Federal Reserve System
More stories
- in Economy
How to Read the Fed’s Projections Like a Pro
Federal Reserve officials released both an interest-rate decision and a fresh set of economic projections on Wednesday, estimates that Wall Street was keenly awaiting as it tries to understand what the next phase of the central bank’s fight against rapid inflation will look like.Officials raised borrowing costs by three-quarters of a percentage point, their third-straight jumbo increase, taking their official interest rate to a range of 3 to 3.25 percent. But they also penciled in additional increases for the rest of this year and next, projecting that rates would reach 4.4 percent by the end of the year and climb to 4.6 percent by the end of 2023.Here’s how to read the numbers released on Wednesday.The dot plot, decodedWhen the central bank releases its Summary of Economic Projections each quarter, Fed watchers focus obsessively on one part in particular: the so-called dot plot.The dot plot shows the Fed’s 19 policymakers’ estimates for interest rates at the end of 2022, along with the next several years and over the longer run. The forecasts are represented by dots arranged along a vertical scale.What Federal Reserve officials think rates should be in the next two years. More
- in Economy
How the Car Market Is Shedding Light on a Key Inflation Question
How easily companies give up swollen profits could determine how easily the Federal Reserve can cool inflation. Dealerships offer clues.In a recent speech pointedly titled “Bringing Inflation Down,” Lael Brainard, the Federal Reserve’s vice chair, zoomed in on the automobile market as a real-world example of a major uncertainty looming over the outlook for price increases: What will happen next with corporate profits.Many companies have been able to raise prices beyond their own increasing costs over the past two years, swelling their profitability but also exacerbating inflation. That is especially true in the car market. While dealerships are paying manufacturers more for inventory, they have been charging customers even higher prices, sending their profits toward record highs.Dealers could pull that off because demand has been strong and, amid disruptions in the supply of parts, there are too few trucks and sedans to go around. But — in line with its desire for the economy as a whole — the Fed is hoping both sides of that equation could be on the cusp of changing.“With production now increasing, and interest-sensitive demand cooling, there may soon be pressures to reduce vehicle margins and prices in order to move the higher volume of cars being produced off dealer lots,” Ms. Brainard explained during her remarks.The Fed has been raising interest rates to make borrowing for big purchases — cars, houses, business expansions — more expensive. The goal is to cool demand and slow the fastest inflation in four decades. Whether it can pull that off without inflicting serious pain on the economy will hinge partly on how easily companies surrender their hefty profits.If companies begin to lower prices to compete for customers as demand abates, price increases might slow without costing a lot of jobs. But if they try to hold on to big profits, the transition could be bumpier as the Fed is forced to squeeze the economy more drastically and quash demand more severely.“There has been a giant shift in bargaining power between consumers and corporations,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities. “That’s where the next adjustment has to come — corporations have to see some pain.”The example of the auto industry offers reasons for hope but also caution. While there are signs that price increases for used cars are beginning to moderate as supply recovers, that process has been halting, and the new-car market illustrates why the path toward lower profits that help slow inflation could be a long one.That’s because three big forces that are playing out across the broader economy are on particularly clear display in the car market. Supply chains have not completely healed. Demand may be slowing down, but it still has momentum. And companies that have grown used to charging high prices and raking in big profits are proving hesitant to give up.The auto market split into two segments that are now diverging — new cars and used cars.New-car production was upended as the pandemic shut down factories making semiconductors and other parts, and it is only limping back. Freshly minted vehicles remain extraordinarily scarce, according to dealers and data, and several industry experts said they didn’t see a return to normal levels of output for years as supply problems continue. Prices are still increasing swiftly, and dealer profits remain sharply elevated with little sign of cracking.Inflation F.A.Q.Card 1 of 5What is inflation? More
- in Economy
What Comes Next in the Fed’s Fight Against Inflation?
