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    Russia-Ukraine War Is Reshaping How Europe Spends

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    Romania is buying iodine pills. Ireland enacted special incentives for its farmers to till essential crops. And military spending is rising across the continent.Nicolae Ciuca spent a lifetime on the battlefield before being voted in as prime minister of Romania four months ago. Yet even he did not imagine the need to spend millions of dollars for emergency production of iodine pills to help block radiation poisoning in case of a nuclear blast, or to raise military spending by 25 percent in a single year.“We never thought we’d need to go back to the Cold War and consider potassium iodine again,” Mr. Ciuca, a retired general, said through a translator at Victoria Palace, the government’s headquarters in Bucharest. “We never expected this kind of war in the 21st century.”Across the European Union and Britain, Russia’s invasion of Ukraine is reshaping spending priorities and forcing governments to prepare for threats thought to have been long buried — from a flood of European refugees to the possible use of chemical, biological and even nuclear weapons by a Russian leader who may feel backed into a corner.The result is a sudden reshuffling of budgets as military spending, essentials like agriculture and energy, and humanitarian assistance are shoved to the front of the line, with other pressing needs like education and social services likely to be downgraded.The most significant shift is in military spending. Germany’s turnabout is the most dramatic, with Chancellor Olaf Scholz’s promise to raise spending above 2 percent of the country’s economic output, a level not reached in more than three decades. The pledge included an immediate injection of 100 billion euros — $113 billion — into the country’s notoriously threadbare armed forces. As Mr. Scholz put it in his speech last month: “We need planes that fly, ships that sail and soldiers who are optimally equipped.”The commitment is a watershed moment for a country that has sought to leave behind an aggressive military stance that contributed to two devastating world wars.“We never thought we’d need to go back to the Cold War and consider potassium iodine again,” said Nicolae Ciuca, prime minister of Romania.Cristian Movila for The New York TimesA wartime mind-set has also spread to sectors aside from defense. With prices soaring for oil, animal feed and fertilizer, Ireland introduced a “wartime tillage” program last week to amp up grain production, and created a National Fodder and Food Security Committee to manage threats to the food supply.Farmers will be paid up to €400 for every additional 100-acre block that is planted with a cereal crop like barley, oats or wheat. Planting additional protein crops like peas and beans will earn a €300 subsidy.“The illegal invasion in Ukraine has put our supply chains under enormous pressure,” Charlie McConalogue, the agriculture minister, said in announcing the $13.2 million package. Russia is the world’s largest supplier of wheat and with Ukraine accounts for nearly a quarter of total global exports.Spain has been running down its supplies of corn, sunflower oil and some other produce that also come from Russia and Ukraine. “We’ve got stock available, but we need to make purchases in third countries,” Luis Planas, the agriculture minister, told a parliamentary committee.Mr. Planas has asked the European Commission to ease some rules on Latin American farm imports, like genetically modified corn for animal feed from Argentina, to offset the lack of supply.Extraordinarily high energy prices have also put intense pressure on governments to cut excise taxes or approve subsidies to ease the burden on families that can’t afford to heat every room in their home or fill their car’s gas tank.Ireland reduced gasoline taxes, and approved an energy credit and a lump-sum payment for lower-income households. Germany announced tax breaks and a $330-per-person energy subsidy, which will end up costing the treasury $17.5 billion.Ireland introduced a “wartime tillage” program last week to increase grain production.Niall Carson – PA Images, via Getty ImagesIn Spain, the government agreed last week to defray the cost of gasoline in response to several days of strikes by truckers and fishermen, which left supermarkets without fresh supplies of some of their most basic items.And in Britain, a cut in fuel taxes and support for poorer households will cost $3.2 billion.The outlook is a change from October, when Rishi Sunak, Britain’s chancellor of the Exchequer, announced a budget for what he called an “economy fit for a new age of optimism,” with large increases in education, health and job training.In his latest update to Parliament, Mr. Sunak warned that “we should be prepared for the economy and public finances to worsen potentially significantly,” as the country faces the biggest drop in living standards it has ever seen.The energy tax relief was welcomed by the public, but the reduced revenues put even more pressure on governments that are already managing record high debt levels.“The problem is that some countries have quite a big chunk of legacy debt — in Italy and France, it’s over 100 percent of gross domestic product,” said Lucrezia Reichlin, an economics professor at the London Business School, referring to the huge amounts spent to respond to the pandemic. “That is something which is very much new for the economic governance of the union.” European Union rules, which were temporarily suspended in 2020 because of the coronavirus, limit government debt to 60 percent of a country’s economic output.And the demands on budgets are only increasing. European Union leaders said this month that the bill for new defense and energy spending could run as high as $2.2 trillion.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Is America’s Economy Entering a New Normal?

