant; others produce wholesale local baked goods and candies. Mario Melendez, who has worked at the plant for a decade, says he feels betrayed by the company.Mark Abramson for The New York TimesMs. Robles started at the Smithfield plant four years ago. For more than two decades she owned a small business selling produce in downtown Los Angeles. She loved her work, but when her brother died in 2018, she needed money to honor his wish to have his body sent from Southern California to Colima, Mexico, their hometown. She sold the business for a couple of thousand dollars, then started at the factory, making $14 an hour.“I was proud,” she said, recalling the early months at her new job.Ms. Robles is the sole provider for her family. Her husband has several health complications, including surviving a heart attack in recent months, so she now shoulders the $2,000 mortgage payment for their home in the Watts neighborhood of Los Angeles. Sometimes her 20-year-old son, who recently started working at the plant, helps with expenses.“But this is my responsibility — it is on me to provide,” she said.Ms. Robles has long recited the Lord’s Prayer every night before bed, and now she often finds herself repeating it throughout the day for strength.“They’re kicking us out with no answers,” she said.Other workers, like Mario Melendez, 67, who has worked at the plant for a decade, shares that unmoored feeling.It’s an honor to know his labor helps feed people across Southern California, he said — especially around the holidays, when the factory’s ribs, ham and hot dogs will be part of people’s celebrations.But the factory is also a place where he contracted coronavirus, which he passed along to his brother, who died of the virus, as did his mother. He was devastated.A truck carrying pigs entering the plant. Animal rights activists have sometimes protested outside.Mark Abramson for The New York Times“A terrible shock,” said Mr. Melendez, who says he feels betrayed by the company.So does Leo Velasquez.He started on the night shift in 1990, making $7 an hour to package and seal bacon. A few years later, he moved to days, working 10-hour shifts.“I’ve given my life to this place,” said Mr. Velasquez, 62.Over the years, his body began to wear down. In 2014, he had shoulder replacement surgery. Still, he had hoped to continue at the factory until he was ready to retire.“That’s not going to happen,” he said. “Where I go from here, I do not know.” More

  • 113 Shares119 Views

    in Economy

    Indian Rupee Hits Weakest Level Ever Against U.S. Dollar

    by

    How much an Indian rupee is worth

    Note: Scale is inverted. A falling line indicates a weaker rupee.Source: FactSetBy The New York TimesThe Indian rupee touched the weakest level on record against the dollar on Tuesday, another victim of higher energy prices and a stronger greenback.The rupee has lost about 7 percent of its value against the dollar this year as India has spent more to import sources of energy like crude oil, natural gas and coal. Prices of those commodities have climbed after Russia invaded Ukraine.Another factor behind the decline of the rupee is uncertainty about the global economy that has, in turn, propelled the dollar to a 20-year high against the currencies of its major trading partners. Investors have pulled money out of India and other developing countries and poured it in to the United States, where the Federal Reserve is raising interest rates aggressively to tame inflation.“A lot of it is dollar strength rather than rupee weakness,” said Rahul Bajoria, the chief economist for India at Barclays. “It still feels like on a relative basis the rupee has done a lot better,” he said, pointing to the steeper declines in the value of the euro and the British pound against the dollar.On Tuesday, the rupee briefly crossed 80 to the dollar for the first time. The Reserve Bank of India intervened in the market, as it has in recent months, to bid up the currency, according to local media reports.Like in much of the world, inflation has slowed economic growth this year in India. Reserve Bank officials responded by unexpectedly raising rates in May, and then again in June, to 4.9 percent. But inflation remains around 7 percent, putting pressure on household budgets.Prime Minister Narendra Modi’s government has cut taxes on fuel and restricted exports of wheat and sugar. And it has bought more Russian oil, which has become cheaper following sanctions imposed by the United States and Europe. More

