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    High Inflation in June Puts Pressure on Interest Rates

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    Prices surged 9.1 percent in June as consumers faced rapidly rising costs for gas, food and rent, a higher-than-expected reading and bad news for Americans at a moment when their wages are falling further behind the nation’s soaring cost of living.The fresh Consumer Price Index report released on Wednesday contained particularly worrying signs for the Federal Reserve, providing evidence that price pressures are broad and stubborn in ways that may make them difficult to wrestle under control.Overall, inflation is likely to moderate in July because gas prices have fallen this month — a gallon of regular gas hit an average of about $5 in June, and the cost is now hovering around $4.63. But fuel prices are volatile, making it impossible to know if today’s lower gas prices will last, and the report suggested that underlying inflation pressures remained intense.In particular, a core inflation index that strips out food and fuel prices to give a sense of the broad trend remained surprisingly high. That measure climbed 5.9 percent over the year through June, barely a slowdown from last month’s 6 percent increase. Core prices also jumped 0.7 percent from May to June, more than the previous monthly increase.Persistent price gains portend trouble for President Biden, whose approval ratings have taken a hit amid climbing costs, and could require continued forceful action from the Fed. The central bank is raising rates to slow the economy and to try to restrain inflation, and it is likely to continue adjusting policy quickly — even if doing so risks tipping the economy into a recession — as inflation looks increasingly out of control.“It’s an ugly report,” said Julia Coronado, the founder of MacroPolicy Perspectives. “I don’t think there is anything good about this report, as far as the Fed is concerned, as far as the U.S. consumer is concerned.”The global economy has been buffeted by a series of shocks that have pushed inflation higher since the outset of the pandemic. Factory shutdowns and shipping shortages have roiled supply chains, and worker shortages are making it harder for airlines to fly at capacity and for hotels to rent out rooms. Russia’s invasion of Ukraine has disrupted gas and food supplies.President Biden has acknowledged the pain that inflation is causing, calling it “unacceptably high” in a statement on Wednesday. Erin Schaff/The New York TimesWhile economic policymakers initially hoped that the disruptions would fade and that prices would ease on their own, they have stopped waiting for that to happen — especially as price increases prove not only pronounced but also widespread, rising rapidly across an array of goods and services.The Fed has been raising interest rates since March in an effort to slow consumer and business demand, hoping to cool the economy and bring inflation back down. The central bank has sped up those rate moves as price increases have proved surprisingly stubborn, and the new inflation report spurred speculation that the Fed might turn even more aggressive.Read More About Oil and Gas PricesPrices Drop Sharply: U.S. gas prices have been on the decline, offering some relief to drivers. But weather, war and demand will influence how long it lasts.Gas Tax Holiday: President Biden called on Congress to temporarily suspend the federal gas tax, but experts remain skeptical the move would benefit consumers much.‘Only Bad Options’: Mr. Biden’s trip to Saudi Arabia is unlikely to reduce oil prices. And it is not clear that anything else he might do would work, either.Summer Driving Season: The spike in gas prices is being driven in part by vacationers hitting the road. Here’s what our reporter saw on a recent trip.Officials lifted rates by 0.75 percentage points in June, the biggest move since 1994, and had been expected to make a similarly sized move at its meeting in late July. But after the new inflation data, investors began to expect a percentage-point move, based on market pricing.Fed officials themselves were hesitant to call for such a large move.“My most likely posture is 0.75, because of the data I’ve seen,” Mary Daly, president of the Federal Reserve Bank of San Francisco, said in an interview Wednesday night. She explained that she had expected a high number, so the report did not sway her.“I saw that data and thought: This wasn’t good news, wasn’t expecting good news,” she said.Ms. Daly said she could see a situation in which a bigger, one-percentage-point increase would be possible should consumer inflation expectations move higher and consumer spending fail to slow down.Loretta Mester, president of the Federal Reserve Bank of Cleveland, said on Bloomberg Television on Wednesday night that the new inflation report was “uniformly bad” and that there would be no reason to do less than the 0.75 points that the Fed approved in June. But she also suggested that she would watch incoming data and wait to see how the economy evolved before deciding whether an even larger move might be appropriate. The Fed’s next policy meeting is July 26-27.Raphael Bostic, the president of the Federal Reserve Bank of Atlanta, told reporters on Wednesday that “everything is in play,” but he, too, made it clear that he was “not wedded to any specific course of action.”Even a 0.75-point increase would be an unusually quick pace for a central bank that