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    Policymakers are wrestling with the reality that the pandemic may mark a turning point in the nation’s economic plot.The pandemic, and now the war in Ukraine, have altered how America’s economy functions. While economists have spent months waiting for conditions to return to normal, they are beginning to wonder what “normal” will mean.Some of the changes are noticeable in everyday life: Work from home is more popular, burrito bowls and road trips cost more, and buying a car or a couch made overseas is harder.But those are all symptoms of broader changes sweeping the economy — ones that could be a big deal for consumers, businesses and policymakers alike if they linger. Consumer demand has been hot for months now, workers are desperately wanted, wages are climbing at a rapid clip, and prices are rising at the fastest pace in four decades as vigorous buying clashes with roiled supply chains. Interest rates are expected to rise higher than they ever did in the 2010s as the Federal Reserve tries to rein in inflation.History is full of big moments that have changed America’s economic trajectory: The Great Depression of the 1930s, the Great Inflation of the 1970s and the Great Recession of 2008 are examples. It’s too early to know for sure, but the changes happening today could prove to be the next one.Economists have spent the past two years expecting many of the pandemic-era trends to prove temporary, but that has not yet been the case.Forecasters predicted that rapid inflation would fade in 2021, only to have those expectations foiled as it accelerated instead. They thought workers would jump back into the labor market as schools reopened from pandemic shutdowns, but many remain on its sidelines. And they thought consumer spending would taper off as government pandemic relief checks faded into the rearview mirror. Shoppers have kept at it.Now, Russia’s invasion of Ukraine threatens the global geopolitical order, yet another shock disrupting trade and the economic system.For Washington policymakers, Wall Street investors and academic economists, the surprises have added up to an economic mystery with potentially far-reaching consequences. The economy had spent decades churning out slow and steady growth clouded by weak demand, interest rates that were chronically flirting with rock bottom and tepid inflation. Some are wondering if, after repeated shocks, that paradigm could change.“For the last quarter century, we’ve had a perfect storm of disinflationary forces,” Jerome H. Powell, the Fed chair, said in response to a question during a public appearance this week, noting that the old regime had been disrupted by a pandemic, a large spending and monetary policy response and a war that was generating “untold” economic uncertainty. “As we come out the other side of that, the question is: What will be the nature of that economy?” he said.The Fed began to raise interest rates this month in a bid to cool the economy down and temper high inflation, and Mr. Powell made clear this week that the central bank planned to keep lifting them — perhaps aggressively. After a year of unpleasant price surprises, he said, the Fed will set policy based on what is happening, not on an expected return to the old reality.“No one is sitting around the Fed, or anywhere else that I know of, just waiting for the old regime to come back,” Mr. Powell said.The prepandemic normal was one of chronically weak demand. The economy today faces the opposite issue: Demand has been supercharged, and the question is whether and when it will moderate.Before, globalization had weighed down both pay and price increases, because production could be moved overseas if it grew expensive. Gaping inequality and an aging population both contributed to a buildup of savings stockpiles, and as money was held in safe assets rather than being put to more active use, it seemed to depress growth, inflation and interest rates across many advanced economies.Japan had been stuck in the weak-inflation, slow-growth regime for decades, and the trend seemed to be spreading to Europe and the United States by the 2010s. Economists expected those trends to continue as populations aged and inequality persisted.Then came the coronavirus. Governments around the world spent huge amounts of money to get workers and businesses through lockdowns — the United States spent about $5 trillion.The era of deficient demand abruptly ended, at least temporarily. The money, which is still chugging out into the U.S. economy from consumer savings accounts and state and local coffers, helped to fuel strong buying, as families snapped up goods like lawn mowers and refrigerators. Global supply chains could not keep up.The combination pushed costs higher. As businesses discovered that they were able to raise prices without losing customers, they did so. And as workers saw their grocery and Seamless bills swelling, airfares climbing and kitchen renovations costing more, they began to ask their employers for more money.Companies were rehiring as the economy reopened from the pandemic and to meet the burst in consumption, so labor was in high demand. Workers began to win the raises they wanted, or to leave for new jobs and higher pay. Some businesses began to pass rising labor costs along to customers in the form of higher prices.The world of slow growth, moderate wage gains and low prices evaporated — at least temporarily. The question now is whether things will settle back down to their prepandemic pattern.The argument for a return to prepandemic norms is straightforward: Supply chains will eventually catch up. Shoppers have a lot of money in savings accounts, but those stockpiles will eventually run out, and higher Fed interest rates will further slow spending.As demand moderates, the logic goes, forces like population aging and rampant inequality will plunge advanced economies back into what many economists call “secular stagnation,” a term coined to describe the economic malaise of the 1930s and revived by the Harvard economist Lawrence H. Summers in the 2010s.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Ukraine War and Pandemic Force Nations to Retreat From Globalization