Wall Street will watch the central bank’s economic forecasts closely on Wednesday, when another jumbo-size rate increase is expected.The Federal Reserve is expected to deliver a third straight supersize interest rate increase this week as it wages its most aggressive fight against inflation since the 1980s — and it could signal even more to come.Central bankers are widely expected to raise interest rates three-quarters of a percentage point at their meeting on Wednesday, and investors think there is even a small chance of a full percentage-point move.But Wall Street is more focused on what comes next. Officials will release updated economic forecasts for the first time since June after their two-day meeting this week. Those are expected to show a more forceful path ahead for rates than Fed officials previously anticipated as rapid inflation continues to plague America. The question is just how much more assertive the Fed will be.Central bankers have already raised interest rates considerably in an attempt to slow the economy and temper price increases. Business activity is slowing in response, but it is not falling off a cliff: Employers continue to hire, wages are rising, and inflation has remained stubbornly quick.That has prompted officials to reinforce in speeches that they are serious about getting price increases under control, even if doing so comes at a cost to growth and the labor market. It’s an inflation-focused tone that many on Wall Street refer to as “hawkish.”The economic projections could give policymakers the chance to underline that commitment.“Things are not quite evolving as they had expected — they’re having trouble slowing the economy,” said Gennadiy Goldberg, a U.S. rates strategist at TD Securities. “At the end of the day, there is very little they can do this week but sound hawkish.”Jerome H. Powell, the Fed chair, will hold a news conference after the release, and is likely to echo his pledge late last month to do what it takes to wrestle prices lower.That could be a painful process, Mr. Powell has acknowledged. Higher interest rates temper inflation by making it more expensive to borrow money, discouraging both consumption and business expansions. That weighs on wage growth and can even push unemployment higher. Firms cannot charge as much in a slowing economy, and inflation cools down.“While higher interest rates, slower growth and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Mr. Powell said last month. He later added, “We will keep at it until we are confident the job is done.”If the Fed continues raising rates along the trajectory that economists and investors increasingly expect, the fallout could be painful. In the early 1980s, the last time inflation was as high as it is today, the central bank under Paul A. Volcker jerked borrowing costs sharply higher and mired the economy in a recession that sent joblessness to double-digit levels. Homebuilders mailed Mr. Volcker two-by-fours from buildings they could not build; car dealers sent keys from cars they could not sell.Inflation F.A.Q.Card 1 of 5What is inflation? More
- in Economy
New Inflation Developments Are Rattling Markets and Economists. Here’s Why.
Inflation is less about pandemic and war surprises and more about economic momentum. That could make the solution more painful.When inflation began to accelerate in 2021, price pressures were clearly tied to the pandemic: Companies couldn’t produce cars, couches and computer games fast enough to keep up with demand from homebound consumers amid supply chain disruptions.This year, Russia’s war in Ukraine sent fuel and food prices rocketing, exacerbating price pressures.But now, as those sources of inflation show early signs of fading, the question is how much overall price increases will abate. And the answer is likely to be driven in part by what happens in one crucial area: the labor market.Federal Reserve officials are laser-focused on job gains and wage growth as they quickly raise interest rates to constrain the economy and slow rapid price increases. Officials are convinced that they must sap the economy of some of its momentum to wrestle the worst inflation in four decades back down to their goal of 2 percent.The way they do that is by slowing spending, hiring and wage gains — and they do that by raising the costs of borrowing. So far, a pronounced cool-down is proving elusive, suggesting to economists and investors that the central bank may need to be even more aggressive in its efforts to temper growth and bring inflation back down.As data this week showed, prices continue to soar. And, while the job market has moderated somewhat, employers are still hiring at a solid clip and raising wages at the fastest pace in decades. That continued progress seems to be allowing consumers to keep spending, and it may give employers both the power and the motivation to increase their prices to cover their climbing labor