has tended to move gradually in recent decades. The Fed risks tipping the economy into a recession as it rapidly raises interest rates, because those increases might hit the brakes on the economy so hard that they jar businesses, prompting them to stop hiring and setting off a chain reaction in which households are left with less money to spend.But policymakers feel that they must choke off inflation quickly even if it increases the chance of a painful slowdown. That’s because they worry that, as inflation remains rapid, consumers and businesses could be getting used to it.If people begin to ask for higher wages in anticipation of price increases — negotiating cost-of-living adjustments of 6 or 7 percent, for example, instead of the typical 2 to 3 percent — companies could try to pass their swelling labor costs along to customers by raising prices. That could perpetuate rapid inflation, making it much trickier for the Fed to stamp it out.“The path toward price stability is going to entail some pain, but less pain if we do it than if we don’t do it,” Ms. Mester said.Meals at restaurants, tickets for sporting events and other services are growing more expensive.Amir Hamja for The New York TimesInflation is high across much of the world right now, as Russia’s invasion of Ukraine pushes up food and fuel prices and transportation and manufacturing issues continue to keep some goods scarce. But the new inflation report also shows evidence of price pressures that have little to do with global supply. Meals at restaurants, tickets for sporting events and other services are growing more expensive.For consumers, the fresh report is confirmation that it is increasingly tough to make ends meet. While wages are rising, they have failed to keep up with rapid price increases. After accounting for price increases, average hourly earnings have declined 3.6 percent over the past year.At the same time, necessities are becoming more expensive. Food prices overall rose 10.4 percent in June from a year earlier, the biggest annual increase since 1981. Rent for a house or an apartment also costs significantly more, having climbed at the fastest monthly pace since 1986.That is making life difficult for many families. Soaring housing costs have made relocating difficult for Elizabeth Haynes, 41, who lives with her husband in McKinney, Texas. The couple wants to relocate to another state, but high housing costs are so far prohibitive.“We’re trying to get out of Texas, and that’s proving really difficult with the rental costs and the housing costs and the shortages and all of that,” said Ms. Haynes, who is hoping to land a place she can afford in Connecticut. “So that’s kind of our big pain point.”As rapid price increases burden many Americans, they are also taking a toll on economic confidence, posing a big challenge for Mr. Biden and Democrats ahead of the midterm elections. Mr. Biden has acknowledged the pain inflation is causing, saying in a statement on Wednesday that it is “unacceptably high.”But he also called the report “out of date” because it did not capture the recent retreat in prices at the gasoline pump and in other commodities. Democrats have suggested things will soon get better, pointing out that, as fuel costs subside, overall inflation is likely to decline from its 9.1 percent reading in June.“I think we’re peaking — I think we’re going to be going down from here,” Representative Nancy Pelosi, the House speaker, said when asked for her reaction to the new data.While there is hope in Washington and on Wall Street that inflation will come down sustainably, economists have repeatedly suggested that inflation has peaked over the past 12 months only to watch it pick back up.That is partly because prices for certain goods have behaved strangely: Cars have been in short supply, and their prices have been skyrocketing, for instance. It is also partly because economists have dismissed big price swings in various goods and services as temporary one-offs, and the surprises have just continued to add up.“People have not done a very good job of predicting car inflation,” said Jason Furman, an economist at Harvard. “Beyond that, inflation is about more than 10 individual stories about 10 individual goods and services — it’s about forces in the overall economy.”If people begin to ask for higher wages in anticipation of price increases, companies could try to pass their swelling labor costs along to customers by raising prices.Hiroko Masuike/The New York TimesThat said, there are some reasons that today’s rapid price gains could abate based on the economy’s fundamentals.Consumers may struggle to sustain their spending as prices jump. If they move in with roommates, stop taking vacations or pull back on social activities to save money, supply could begin to catch up with demand, allowing price gains to decelerate.Stores including Target are already trying to sell off bloated inventories, which could allow retail prices to slow. Costs for goods including sporting equipment and televisions have already begun to cool.But, for now, hints at and forecasts for a cool-down are likely to be insufficient comfort for economic policymakers when there is little sign in the data that any concerted pullback is kicking in.“We have to be so humble about forecasting inflation,” said Blerina Uruci, an economist at T. Rowe Price, who does expect inflation pressures to fade. “We’ve just been so wrong, so consistently, in one direction.”Reporting was contributed by More