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    WASHINGTON — When the Cold War ended, governments and companies believed that stronger global economic ties would lead to greater stability. But the Ukraine war and the pandemic are pushing the world in the opposite direction and upending those ideas.Important parts of the integrated economy are unwinding. American and European officials are now using sanctions to sever major parts of the Russian economy — the 11th largest in the world — from global commerce, and hundreds of Western companies have halted operations in Russia on their own. Amid the pandemic, companies are reorganizing how they obtain their goods because of soaring costs and unpredictable delays in global supply chains.Western officials and executives are also rethinking how they do business with China, the world’s second-largest economy, as geopolitical tensions and the Chinese Communist Party’s human rights abuses and use of advanced technology to reinforce autocratic control make corporate dealings more fraught.The moves reverse core tenets of post-Cold War economic and foreign policies forged by the United States and its allies that were even adopted by rivals like Russia and China.“What we’re headed toward is a more divided world economically that will mirror what is clearly a more divided world politically,” said Edward Alden, a senior fellow at the Council on Foreign Relations. “I don’t think economic integration survives a period of political disintegration.”“Does globalization and economic interdependence reduce conflict?” he added. “I think the answer is yes, until it doesn’t.”Opposition to globalization gained momentum with the Trump administration’s trade policies and “America First” drive, and as the progressive left became more powerful. But the pandemic and President Vladimir V. Putin’s invasion of Ukraine have brought into sharp relief the uncertainty of the existing economic order.President Biden warned President Xi Jinping of China on Friday that there would be “consequences” if Beijing gave material aid to Russia for the war in Ukraine, an implicit threat of sanctions. China has criticized sanctions on Russia, and Le Yucheng, the vice foreign minister, said in a speech on Saturday that “globalization should not be weaponized.” Yet China increasingly has imposed economic punishments — Lithuania, Norway, Australia, Japan and South Korea have been among the targets.The result of all the disruptions may well be a fracturing of the world into economic blocs, as countries and companies gravitate to ideological corners with distinct markets and pools of labor, as they did in much of the 20th century.Mr. Biden already frames his foreign policy in ideological terms, as a mission of unifying democracies against autocracies. Mr. Biden also says he is enacting a foreign policy for middle-class Americans, and central to that is getting companies to move critical supply chains and manufacturing out of China.The goal is given urgency by the hobbling of those global links over two years of the pandemic, which has brought about a realization among the world’s most powerful companies that they need to focus on not just efficiency and cost, but also resiliency. This month, lockdowns China imposed to contain Covid-19 outbreaks have once again threatened to stall global supply chains.The Chinese city of Shenzhen was shut down due to Covid concerns last week, threatening the global supply chain.Kin Cheung/Associated PressThe economic impact of such a change is highly uncertain. The emergence of new economic blocs could accelerate a massive reorganization in financial flows and supply chains, potentially slowing growth, leading to some shortages and raising prices for consumers in the short term. But the longer-term effects on global growth, worker wages and supplies of goods are harder to assess.The war has set in motion “deglobalization forces that could have profound and unpredictable effects,” said Laurence Boone, the chief economist of the Organization for Economic Cooperation and Development.For decades, executives have pushed for globalization to expand their markets and to exploit cheap labor and lax environmental standards. China especially has benefited from this, while Russia profits from its exports of minerals and energy. They tap into enormous economies: The Group of 7 industrialized nations make up more than 50 percent of the global economy, while China and Russia together account for about 20 percent.Trade and business ties between the United States and China are still robust, despite steadily worsening relations. But with the new Western sanctions on Russia, many nations that are not staunch partners of America are now more aware of the perils of being economically tied to the United States and its allies.If Mr. Xi and Mr. Putin organize their own economic coalition, they could bring in other nations seeking to shield themselves from Western sanctions — a tool that all recent U.S. presidents have used.