  • 88 Shares119 Views

    in Economy

    Global Central Banks Ramp Up Inflation Fight

    by

    Central banks in the U.S., Europe, Canada and parts of Asia are lifting interest rates rapidly as they try to wrestle breakneck inflation under control.Central bankers around the world are lifting interest rates at an aggressive clip as rapid inflation persists and seeps into a broad array of goods and services, setting the global economy up for a lurch toward more expensive credit, lower stock and bond values and — potentially — a sharp pullback in economic activity.It’s a moment unlike anything the international community has experienced in decades, as countries around the world try to bring rapid price increases under control before they become a more lasting part of the economy.Inflation has surged across many advanced and developing economies since early 2021 as strong demand for goods collided with shortages brought on by the pandemic. Central banks spent months hoping that economies would reopen and shipping routes would unclog, easing supply constraints, and that consumer spending would return to normal. That hasn’t happened, and the war in Ukraine has only intensified the situation by disrupting oil and food supplies, pushing prices even higher.Global economic policymakers began responding in earnest this year, with at least 75 central banks lifting interest rates, many from historically low levels. While policymakers cannot do much to contain high energy prices, higher borrowing costs could help slow consumer and business demand to give supply a chance to catch up across an array of goods and services so that inflation does not continue indefinitely.The European Central Bank will meet this week and is expected to make its first rate increase since 2011, one that officials have signaled will most likely be only a quarter point but will probably be followed by a larger move in September.Other central banks have begun moving more aggressively already, with officials from Canada to the Philippines picking up the pace of rate increases in recent weeks amid fears that consumers and investors are beginning to expect steadily higher prices — a shift that could make inflation a more permanent feature of the economic backdrop. Federal Reserve officials have also hastened their response. They lifted borrowing costs in June by the most since 1994 and suggested that an even bigger move is possible, though several in recent days have suggested that speeding up again is not their preferred plan for the upcoming July meeting and that a second three-quarter-point increase is most likely.As interest rates jump around the world, making money that has been cheap for years more expensive to borrow, they are stoking fears among investors that the global economy could slow sharply — and that some countries could find themselves plunged into painful recessions. Commodity prices, some of which can serve as a barometer of expected consumer demand and global economic health, have dropped as investors grow jittery. International economic officials have warned that the path ahead could prove bumpy as central banks adjust policy and as the war in Ukraine heightens uncertainty.“It is going to be a tough 2022 — and possibly an even tougher 2023, with increased risk of recession,” Kristalina Georgieva, the managing director of the International Monetary Fund wrote.Pool photo by Sonny Tumbelaka“It is going to be a tough 2022 — and possibly an even tougher 2023, with increased risk of recession,” Kristalina Georgieva, the managing director of the International Monetary Fund, said in a blog post on Wednesday. Ms. Georgieva argued that central banks need to react to inflation, saying that “acting now will hurt less than acting later.”Ms. Georgieva pointed out that about three-quarters of the institutions the fund tracks have raised interest rates since July 2021. Developed economies have lifted them by 1.7 percentage points on average, while emerging economies have moved by more than 3 percentage points.8 Signs That the Economy Is Losing SteamCard 1 of 9Worrying outlook. More

  • 138 Shares99 Views

    in Economy

    China’s Economy Hits a Slump as Covid Policy Takes a Toll

    by

    High unemployment, a housing market in crisis and sluggish consumer spending during lockdowns are putting pressure on Beijing in a year when officials are focused on projecting stability.When countries around the world have stumbled in the face of pandemic headwinds, China has often stood apart, seemingly impervious to financial pressures that undermined growth.But now, dragged down by its commitment to curbing the spread of Covid-19 with widespread lockdowns and mass quarantines, China has suffered one of its worst quarters in years, threatening a global economy heavily dependent on Chinese factories and consumers.For the country’s ruling Communist Party, the downturn could put added pressure on Beijing at a sensitive moment. China is scheduled to hold its party congress later this year. A thriving economy and growing wealth was part of the bargain that Chinese citizens accepted in exchange for living under authoritarian rule.But the lockdowns, a staple of Beijing’s zero-Covid policy, have heightened the risk of instability — both socially and economically.The National Bureau of Statistics in China said on Friday that the economy expanded 0.4 percent from a year earlier in the second quarter, worse than some economists’ expectations. It was the lowest growth rate since the first three months of 2020, when the country effectively shut down to fight the early stages of the pandemic, and its economy shrank for the first time in 28 years.The 2020 downturn was short-lived, with the Chinese economy recovering almost immediately. But the current outlook is not so promising. Unemployment is close to the highest levels on record. The housing market is still a mess, and small businesses are bearing the brunt of weakness in consumer spending.“China is the shoe that has never dropped in the global economy,” said Kenneth Rogoff, a professor of economics at Harvard University and a former chief economist for the International Monetary Fund. “China is no position to be the global engine of growth right now, and the long-term fundamentals point to much slower growth in the next decade.”Construction in Beijing this month. China has urged local authorities to step up measures to ensure job stability during lockdowns.Wang Zhao/Agence France-Presse — Getty ImagesThis is an unwanted complication in a year when China is trying to project unwavering strength and stability. At the party congress, Xi Jinping, the country’s leader, is expected to coast to another five-year term, further cementing his grip on power.In May, Li Keqiang, China’s premier, called an emergency meeting and sounded the alarm about the need to gin up economic growth to more than 100,000 officials from businesses and local governments. The stark warning cast doubt about China’s ability to reach its earlier growth target of 5.5 percent for the year. The Latest on China: Key Things to KnowCard 1 of 6China’s economy stumbles. More