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    Inflation Soared in June, Pinching Consumers and Challenging Policymakers

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    Prices surged 9.1 percent in June as consumers faced rapidly rising costs for gas, food and rent, a higher-than-expected reading and bad news for Americans at a moment when their wages are falling further behind the nation’s soaring cost of living.The fresh Consumer Price Index report released on Wednesday contained particularly worrying signs for the Federal Reserve, providing evidence that price pressures are broad and stubborn in ways that may make them difficult to wrestle under control.Overall, inflation is likely to moderate in July because gas prices have fallen this month — a gallon of regular gas hit an average of about $5 in June, and the cost is now hovering around $4.63. But fuel prices are volatile, making it impossible to know if today’s lower gas prices will last, and the report suggested that underlying inflation pressures remained intense.In particular, a core inflation index that strips out food and fuel prices to give a sense of the broad trend remained surprisingly high. That measure climbed 5.9 percent over the year through June, barely a slowdown from last month’s 6 percent increase. Core prices also jumped 0.7 percent from May to June, more than the previous monthly increase.Persistent price gains portend trouble for President Biden, whose approval ratings have taken a hit amid climbing costs, and could require continued forceful action from the Fed. The central bank is raising rates to slow the economy and to try to restrain inflation, and it is likely to continue adjusting policy quickly — even if doing so risks tipping the economy into a recession — as inflation looks increasingly out of control.“It’s an ugly report,” said Julia Coronado, the founder of MacroPolicy Perspectives. “I don’t think there is anything good about this report, as far as the Fed is concerned, as far as the U.S. consumer is concerned.”The global economy has been buffeted by a series of shocks that have pushed inflation higher since the outset of the pandemic. Factory shutdowns and shipping shortages have roiled supply chains, and worker shortages are making it harder for airlines to fly at capacity and for hotels to rent out rooms. Russia’s invasion of Ukraine has disrupted gas and food supplies.President Biden has acknowledged the pain that inflation is causing, calling it “unacceptably high” in a statement on Wednesday. Erin Schaff/The New York TimesWhile economic policymakers initially hoped that the disruptions would fade and that prices would ease on their own, they have stopped waiting for that to happen — especially as price increases prove not only pronounced but also widespread, rising rapidly across an array of goods and services.The Fed has been raising interest rates since March in an effort to slow consumer and business demand, hoping to cool the economy and bring inflation back down. The central bank has sped up those rate moves as price increases have proved surprisingly stubborn, and the new inflation report spurred speculation that the Fed might turn even more aggressive.8 Signs That the Economy Is Losing SteamCard 1 of 9Worrying outlook. More

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    Relief Eludes Many Renters as Fed Raises Interest Rates