“Your interdependence can be weaponized against you,” said Dani Rodrik, a professor of international political economy at Harvard Kennedy School. “That’s a lesson that I imagine many countries are beginning to internalize.”The Ukraine war, he added, has “probably put a nail in the coffin of hyperglobalization.”China and, increasingly, Russia have taken steps to wall off their societies, including erecting strict censorship mechanisms on their internet networks, which have cut off their citizens from foreign perspectives and some commerce. China is on a drive to make critical industries self-sufficient, including for technologies like semiconductors.And China has been in talks with Saudi Arabia to pay for some oil purchases in China’s currency, the renminbi, The Wall Street Journal reported; Russia was in similar discussions with India. The efforts show a desire by those governments to move away from dollar-based transactions, a foundation of American global economic power.For decades, prominent U.S. officials and strategists asserted that a globalized economy was a pillar of what they call the rules-based international order, and that trade and financial ties would prevent major powers from going to war. The United States helped usher China into the World Trade Organization in 2001 in a bid to bring its economic behavior — and, some officials hoped, its political system — more in line with the West. Russia joined the organization in 2012.But Mr. Putin’s war and China’s recent aggressive actions in Asia have challenged those notions.“The whole idea of the liberal international order was that economic interdependence would prevent conflict of this kind,” said Alina Polyakova, president of the Center for European Policy Analysis, a research group in Washington. “If you tie yourselves to each other, which was the European model after the Second World War, the disincentives would be so painful if you went to war that no one in their right mind would do it. Well, we’ve seen now that has proven to be false.”“Putin’s actions have shown us that might have been the world we’ve been living in, but that’s not the world he or China have been living in,” she said.The United States and its partners have blocked Russia from much of the international financial system by banning transactions with the Russian central bank. They have also cut Russia off from the global bank messaging system called SWIFT, frozen the assets of Russian leaders and oligarchs, and banned the export from the United States and other nations of advanced technology to Russia. Russia has answered with its own export bans on food, cars and timber.The penalties can lead to odd decouplings: British and European sanctions on Roman Abramovich, the Russian oligarch who owns the Chelsea soccer team in Britain, prevent the club from selling tickets or merchandise.Ticket sales for Chelsea Football Club games were stopped after Britain and the European Union imposed sanctions on the club’s owner, Roman Abramovich, a Putin ally. Andy Rain/EPA, via ShutterstockAbout 400 companies have chosen to suspend or withdraw operations from Russia, including iconic brands of global consumerism such as Apple, Ikea and Rolex.Russia-Ukraine War: Key DevelopmentsCard 1 of 4Russia’s shrinking force. More

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    Will War Make Europe’s Switch to Clean Energy Even Harder?

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    At the Siemens Gamesa factory in Aalborg, Denmark, where the next generation of offshore wind turbines is being built, workers are on their hands and knees inside a shallow, canoe-shaped pod that stretches the length of a football field. It is a mold used to produce one half of a single propeller blade. Guided by laser markings, the crew is lining the sides with panels of balsa wood.The gargantuan blades offer a glimpse of the energy future that Europe is racing toward with sudden urgency. The invasion of Ukraine by Russia — the European Union’s largest supplier of natural gas and oil — has spurred governments to accelerate plans to reduce their dependence on climate-changing fossil fuels. Armed conflict has prompted policymaking pledges that the more distant threat of an uninhabitable planet has not.Smoothly managing Europe’s energy switch was always going to be difficult. Now, as economies stagger back from the second year of the pandemic, Russia’s attack on Ukraine grinds on and energy prices soar, the painful trade-offs have crystallized like never before.Moving investments away from oil, gas and coal to sustainable sources like wind and solar, limiting and taxing carbon emissions, and building a new energy infrastructure to transmit electricity are crucial to weaning Europe off fossil fuels. But they are all likely to raise costs during the transition, an extremely difficult pill for the public and politicians to swallow.The crisis that has inspired Europe to more quickly reach toward clean energy sources like wind and solar also risks pitching it backward by unwinding efforts to shut coal mines and stop drilling new oil and gas wells to replace Russian fuel and bring prices down.Workers at Siemens Gamesa preparing a mold used to produce one half of a single propeller blade.Carsten Snejbjerg for The New York TimesIn Germany, Europe’s largest economy, leaders are planning to have several coal-fired power plants that were recently taken off the grid placed in reserve, so that they could be quickly fired up if needed. After years of dithering about investing so much in the natural gas infrastructure, Germany is also accelerating plans to build its own terminals for receiving liquefied natural gas, another fossil fuel.