  • 150 Shares179 Views

    in Economy

    Germany Hopes to Outrace a Russian Gas Cutoff and Bone Cold Winter

    by

    Russian natural gas has fired the furnaces that create molten stainless steel at Clemens Schmees’s family foundry since 1961, when his father set up shop in a garage in the western part of Germany.It never crossed Clemens’s mind that this energy flow could one day become unaffordable or cease altogether. Now Mr. Schmees, like thousands of other chieftains at companies across Germany, is scrambling to prepare for the possibility that his operations could face stringent rationing this winter if Russia turns off the gas.“We’ve had many crises,” he said, sitting in the company’s branch office in the eastern city of Pirna, overlooking the Elbe River valley. “But we have never before had such instability and uncertainty, all at once.”Such sentiments are reverberating this week in executive suites, at kitchen tables and in government offices as Nord Stream 1, the direct gas pipeline between Russia and Europe, was shut down for 10 days of scheduled maintenance.Germany, the pipeline’s terminus and a gas transit hub for the rest of Europe, is the largest and most important economy on the continent. And anxiety that President Vladimir V. Putin may not switch the gas back on — as a display of brinkmanship with countries that oppose Russia’s invasion of Ukraine — is particularly sharp.“We have never before had such instability and uncertainty, all at once,” said Clemens Schmees, whose family has owned a foundry since 1961.Lena Mucha for The New York TimesIn Berlin, officials have declared a “gas crisis” and triggered an emergency energy plan. Already landlords, schools and municipalities have begun to lower thermostats, ration hot water, close swimming pools, turn off air-conditioners, dim streetlights and exhort the benefits of cold showers. Analysts predict that a recession in Germany is “imminent.” Government officials are racing to bail out the largest importer of Russian gas, a company called Uniper. And political leaders warn that Germany’s “social peace” could unravel.The crisis has not only set off a frantic clamber to manage a potentially painful crunch this winter. It has also prompted a reassessment of the economic model that turned Germany into a global powerhouse and produced enormous wealth for decades.Nearly every country on the continent is facing potentially profound energy shortages, soaring prices and slower growth. On Thursday, the European Commission cut its growth forecast for this year to 2.7 percent. In another sign of recession anxiety, the value of the euro dipped below the dollar this week.Still, “Germany is worse off than the eurozone as a whole,” said Jacob Kirkegaard, a senior fellow at the German Marshall Fund in Brussels.The Russia-Ukraine War and the Global EconomyCard 1 of 7A far-reaching conflict. More

  • 125 Shares99 Views

    in Economy

    Democrats Face Deepening Peril as Republicans Seize on Inflation Fears

    by

    Economists warn that a blitz of midterm election campaign ads could push consumer prices even higher.WASHINGTON — Triple-digit gasoline bills. Bulging hamburger prices. A Fourth of July holiday that broke the bank.Prices are rising at the fastest rate in four decades, a painful development that has given Republicans a powerful talking point just months ahead of the midterm elections. With control of Congress very much in play, Republicans are investing heavily in a blitz of campaign advertisements that portray a dark sense of economic disarray as they seek to make inflation a political albatross for President Biden and Democrats.According to Kantar’s Campaign Media Analysis Group, candidates running in House, Senate and governor races around the country have spent nearly $22 million airing about 130,000 local and national television ads that mention inflation from early April through the beginning of July. Inflation was the 10th most common issue mentioned by Democrats and 11th most common for Republicans, according to the data, underscoring how critical the issue is to both parties this election cycle.The data released Wednesday showing that prices in June climbed 9.1 percent over the past year gave Republicans fresh ammunition against Mr. Biden and his party, ammunition that includes faulting Democrats for passing a $1.9 trillion stimulus package last year and efforts to push through additional spending in a sweeping climate and economic package known as “Build Back Better.”The intensifying focus on inflation is already weighing on Mr. Biden’s poll numbers. A New York Times/Siena College poll this week showed his approval at a meager 33 percent, with 20 percent of voters viewing jobs and the economy as the most important problem facing the country. Inflation and the cost of living followed closely behind. The poll also showed that the race for control of Congress is surprisingly tight.While gas prices have fallen from their $5 a gallon peak and there are signs that inflation might be slowing, consumers are unlikely to feel better off anytime soon. Gas prices are still much higher than they were a year ago, with the average national price for a gallon at $4.60 versus $3.15 in 2021, according to AAA.Voters view jobs and the economy as among the most important issues facing the country.Hiroko Masuike/The New York Times“It’s a very negative thing politically for the Democrats,” said Jason Furman, an economist at Harvard University and former Obama administration economic adviser. “My guess is that the negative views about inflation are so deeply baked in that nothing can change in the next few months to change them.”The White House, while acknowledging the pain that inflation is causing, has tried to deflect responsibility, saying that it is a global problem and attributing it to shortages of food and oil stemming from Russian President Vladimir V. Putin’s invasion of Ukraine.On Wednesday, Mr. Biden called the latest Consumer Price Index “out-of-date” given the recent fall in gas prices and said the data “is a reminder that all major economies are battling this Covid-related challenge, made worse by Putin’s unconscionable aggression.”8 Signs That the Economy Is Losing SteamCard 1 of 9Worrying outlook. More