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    As the central bank sharply increases borrowing costs, it could lock would-be home buyers into rentals and keep a hot market under pressure.Rents have been rising swiftly across America for much of the pandemic era, and housing experts are warning that they could now receive a boost from an unlikely source: the Federal Reserve.As the central bank raises interest rates to cool down the economy and contain rapid inflation, it is also pushing up mortgage costs, putting home purchases out of reach for many first-time buyers. If people who would have otherwise bought a home remain waylaid in apartments and rented houses, it could compound already-booming demand — keeping pressure on rental prices.While it is tough to predict how big or how lasting that Fed-induced bump in rental demand might prove, it could ironically make it more difficult for the central bank to wrestle inflation lower in the near term. Rent-related costs make up nearly a third of the closely tracked Consumer Price Index inflation measure, so anything that helps to keep them climbing at an unusually brisk pace is likely to perpetuate rapid inflation.Rents on new leases climbed by 14.1 percent in the year through June, according to Apartment List, an apartment listing service. While that is slightly less than the 17.5 percent increase over the course of 2021, it is still an unusually rapid pace of growth. Before the pandemic, a 2 to 3 percent pace of annual increase was normal. The recent quick market rent increases have been slowly spilling over to official inflation data, which track both new and existing leases.“A lot of folks are seeing now as they go to re-sign their lease that it’s hundreds more dollars than last month, thousands more dollars than last month,” said Nicole Bachaud, an economist at the housing website Zillow, whose own rent tracker is running fast. “We’re going to continue to see pressure in rent prices; to what extent is to be seen.”Gail Linsenbard lectures on philosophy at a college in Boulder, Colo., but housing in the area has gotten so pricey that she has been teaching remotely — recently from a friend’s house in Cincinnati, now from a friend’s place in New York — to make ends meet.“The rents in Boulder have just skyrocketed, so I could no longer afford to live there,” said Dr. Linsenbard, a 62-year-old ethicist, who said that the $36,000 she earns lecturing four classes per semester had always been tight, but was increasingly failing to keep up with inflation. While she can rely on a national network of friends, the situation has disrupted her life.“I’d so prefer my own place,” she said.Besides burdening millions of families across America, rising rents have emerged as a particularly thorny issue for the Fed. While coronavirus-related supply disruptions have fueled price increases in products like cars and couches, the recent surge in rents relates to longer-running fundamentals. America has for years failed to build enough housing, and as members of the massive millennial generation grow older and move away from their parents and roommates, the need for apartments and leased homes has grown.The pandemic took that demographic trend and sped it up. After being cooped up during quarantines, people looked for their own places — and apartment construction could not keep pace.Builders were completing units at an unusually rapid 349,000-per-year rate in early 2022, about 1.2 times the prepandemic pace, based on estimates in a report from the Joint Center for Housing Studies at Harvard. But the number of occupied apartments was rising more than twice as quickly.Rents on new leases climbed by 14.1 percent across the country in the year through June, based on Apartment List data.Anna Watts for The New York TimesAmerica’s rental vacancy rate slumped as apartment supply struggled to keep pace with soaring demand, and was lingering at levels last seen in the 1980s through the start of 2022.The resulting run-up in market rents, which began in earnest last summer, has slowly trickled into official inflation data as people renew their leases. A category in the Consumer Price Index that measures rent of primary residence surged by 5.2 percent in the year through May, and fresh data will be released this week.8 Signs That the Economy Is Losing SteamCard 1 of 9Worrying outlook. More

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

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    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

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    U.S. Economy Added 372,000 Jobs in June, Defying Slowdown Fears

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    The strong Labor Department report comes as consumers and businesses express increasing concern about a downturn.The U.S. economy powered through June with broad-based hiring on par with recent months, keeping the country clear of recession territory even as inflation eats into wages and interest rates continue to rise. Employers added 372,000 jobs, the Labor Department reported Friday, and the unemployment rate, at 3.6 percent, was unchanged from May and near a 50-year low. Washington and Wall Street had keenly awaited the new data after a series of weaker economic indicators. The June job growth exceeded economists’ forecasts by roughly 100,000, offering some reassurance that a sharper downturn isn’t underway — at least not yet. But the strength of the report, which also showed bigger wage gains than expected, could give the Federal Reserve more leeway for tough medicine to beat back inflation. Now, all eyes will be watching whether the Fed’s strategy of raising interest rates pushes the country into a recession that inflicts harsh pain. Employment growth over the last three months averaged 375,000, a solid showing though a drop from a monthly pace of 539,000 in the first quarter of this year. Employers have continued to hang on to workers in recent months, with initial unemployment claims rising only slightly from their low point in March.The private sector has now regained its prepandemic employment level — an achievement trumpeted by the White House on Friday — though the level is still below what would have been expected absent the pandemic. Other than the public sector, no broad industry lost jobs in June, on a seasonally adjusted basis.“We’ve essentially ground our way back to where we were pre-Covid,” said Christian Lundblad, a professor of finance at the Kenan-Flagler Business School at the University of North Carolina. “So, this doesn’t necessarily look like a dire situation, despite the fact that we’re struggling with inflation and economic declines in some other dimensions.”Strong demand for workers is also evident in the 11.3 million jobs that employers had open in May, a number that remains close to record highs and leaves nearly two jobs available for every person looking for work. In this equation, any workers laid off as certain sectors come under strain are more likely to find new jobs quickly. The Labor Department’s broadest measure of labor force underutilization — which includes part-time workers who want more hours and people who have been discouraged from job hunting — sank to its lowest rate since the household survey took its current form in 1994, a sign that employers are maximizing their existing work force as hiring remains difficult. The education and health sector gained the most jobs in June.Change in jobs, by sector More