costs.As inflationary forces chug along, economists said, the risk is rising that the Fed will clamp down on the economy so hard that America will be in for a rough landing — potentially one in which growth slumps and unemployment shoots higher.It is becoming more likely “that it won’t be possible to wring inflation out of this economy without a proper recession and higher unemployment,” said Krishna Guha, who heads the global policy and central bank strategy team at Evercore ISI and who has been forecasting that the Fed can cool inflation without causing an outright recession.Rising wages could become a more primary driver of higher prices.Hiroko Masuike/The New York TimesThe challenge for the Fed is that, more and more, price increases appear to be driven by long-lasting factors tied to the underlying economy, and less by one-off factors caused by the pandemic or the war in Ukraine.Consumer Price Index data from August released on Tuesday illustrated that point. Gas prices dropped sharply last month, which many economists expected would pull overall inflation down. They also thought that recent improvements in the supply chain would moderate price increases for goods. Used car costs, a major contributor to inflation last year, are now declining.Yet, in spite of those positive developments, quickly rising costs across a wide array of products and services helped to push prices higher on a monthly basis. Rent, furniture, meals at restaurants and visits to the dentist are all growing more expensive. Inflation climbed 8.3 percent on an annual basis, and picked up by 0.1 percent from the prior month.The data underscored that, even without extraordinary disruptions, so many products and services are now increasing in price that costs might continue ratcheting up. Core inflation, which strips out food and fuel costs to give a sense of underlying price trends, reaccelerated to 6.3 percent in August after easing to 5.9 percent in July.Inflation F.A.Q.Card 1 of 5What is inflation? More
- in Economy
Inflation Report Dampens Biden’s Claims of Economic Progress
The president is trying once again to accentuate the positives in the recovery from recession, but stubbornly high prices are complicating the message.The Consumer Price Index report for August showed inflation had not cooled as the administration had hoped and Americans had lost buying power over the last year as prices rose faster than wages.Sarah Silbiger for The New York TimesWASHINGTON — President Biden gathered with top Democrats at the White House on Tuesday to celebrate their inflation fight at an inopportune moment, as a sobering new report showed just how far the economy still has to go to bring soaring consumer prices under control.The Consumer Price Index report for August contained a large dose of unwelcome news for the president, who has sought to defuse Republican attacks over rising prices in the run-up to November’s midterm elections. It showed that inflation had not cooled as White House economists and other forecasters had hoped, and that workers had lost buying power over the last year as prices increased faster than wages.Another report, from the Census Bureau, showed that the typical American household saw its inflation-adjusted income fall slightly in 2021 from 2020. Perhaps more troubling for a president who has promised to close the gap between the very wealthy and the middle class, it showed that income inequality increased last year for the first time in a decade.Those developments challenged Mr. Biden’s renewed efforts to reframe the economy as a winning issue for him and his party before the midterms — though the president seemed unfazed.Mr. Biden welcomed thousands of supporters to the White House lawn to toast a new law that he says will help reduce the cost of electricity, prescription drugs and other staples of American life.The event was essentially a rally for the so-called Inflation Reduction Act, which raised taxes on large corporations, targeted nearly $400 billion in spending and tax incentives to reduce the fossil fuel emissions driving climate change, and took steps to reduce prescription drug costs for seniors on Medicare and premium costs for Americans who buy health insurance through the Affordable Care Act.Mr. Biden called the law “the single most important legislation passed in the Congress to combat inflation and one of the most significant laws in our nation’s history.”