  • 163 Shares199 Views

    in Economy

    Strong Wage and Jobs Growth Keeps Fed on Track for Big Rate Increase

    by

    The Federal Reserve is trying to cool down the economy to bring inflation under control, but the job market is still going strong.A surprisingly robust June employment report reinforced that America’s labor market remains historically strong even as recession warnings reach a fever pitch. But that development, while good news for the Biden administration, is likely to keep the Federal Reserve on its aggressive path of interest rate increases as it tries to cool the economy and slow inflation.Today’s world of rapid price increases is a complicated one for economic policymakers, who are worried that an overheating job market could exacerbate persistent inflation. Instead of viewing roaring demand for labor as an unmitigated good, they are hoping to engineer a gradual and controlled slowdown in hiring and wage growth, both of which remain unusually strong. Friday’s report offered early signs that the desired cooling is taking hold as both job gains and pay increases moderated slightly. But hiring and earnings remained solid enough to reinforce the view among Fed officials that the labor market, like much of the economy, is out of whack: Employers still want far more workers than are available. The new data will likely keep central bankers on track to make another supersize rate increase at their meeting later this month as they try to restrain consumer and business spending and force the economy back into balance. “We’re starting to see those first signs of slowdown, which is what we need,” Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said in a CNBC interview after the report was released. Still, he called the wage data “only slightly” reassuring and said that “we’re starting to inch in the right direction, but there’s still a lot more to do, and a lot more we’ll have to see.”Fed officials began to raise interest rates from nearly zero in March in an attempt to make borrowing of many kinds more expensive. Last month, the central bank lifted its policy rate by 0.75 percentage points, the largest single increase since 1994. Central bankers typically adjust their policy only in quarter-point increments, but they have been picking up the pace as inflation proves disturbingly rapid and stubborn. While Fed policymakers have said they will debate a move between 0.5 or 0.75 percentage points at their meeting on July 26 and 27, a chorus of officials have in recent days said they would support a second 0.75 percentage point move given the speed of inflation and strength of the job market.As the Fed tries to tap the brakes on the economy, Wall Street economists have warned that it may instead slam it into a recession — and the Biden administration has been fending off declarations that one is already arriving. A slump in overall growth data, a pullback in the housing market and a slowdown in factory orders have been fueling concern that America is on the brink of a downturn. Construction workers in New York City. Employers added 372,000 workers in June.Hiroko Masuike/The New York TimesThe employment data powerfully contradicted that narrative, because a shrinking economy typically does not add jobs, let alone at the current brisk pace. Mr. Biden celebrated the report on Friday, saying that “our critics said the economy was too weak” but that “we still added more jobs in the past three months than any administration in nearly 40 years.”Private sector voices concurred that the employment report showed an economy that did not appear to be tanking. “Wage growth remains elevated and rates of job loss are low,” Nick Bunker, economic research director at the job website Indeed, wrote in a reaction note. “We’ll see another recession some day, but today is not that day.”The State of Jobs in the United StatesJob gains continue to maintain their impressive run, easing worries of an economic slowdown but complicating efforts to fight inflation.June Jobs Report: U.S. employers added 372,000 jobs and the unemployment rate remained steady at 3.6 percent ​​in the sixth month of 2022.Care Worker Shortages: A lack of child care and elder care options is forcing some women to limit their hours or has sidelined them altogether, hurting their career prospects.Downsides of a Hot Market: Students are forgoing degrees in favor of the attractive positions offered by employers desperate to hire. That could come back to haunt them.Slowing Down: Economists and policymakers are beginning to argue that what the economy needs right now is less hiring and less wage growth. Here’s why.The contradictory moment in the economy — with prices rising fast, economic growth contracting and the unemployment rate hovering near a 50-year low — has posed a challenge for Mr. Biden, who has struggled to convey sympathy for consumers struggling with higher prices while seeking credit for the strength of the jobs recovery. Mr. Biden’s approval ratings have slumped as price growth has accelerated. Confidence has taken an especially pronounced battering in recent months amid rising gas prices, which topped $5 a gallon on average earlier this summer. On Friday, Mr. Biden emphasized that fighting inflation was his top economic priority while also praising recent job market progress. “I know times are tough,” Mr. Biden said, speaking in public remarks. “Prices are too high. Families are facing a cost-of-living crunch. But today’s economic news confirms the fact that my economic plan is moving this country in a better direction.” But unfortunately for the administration and for workers across America, tackling high prices will probably come at some cost to the labor market. As price increases bedevil consumers at the gas pump and in the grocery aisle, the Fed believes that it needs to bring inflation under control swiftly in order to set the economy on a path toward healthy and sustainable growth. The Fed’s tool to achieve that positive long-term outcome works by causing short-term economic pain. By making money expensive to borrow, the central bank can slow down home buying and business expansions, which will in turn slow hiring and wage increases. As companies and families have fewer dollars to spend, the theory goes, demand will come into better alignment with supply and prices will stop rocketing higher. Officials expect unemployment to eventually tick up as rate increases bite and the economy weakens, though they are hoping that it will only rise slightly. Fed policymakers are still hoping to engineer what they often call a “soft landing,” in which hiring and pay gains slow gradually, but without plunging the economy into a painful recession. But pulling it off will not be easy — and officials are willing to clamp down harder if that is what it takes to tame inflation. “Price stability is absolutely essential for the economy to achieve its potential and sustain maximum employment over the medium term,” John C. Williams, the president of the Federal Reserve Bank of New York, said in a speech in Puerto Rico on Friday. “I want to be clear: This is not an easy task. We must be resolute, and we cannot fall short.”Federal funds rate since January 1998