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    Pessimism about the economy is growing, a U.S. poll shows.

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    Americans are becoming more pessimistic about the economy, more worried about inflation — and now, more anxious about the job market, as well.Fifty-two percent of American adults say they are worse off financially than they were a year ago, according to a survey conducted for The New York Times this month by the online research platform Momentive. That was up from 41 percent in April, and was by far the highest share in the survey’s five years. Only 14 percent of Americans said they were better off than a year ago, the worst in the survey’s history.The dour mood is also reflected in other surveys. The University of Michigan’s index of consumer sentiment this month hit its lowest level in its 70-year history. Another measure of consumer confidence, from the Conference Board, has also fallen, though less drastically.There is no mystery as to what is causing consumers’ bleak outlook: prices that are rising at the fastest rate in a generation. More than nine in 10 Americans say they are concerned about inflation, according to the Momentive poll, including 70 percent who say they are “very concerned,” up from 63 percent in April.Inflation has emerged as a major political challenge for President Biden and congressional Democrats. Only 31 percent of Americans said they approved of Mr. Biden’s approach to inflation; support was muted even among Democrats, only 58 percent of whom said they approved of Mr. Biden’s approach, and only 15 percent of them “strongly.”Survey respondents were equally critical of the approach taken by the Federal Reserve, which has begun aggressively raising interest rates in an effort to bring down inflation. Only 30 percent of Americans said they approved of the Fed’s handling of the issue.Until recently, worries about inflation have been offset, at least to some degree, by the strong job market, which has enabled workers to push for higher pay and better benefits. But there are hints that could be changing. Forty-seven percent of adults in June said they thought it was a good time to look for a job, down from 60 percent in April. And nearly half of respondents said they thought the U.S. economy had entered a recession.About the Survey: The data in this article came from an online survey of 5,342 adults conducted by the polling firm Momentive from June 13 to June 19. The company selected respondents at random from the more than two million people who take surveys on its platform each day. Responses were weighted to match the demographic profile of the population of the United States. The survey has a modeled error estimate (similar to a margin of error in a standard telephone poll) of plus or minus 2 percentage points, so differences of less than that amount are statistically insignificant. More

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    Fed Confronts a ‘New World’ of Inflation