“There’s an extraordinary story being written in America today by this administration,” Mr. Biden said, adding, “This bill cut costs for families, helped reduce inflation at the kitchen table.”On Wednesday, Mr. Biden will head to the Detroit auto show, where he will champion his policies to bolster manufacturing and low-emission sources of energy.But the country’s economic reality remains more muddled than Mr. Biden’s rosy message, as the inflation report underscored. Food prices are continuing to spike, straining lower-income families in particular. The global economy is slowing sharply, and threats remain to the American recovery if European sanctions force millions of barrels of Russian oil off the global market in the months to come.The State of the 2022 Midterm ElectionsWith the primaries winding down, both parties are starting to shift their focus to the general election on Nov. 8.Polling Warnings: Democratic Senate candidates are polling well in the same places where surveys overestimated President Biden in 2020 and Hillary Clinton in 2016.Democrats’ Dilemma: The party’s candidates have been trying to signal their independence from the White House, while not distancing themselves from President Biden’s base or agenda.Intraparty G.O.P. Fight: Ahead of New Hampshire’s primary, mainstream Republicans have been vying to stop a Trump-style 2020 election denier running for Senate.Abortion Ballot Measures: First came Kansas. Now, Michigan voters will decide whether abortion will remain legal in their state. Democrats are hoping referendums like these will drive voter turnout.A possible railroad strike could disrupt domestic supply chains. The White House press secretary, Karine Jean-Pierre, told reporters on Tuesday that the president had called union and company leaders on Monday in an attempt to broker an agreement to avert the strike.Most important — and perhaps most damaging for Mr. Biden and Democrats — Americans’ wages have struggled to keep pace with fast-rising prices, an uncomfortable truth for a president who promised to make real wage gains a centerpiece of his economic program. Inflation-adjusted average hourly earnings ticked up across the economy in August, the Labor Department said on Tuesday, but they remain down nearly 3 percent from a year ago.Republicans were quick to criticize Mr. Biden after the report on Tuesday. “Every day, Americans endure Biden’s economic crisis,” said Representative Blaine Luetkemeyer of Missouri, the top Republican on the Small Business Committee. “The Democrats’ inflation continues to drive up costs and leads more and more small businesses and families questioning their future.”.css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-ok2gjs{font-size:17px;font-weight:300;line-height:25px;}.css-ok2gjs a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.Mr. Biden and his aides have celebrated falling gasoline prices on a daily basis throughout the summer. Those decreasing prices have helped inflation moderate from its high point this year, though not enough to offset rising rent, food and other costs last month.Even as he acknowledges the pain of rapid price increases across the economy, Mr. Biden has claimed progress in the fight against inflation, including with the signing last month of the energy, health care and tax bill that Democrats called the Inflation Reduction Act. On Tuesday morning, he sought to put a positive shine on the August data, saying in a statement issued by the White House that it was a sign of “more progress” in bringing down inflation.At his celebration on Tuesday afternoon, Mr. Biden barely mentioned the word “inflation.” Instead, he talked about reducing medical and energy costs — and, to a much larger extent, about the law’s efforts to combat climate change.Near the end of the speech, he gave a strident defense of his administration’s economic record, including strong job creation, record small-business formation and a rebound of the manufacturing sector.“And guess what?” Mr. Biden said. “For all the criticism I got and the help you gave me for gas prices bringing — they’re down more than $1.30 a gallon since the start of the summer. We’re making progress. We’re getting other prices down as well. We have more to do. But we’re getting there.”Recent weeks have brought signs of hope for administration officials, among both consumers and companies. The National Federation of Independent Business reported on Tuesday that its Small Business Optimism Index rose in August as inflation anxiety eased, continuing a rebound from its depths this year. The Federal Reserve Bank of New York reported on Monday that consumer inflation expectations were also falling.Officials inside the administration and at the Federal Reserve say strong job growth and consumer spending this summer have put to rest fears that the country slipped into recession in the first half of the year.“What is most notable about where we are right now is the resilience of the labor market recovery, the resilience of American consumers and households, and that we are beginning to see some signs that prices may be moderating,” Brian Deese, the director of Mr. Biden’s National Economic Council, said in an interview this week.