“Security of our energy supply stands above everything else at the moment,” said Robert Habeck, the country’s economy minister and a Green party leader in the coalition government.Local officials are taking similar steps. Last week, the Munich government decided to extend the life of one of the city’s coal-fired power plants, scrapping plans to convert it to burn natural gas in spring 2023.And that’s in a country that has helped spearhead Europe’s efforts to shift to renewable energy.In Poland, which gets 70 percent of its energy from coal and has been at loggerheads with the European Union over the climate agenda, the sudden energy shortage is being used by critics as evidence that the push to shut mines was a mistake.A power plant in Poland run by CEZ Group, a Czech conglomerate of companies in the energy sector.Maciek Nabrdalik for The New York TimesDominik Kolorz, head of the Silesian region of Solidarity Trade Union, said through a translator that “the so-called E.U. climate policy” was leading to a “huge economic crisis” and “total energy dependence on the Russian Federation.”In many ways, Europe has been a leading laboratory for the decades-long transition. It started establishing taxes on carbon emissions more than 20 years ago. The European Union pioneered an emissions trading system, which capped the amount of greenhouse gases companies produced and created a marketplace where licenses for those emissions could be bought and sold. Polluting industries like steel were gradually pushed to clean up. Last year, members proposed a carbon tax on imports from carbon-producing sectors like steel and cement.And it has led the way in generating wind power, especially from ocean-based turbines. Siemens Gamesa Renewable Energy, for example, has been instrumental in planting rows of colossal whirligigs at sea that can generate enough green energy to light up cities.Europe, too, is on the verge of investing billions in hydrogen, potentially the multipurpose clean fuel of the future, which might be generated by wind turbines.At Siemens Gamesa in Brande, a prototype for an even larger wind turbine.Carsten Snejbjerg for The New York TimesWind turbines can potentially generate enough green energy to light up cities.Carsten Snejbjerg for The New York TimesSuch exhilarating innovation, though, sits next to despair-inducing obstacles.Even before the invasion of Ukraine, a tight natural gas market, exacerbated by Russia’s restraining of supplies, had pushed gas and electricity prices to record levels, leading to shutdowns of fertilizer plants and other factories because of high costs. Household energy bills are set to rise by about 50 percent in Britain and drivers across Europe faced shock at the pump.European countries, most notably Germany, had mapped out strategies that relied on increasing dependence on Russian gas and oil in the medium term. That is no longer an option.After the invasion, Olaf Scholz, the chancellor of Germany, halted approval of Nord Stream 2, an $11 billion gas pipeline under the Baltic Sea that directly links Russia to northeastern Germany.As Ursula von der Leyen, the European Commission president, said when she announced a plan on March 8 to make Europe independent of Russian fossil fuels: “We simply cannot rely on a supplier who explicitly threatens us.” The proposal calls for member nations to reduce Russian natural gas imports by two-thirds by next winter and to end them altogether by 2027 — a very tall order.This week, European Union leaders are again meeting to discuss the next phase of proposals, but deep divisions remain over how to manage the current price increases amid anxieties that Europe could face a double whammy of inflation and recession.On Monday, United Nations Secretary General António Guterres warned that intense focus on quickly replacing Russian oil could mean that major economies “neglect or kneecap policies to cut fossil fuel use.”A hydrogen test station near the Siemens Gamesa design center. Hydrogen produced with wind power could be a multipurpose clean fuel of the future.Carsten Snejbjerg for The New York TimesThere are other technological, financial, regulatory and political hurdles. The ability to cheaply generate, transport and store a clean replacement fuel like hydrogen to power trucks, cars and airplanes remains years away.And there is the need to find a better business model.Siemens Gamesa is the world’s leading maker of offshore wind turbines, a key vehicle for achieving climate targets. The company is also working on a giant turbine that would be dedicated solely to producing green hydrogen.Yet, at the company’s offshore design center in Brande, a two-hour drive from Aalborg, the conversations focus on worries as much as bright prospects. The company just replaced its chief executive because of poor financial performance.Industry executives say that despite the huge climate ambitions of many countries, Siemens Gamesa and its competitors are struggling to make a profit and keep the orders coming in fast enough to finance their factories. It doesn’t help that building plants is often a condition for breaking into new markets like the United States, where Siemens Gamesa agreed to erect a facility in Virginia.Morten Pilgaard Rasmussen of Siemens Gamesa says companies like his struggle to get projects approved swiftly.Carsten Snejbjerg for The New York TimesMorten Pilgaard Rasmussen, chief technology officer of the offshore wind unit at Siemens Gamesa, said that companies like his “are now forced to do investments based on the prosperous future that we are all waiting for.”The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Powell Says Fed Could Raise Rates More Quickly to Tame Inflation