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    Central banks had a longstanding playbook for how inflation worked. In the postpandemic era, all bets are off.Federal Reserve officials are questioning whether their longstanding assumptions about inflation still apply as price gains remain stubbornly and surprisingly rapid — a bout of economic soul-searching that could have big implications for the American economy.For years, Fed policymakers had a playbook for handling inflation surprises: They mostly ignored disruptions to the supply of goods and services when setting monetary policy, assuming they would work themselves out. The Fed guides the economy by adjusting interest rates, which influence demand, so keeping consumption and business activity chugging along at an even keel was the primary focus.But after the global economy has been rocked for two years by nonstop supply crises — from shipping snarls to the war in Ukraine — central bankers have stopped waiting for normality to return. They have been raising interest rates aggressively to slow down consumer and business spending and cool the economy. And they are reassessing how inflation might evolve in a world where it seems that the problems may just keep coming.If the Fed determines that shocks are unlikely to ease — or will take so long that they leave inflation elevated for years — the result could be an even more aggressive series of rate increases as policymakers try to quash demand into balance with a more limited supply of goods and services. That painful process would ramp up the risk of a recession that would cost jobs and shutter businesses.“The disinflationary forces of the last quarter-century have been replaced, at least temporarily, by a whole different set of forces,” Jerome H. Powell, the Fed chair, said during Senate testimony on Wednesday. “The real question is: How long will this new set of forces be sustained? We can’t know that. But in the meantime, our job is to find maximum employment and price stability in this new economy.”When prices began to pick up rapidly in early 2021, top Fed policymakers joined many outside economists in predicting that the change would be “transitory.” Inflation had been slow in America for most of the 21st century, weighed down by long-running trends like the aging of the population and globalization. It seemed that one-off pandemic shocks, especially a used-car shortage and ocean shipping issues, should fade with time and allow that trend to return.But by late last year, central bankers were beginning to rethink their initial call. Supply chain problems were becoming worse, not better. Instead of fading, price increases had accelerated and broadened beyond a few pandemic-affected categories. Economists have made a monthly habit of predicting that inflation has peaked only to see it continue to accelerate.Now, Fed policymakers are analyzing what so many people missed, and what it says about the unrelenting inflation burst.“Of course we’ve been looking very carefully and hard at why inflation picked up so much more than expected last year and why it proved so persistent,” Mr. Powell said at a news conference last week. “It’s hard to overstate the extent of interest we have in that question, morning, noon and night.”The Fed has been reacting. It slowed and then halted its pandemic-era bond purchases this winter and spring, and it is now shrinking its asset holdings to take a little bit of juice out of markets and the economy. The central bank has also ramped up its plans to raise interest rates, lifting its main policy rate by a quarter point in March, half a point in May and three-quarters of a point last week while signaling more to come.Understand Inflation and How It Impacts YouInflation 101: What’s driving inflation in the United States? What can slow the rapid price gains? Here’s what to know.Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.An Economic Cliff: Inflation is expected to remain high later this year even as the economy slows and layoffs rise. For many Americans, it’s going to hurt.Greedflation: Some experts say that big corporations are supercharging inflation by jacking up prices. We take a closer look at the issue. It is making those decisions without much of an established game plan, given the surprising ways in which the economy is behaving.“We’ve spent a lot of time — as a committee, and I’ve spent a lot of time personally — looking at history,” Patrick Harker, president of the Federal Reserve Bank of Philadelphia, said in an interview on Wednesday. “Nothing quite fits this situation.”A recruiter at a job fair in North Miami Beach, Fla., last week. Labor shortages are pushing up wages, which is likely contributing to higher inflation. Scott McIntyre for The New York TimesGas prices have helped drive inflation higher.Scott McIntyre for The New York TimesThe economic era before the pandemic was stable and predictable. America and many developed economies spent those decades grappling with inflation that seemed to be slipping ever lower. Consumers had come to expect prices to remain relatively stable, and executives knew that they could not charge a lot more without scaring them away.Shocks to supply that were outside the Fed’s control, like oil or food shortages, might push up prices for a while, but they typically faded quickly. Now, the whole idea of “transient” supply shocks is being called into question.The global supply of goods has been curtailed by one issue after another since the onset of the pandemic, from lockdowns in China that slowed the production of computer chips and other goods to Russia’s invasion of Ukraine, which has limited gas and food availability.At the same time, demand has been heady, boosted by government pandemic relief checks and a strong labor market. Businesses have been able to charge more for their limited supply, and consumer prices have been picking up sharply, climbing 8.6 percent over the year through May.Research from the Federal Reserve Bank of San Francisco released this week found that demand was driving about one-third of the current jump in inflation, while issues tied to supply or some ambiguous mix of supply-and-demand factors were driving about two-thirds.That means that returning demand to more normal levels should help ease inflation somewhat, even if supply in key markets remain roiled. The Fed has been clear that it cannot directly lower oil and gas prices, for instance, because those costs turn more on the global supply than they do on domestic demand.“There’s really not anything that we can do about oil prices,” Mr. Powell told senators on Wednesday. Still, he added later, “there is a job to moderating demand so that it can be in better balance with supply.”Inflation F.A.Q.Card 1 of 5What is inflation? More