“There’s more work to do,” Mr. Deese said. “But I think that is a signal that the economic decisions that this president has made are bearing fruit.”But polls continue to show that inflation is hurting Mr. Biden and his party at a pivotal moment, as Democrats seek to retain control of the House and the Senate. High prices loom as the top issue for voters in national opinion polls, and Americans say they trust Republicans more to handle inflation and the economy overall than Democrats.On Tuesday, stock markets recorded their largest daily loss in two years, driven by investor fears of stubborn inflation pushing the Federal Reserve to raise interest rates higher and faster than many expected.Economists on Wall Street and in policy circles are debating whether the U.S. economy can achieve a so-called soft landing, with economic and job growth slowing in order to bring inflation down — but not slowing so much as to push millions of Americans out of work. Some, like the former Treasury Secretary Lawrence H. Summers, have warned that the unemployment rate will need to rise significantly to bring price growth down to historical levels.Mark Zandi, the chief economist at Moody’s Analytics, whose analyses of Mr. Biden’s policy proposals are often promoted by the White House, said on Twitter on Tuesday that “job and wage growth must sharply slow” to reduce price increases in the service sector. “This is on the Fed, which must hike rates to get job and wage growth down without pushing the economy under.”Tuesday’s inflation report, he added, “suggests that while still doable, it won’t be easy.” More
- in Economy
Inflation Came in Faster Than Expected in August Even as Gas Prices Fell
Overall inflation moderated less than anticipated, and a closely watched measure of price pressures jumped, bad news for the Federal Reserve.Price increases remained uncomfortably rapid in August as a broad array of goods and services became more expensive even as gas prices fell, evidence that the sustainable inflation slowdown the Federal Reserve and White House have been hoping for remains elusive.Prices rose 8.3 percent from a year earlier, a fresh Consumer Price Index report released on Tuesday showed. While slightly better than July’s 8.5 percent, the rate was not as much of a moderation as economists had expected as rent costs, restaurant meals and medical care became more expensive. Compounding the bad news, a core measure of inflation that strips out gas and food to get a sense of underlying price trends accelerated more than forecast.Stocks plummeted on Tuesday, with the S&P 500 falling 4.3 percent — its biggest drop since the depths of the pandemic in 2020 — as the data appeared to cement the case for another unusually large interest rate increase of three-quarters of a percentage point at the Fed’s meeting next week. That would be the third consecutive move of that size and bring rates to a range of 3 to 3.25 percent. Investors speculated that officials could even opt for a more drastic adjustment of a full percentage point this month or extend their campaign of swift rate moves for longer.Fed officials have been raising interest rates since March to slow the economy in a bid to tame America’s worst bout of inflation in four decades, but the data suggested that their efforts were not yet having much of an effect. Inflation’s relentlessness may force central bankers to clamp down on the economy harder, potentially pushing up unemployment more starkly, as they try to wrestle prices back under control.“Inflation momentum accelerated in all the wrong places,” said Blerina Uruci, a U.S. economist at T. Rowe Price, explaining that strong household balance sheets may be helping to sustain demand even as interest rates rise and borrowing becomes expensive.“In this environment, monetary policy has to do that much more to cool down demand and have an effect on prices,” Ms. Uruci said.Prices, including rapid increases for food away from home, climbed from July to August.Hiroko Masuike/The New York TimesThe inflation data also contained unwelcome news for the White House. President Biden, whose popularity with voters has suffered amid rising costs, sought to put a positive spin on the new data by noting that prices overall have been essentially flat over the past two months thanks to cheaper gas. But the fact that inflation retains so much staying power is likely to detract from the administration’s positive talking points.That’s because the latest report’s details offered plenty to worry about.Two products that had been major factors in inflation over the past year — gas and used cars — are now falling in price, a widely expected and important development. But the cost of other goods and services is rising so much that it is more than offsetting those declines.Prices climbed 0.1 percent from July as rapid increases hit a variety of products and services, including food away from home, new cars, dental care and vehicle repair. Given how much gas prices fell in August, the price index had been forecast to decline on a monthly basis.Inflation F.A.Q.Card 1 of 5What is inflation? More