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    Jerome H. Powell, the Federal Reserve chair, said on Monday that the central bank was prepared to more quickly withdraw support from the economy if doing so proved necessary to bring rapid inflation under control.Mr. Powell signaled that the Fed could make big interest rate increases and push rates to relatively high levels in its quest to cool off demand and temper inflation, which is running at its fastest pace in 40 years. His comments were the clearest statement yet that the central bank was ready to forcefully attack rapid price increases to make sure that they do not become a permanent feature of the American economy.“There is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level, and then to move to more restrictive levels if that is what is required to restore price stability,” Mr. Powell said during remarks to a conference of business economists.Policymakers raised interest rates by a quarter point last week and forecast six more similarly sized increases this year. On Monday, Mr. Powell foreshadowed a potentially more aggressive path. A restrictive rate setting would squeeze the economy, slowing consumer spending and the labor market — a move akin to the Fed’s hitting the brakes rather than just taking its foot off the accelerator.“If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so,” Mr. Powell said. “And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”Asked what would keep the Fed from raising interest rates by half a percentage point at its next meeting in May, Mr. Powell replied, “Nothing.” He said the Fed had not yet made a decision on its next rate increase but noted that officials would make a supersized move if they thought one was appropriate.“The expectation going into this year was that we would basically see inflation peaking in the first quarter, then maybe leveling out,” Mr. Powell said. “That story has already fallen apart. To the extent that it continues to fall apart, my colleagues and I may well reach the conclusion that we’ll need to move more quickly.”Stocks fell in response to Mr. Powell’s comments and were down 0.6 percent by the time he finished speaking in the early afternoon; the S&P 500 index closed the day down 0.4 percent. Higher interest rates can push down stock prices as they pull money away from riskier assets — like shares in companies — and toward safer havens, like bonds, and as they make money more expensive to borrow for businesses. The yield on the benchmark 10-year Treasury note rose as high as 2.3 percent as Mr. Powell was speaking, and the yield on two-year Treasurys rose above 2 percent for the first time since 2019.Rising rates can especially hurt share prices if they tank economic growth or cause the economy to contract.While the Fed has often caused recessions by raising interest rates in a bid to slow down demand and cool off price increases, Mr. Powell voiced optimism that the central bank could avoid such an outcome this time, in part because the economy is starting from a strong place. Even so, he acknowledged that guiding inflation down without severely hurting the economy would be a challenge.“No one expects that bringing about a soft landing will be straightforward in the current context,” Mr. Powell said.But getting price gains under control is the Fed’s priority, and while the central bank had been hoping for inflation to fade as pandemic disruptions abate, Mr. Powell was adamant that it could no longer watch and wait for that to happen.In addition to raising rates, the Fed plans to reduce its large bond holdings by allowing securities to expire, which would push up longer-term borrowing costs, including mortgage rates, helping to take steam out of the economy. Mr. Powell emphasized that the balance sheet shrinking could begin imminently.Action on the balance sheet “could come as soon as our next meeting in May, though that is not a decision that we have made,” Mr. Powell said.The Fed is preparing to pull back support even as Russia’s invasion of Ukraine stokes economic uncertainty. The conflict has pushed energy prices higher, something that the Fed would typically discount, since it is likely to fade eventually. But Mr. Powell said it could not ignore the increase when inflation was already high.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Russia’s Central Bank Projects Economic Decline 

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    Russia’s central bank governor, Elvira Nabiullina, said on Friday that the country’s economy would decline in the coming quarters and that inflation would jump further as sanctions imposed after the invasion of Ukraine took their toll. Earlier, the bank’s board of directors held interest rates at 20 percent.The bank said the doubling in interest rates on Feb. 28, from 9.5 percent, and capital controls curbing the movement of money had helped sustain financial stability in Russia and stop uncontrolled price increases. But the latest inflation data shows that, as of March 11, prices in Russia had risen 12.5 percent from a year earlier.Russia’s war against Ukraine has led to strict economic sanctions by the United States and Europe, encouraged a large number of Western companies and banks to retreat from the country, and isolated Russia from much of the global financial system.“The Russian economy is entering the phase of a large-scale structural transformation, which will be accompanied by a temporary but inevitable period of increased inflation,” the Russian central bank said in a statement Friday.Gross domestic product “will decline in the next quarters,” Ms. Nabiullina said later. Two consecutive quarters of economic decline are generally considered to be a recession.The effects of the sanctions are being keenly felt in Russia.“Today, almost all companies are experiencing disruptions in production and logistical chains and in their settlements with foreign counterparties,” Ms. Nabiullina said. Inflation was driven higher, she said, by a rise in demand for cars, household appliances, electronic devices and other goods as people rushed to buy because they feared prices would rise higher and supplies would run out. The ruble has lost about 30 percent of its value against the U.S. dollar this year.President Vladimir V. Putin put Ms. Nabiullina forward for another term as central bank governor on Friday. She has held the position since 2013. Ms. Nabiullina also said on Friday that stock trading on the Moscow Exchange would remain closed but that government bond trading will restart on Monday. Stocks haven’t been traded on the exchange since Feb. 25. More

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    The Bank of England raises rates again in a bid to corral inflation.