    Rate is the federal funds target rate until Dec. 15, 2008, and thereafter it is the upper limit of the federal funds target rate range.Source: The Federal ReserveBy The New York TimesStocks fell after the release of the employment numbers, likely because investors saw them as a sign that the Fed would continue constraining the economy.“The tremendous momentum in the economy to me suggests that we can move at 75 basis points at the next meeting and not see a lot of protracted damage to the broader economy,” Mr. Bostic said Friday.Fed officials are closely watching wage data in particular. Average hourly earnings climbed by 5.1 percent in the year through June, down slightly from 5.3 percent the prior month. Wages for non-managers climbed by a swift 6.4 percent from a year earlier. While that pace of increase is slowing somewhat, it is still much higher than normal — and could keep inflation elevated if it persists, as employers charge more to cover climbing labor costs.“Wages are not principally responsible for the inflation that we’re seeing, but going forward, they would be very important, particularly in the service sector,” Jerome H. Powell, the Fed chair, said at his news conference in June.“If you don’t have price stability, the economy’s really not going to work the way it’s supposed to,” he added later. “It won’t work for people — their wages will be eaten up.”Wage growth may be slowing in retail and hospitality jobs.Percent change in earnings for nonmanagers since January 2019 by sector More

  • 125 Shares199 Views

    in Economy

    Fed Moves Toward Another Big Rate Increase as Inflation Lingers

    by

    As the Federal Reserve battles rapid inflation, officials are likely to stay on an aggressive path even as signs of economic cooling emerge.WASHINGTON — The Federal Reserve, determined to choke off rapid inflation before it becomes a permanent feature of the American economy, is steering toward another three-quarter-point interest rate increase later this month even as the economy shows early signs of slowing and recession fears mount.Economic data suggest that the United States could be headed for a rough road: Consumer confidence has plummeted, the economy could post two straight quarters of negative growth, new factory orders have sagged and oil and gas commodity prices have dipped sharply lower this week as investors fear an impending downturn.But that weakening is unlikely to dissuade central bankers. Some degree of economic slowdown would be welcome news for the Fed — which is actively trying to cool the economy — and a commitment to restoring price stability could keep officials on an aggressive policy path.Inflation measures are running at or near the fastest pace in four decades, and the job market, while moderating somewhat, remains unusually strong, with 1.9 available jobs for every unemployed worker. Fed policymakers are likely to focus on those factors as they head into their July meeting, especially because their policy interest rate — which guides how expensive it is to borrow money — is still low enough that it is likely spurring economic activity rather than subtracting from it.Minutes from the Fed’s June meeting, released Wednesday, made it clear that officials are eager to move rates up to a point where they are weighing on growth as policymakers ramp up their battle against inflation.The central bank will announce its next rate decision on July 27, and several key data points are set for release between now and then, including the latest jobs numbers for June and updated Consumer Price Index inflation figures — so the size of the move is not set in stone. But assuming the economy remains strong, inflation remains high and glimmers of moderation remain far from conclusive, a big rate move may well be in store.The Fed chair, Jerome H. Powell, has said that central bankers will debate between a 0.5- or 0.75-percentage-point increase at the coming gathering, but officials have begun to line up behind the more rapid pace of action if recent economic trends hold.