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    The Bank of England raised interest rates to their prepandemic level on Thursday in an effort to combat rapidly accelerating inflation that has been worsened by the war in Ukraine.The central bank raised rates by 25 basis points to 0.75 percent, the third consecutive increase at a policy meeting, as it lifted its forecasts for inflation. But the decision wasn’t unanimous as policymakers weighed the gloomier outlook for the British economy.While the war has led to higher energy and commodity prices, pushing up the expected peak in inflation, it is also predicted to cut economic growth in Europe, including Britain. This creates a challenge for the bank. Its goal is to bring inflation back down to its 2 percent target, but policymakers will want to avoid cooling the economy too aggressively and knocking the postpandemic recovery off course.“The global economy outlook had deteriorated significantly following Russia’s invasion of Ukraine in late February, and the associated material increase in the prices of energy and raw material,” the bank said in a statement.On Wednesday, the Federal Reserve raised U.S. interest rates for the first time since 2018 and projected six more increases this year as inflation soars. Last week, the European Central Bank moved closer to raising its benchmark interest rate when it proposed an end date for its bond-buying program.“The economy has recently been subject to a succession of very large shocks,” the Bank of England said on Thursday. “Russia’s invasion of Ukraine is another such shock.” If energy and commodity prices stay high it will weigh on Britain’s economy. “This is something monetary policy is unable to prevent,” the bank added.The bank’s remit is to target an inflation rate of 2 percent, and another interest rate increase was needed to stop higher trends in pay and consumer prices from becoming entrenched, it said. The annual rate of inflation rose to 5.5 percent in January and is projected to rise to about 8 percent in the second quarter, the bank said. The bank had previously expected inflation to peak in April when energy bills rise, but it now says inflation could be even higher later this year, possibly several percentage points higher. Even as inflation gets further away from target, the future pace of interest rate increases is less clear. The central bank reiterated that “some further modest tightening” in monetary policy might be appropriate but added a caveat on Thursday, saying there are risks to this judgment depending on path of inflation.Before the war, there were already concerns in Britain about a cost-of-living crisis. Inflation was outpacing wage growth, energy bills were set to jump higher and tax increases are scheduled for next month. The government is under increasing pressure to reconsider its plans to raise taxes when it announces an update to the budget next week.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Refugee Crisis Will Test a European Economy Under Pressure

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    Nearly everyone who crossed the Danube on the open-air ferry from Ukraine and landed in the frostbitten Romanian port city of Isaccea on a recent morning had a roller bag and a stopgap plan. One woman planned to join her husband in Istanbul. Another was headed to Munich, where her company has its headquarters. Others were meeting brothers, cousins, in-laws and friends in Paris or Sofia, Madrid or Amsterdam.And then, they hoped to go back to Ukraine.“I need to return,” said Lisa Slavachevskaya, who traveled with her 10-year-old son and 5-year-old daughter from Odessa. “My husband, my mother and my grandmother are there.” She said she planned to go home in a month.Whether such quick turnabouts are possible is one of the many uncertainties hanging over Europe’s fastest-growing refugee crisis since World War II. No matter how the catastrophe in Ukraine ends, the costs of helping the millions of Ukrainians fleeing Russian bombs will be staggering. Some early estimates put the bill for housing, transporting, feeding and processing the flood of humanity at $30 billion in the first year alone.“This is a humanitarian and medical emergency in the next weeks,” said Giovanni Peri, director of the Global Migration Center at the University of California, Davis.Tania Uzunova with her three children on a ferry headed to Isaccea in Romania.What happens over the next few months will determine if Europe will face the additional costs of a massive resettlement that has the potential to reshape the economic landscape.European economies are still recovering from the pandemic and coping with stubborn supply chain shortages and high inflation. As costly as it will be to provide short-term relief to families temporarily displaced by the war, over the long term the expense of integrating millions of people would be much greater and put immense strain on housing, education and health care systems. While a giant influx of workers, particularly skilled ones, is likely to increase a nation’s output over time, it could intensify competition in the job market. Roughly 13 million people were unemployed in the European Union in January.