“If conditions were exactly the way they were today going into that meeting — if the meeting were today — I would be advocating for 75 because I haven’t seen the kind of numbers on the inflation side that I need to see,” Loretta J. Mester, the president of the Federal Reserve Bank of Cleveland, said during a television interview last week.The Fed raised interest rates by 0.75 percentage points in June, its first move of that size since 1994 and one fueled by a growing concern that fast inflation had failed to fade as expected and was at risk of becoming a more permanent feature of the economy.While the big increase came suddenly — investors did not expect such a large change until right before the meeting — policymakers have begun to signal earlier on in the decision-making process that they are in favor of going big in July.Part of the amped-up urgency may stem from a recognition that the Fed is behind the curve and trying to fight inflation when interest rates, while rising quickly, remain relatively low, economists said.If Americans come to believe that inflation will remain high year after year, they might demand bigger wage increases to cover those anticipated costs.Scott McIntyre for The New York Times“It is starting to look like 75 is the number,” said Michael Feroli, the chief U.S. economist at JPMorgan Chase. “We’d need a serious disappointment for them to downshift at this meeting.”Fed interest rates are now set to a range of 1.5 to 1.75 percent, which is much higher than their near-zero setting at the start of 2022 but still probably low enough to stoke the economy. Officials have said that they want to “expeditiously” lift rates to the point at which they begin to weigh on growth — which they estimate is a rate around 2.5 percent.The way they see it, “with inflation being this high, with the labor market being this tight, there’s no need to be adding accommodation at this point,” said Alan Detmeister, a senior economist at UBS who spent more than a decade as an economist and section chief at the Fed’s Board of Governors. “That’s why they’re moving up so aggressively.”Central bankers know a recession is a possibility as they raise interest rates quickly, though they have said one is not inevitable. But they have signaled that they are willing to inflict some economic pain if that is what is needed to wrestle inflation back down.Mr. Powell has repeatedly stressed that whether the Fed can gently slow the economy and cool inflation will hinge on factors outside of its control, like the trajectory of the war in Ukraine and global supply chain snarls.For now, Fed officials are unlikely to interpret nascent evidence of a cooling economy as a surefire sign that it is tipping into recession. The unemployment rate is hovering near the lowest level in 50 years, the economy has gained an average of nearly 500,000 jobs per month so far in 2022 and consumer spending — while cracking slightly under the weight of inflation — has been relatively strong.Meanwhile, officials have been unnerved by both the speed and the staying power of inflation. The Consumer Price Index measure picked up by 8.6 percent over the year through May, and several economists said it probably continued to accelerate on a yearly basis into the June report, which is set for release on July 13. Omair Sharif, the founder of Inflation Insights, estimated that it could come in around 8.8 percent.“You do probably get a few months of moderation after we get this June report,” he said.The Fed’s preferred inflation measure, the Personal Consumption Expenditures index, may have already peaked, economists said. But it still climbed by 6.3 percent over the year through May, more than three times the central bank’s 2 percent target. Many households are struggling to keep up with the rising cost of housing, food and transportation.While there are encouraging signs that inflation might slow soon — inventories have built up at retailers, global commodity gas prices have fallen this week and consumer demand for some goods may be beginning to slow — those indicators may do little to comfort central bankers at this stage.Inflation F.A.Q.Card 1 of 5What is inflation? More