“It is uncertainty that now dominates the economic calculation,” Mr. Peri said.More than three million refugees fled Ukraine in less than three weeks, according to the U.N. International Organization for Migration, and millions more are likely to follow as the war rages on.Officials, migration experts and economists say it is too early to say whether most displaced Ukrainians will end up staying.That is a stark contrast to 2015, when 1.3 million migrants from the Middle East and North Africa escaped to Europe after years of war and terror, seeking asylum because they feared persecution. Return was not an option.So far, officials say, relatively few have asked for such protection. Of the 431,000 Ukrainians who have crossed into Romania, for example, only 3,800 have asked for asylum. Indeed, many winced at the “refugee” label.Of the 431,000 Ukrainians who have crossed into Romania, only 3,800 have asked for asylum, according to a government spokesman.“I don’t consider myself a refugee,” Evgeniy Serheev, a lawyer, said through a translator as he waited to cross into the northeastern Romanian town of Siret. But with his wife, three children and their bags crammed into one of hundreds of cars inching toward the border, he acknowledged that he looked the part.The urgent humanitarian and moral case is compelling on its face; the economic argument can be harder to make. Most research, though, over the long term shows that working refugees can help economies grow, expanding a nation’s productive capacity, paying taxes and generating more business for grocery stores, hair salons, and clothing and electronics stores. That was what happened in Germany after 2015 when it took in more than a million refugees, most of them from Syria.“Economically speaking it was a net positive,” said Ángel Talavera, head of European economics at Oxford Economics.But countries face significant initial costs.The European Union last week pledged 500 million euros, or $550 million, in humanitarian support, but it will have to put up more. “European governments are going to blow the budget,” said Claus Vistesen, chief eurozone economist for Pantheon Macroeconomics. This latest drain comes on top of an extraordinary amount of public spending over the last two years to battle the coronavirus pandemic.The sudden need for more housing, fuel, food, health care services and more is going to further exacerbate supply shortages. “Inflation is going to go up, up, up,” Mr. Vistesen said.Igor Korolev with his family and their cat, Murka, inside a makeshift shelter in the ballroom of a hotel in Romania.The Ukranians were welcomed by Romania with food and shelter.Cristian Movila for The New York TimesMost Ukrainians have been met with care packages and offers of free shelter in Romania.In the eurozone, inflation is running at 5.8 percent, and Mr. Vistesen said he expected it to rise to 7 percent this year given soaring energy prices. Those are up by nearly a third since last year. For the European Central Bank, he added, it will make the delicate task of balancing the risk of inflation with the risk of recession all the more difficult.For those living and working in Europe, it will mean less spending power in the short run. If wages don’t rise, they will be poorer.For now, Ukrainians, with strong kinship, cultural and religious ties in other European countries, have mostly been met with care packages and offers of free shelter, transportation and food.At the border in Siret, volunteers rushed up to Ukrainian families trudging up the road with offers of cups of hot tea and €5 cellphone SIM cards. Organizations, businesses and individuals jockeyed for a spot closest to the checkpoint to be the first to give chicken soup, kebabs, blankets, toothbrushes, stuffed animals and hats.The government in Bucharest has so far allocated $49 million to cover the costs. The prime minister, Nicolae Ciuca, said he expected the European Union to reimburse a big chunk of that.The E.U. has granted Ukrainians immediate permission to stay for up to three years, get a job and go to school — access that migrants from other parts of the globe could only dream of. And some countries, including Romania and Poland, have agreed to allow refugees to receive the same social and health services available to their own citizens.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More