Federal Reserve System

More stories

  • 125 Shares119 Views

    in Economy

    Inflation Sped Up Again in May, Dashing Hopes for Relief

    by

    The Consumer Price Index picked up by 8.6 percent, as price increases climbed at the fastest pace in more than 40 years.A surge in prices in May delivered a blow to President Biden and underscored the immense challenge facing the Federal Reserve as inflation, which many economists had expected to show signs of cooling, instead reaccelerated to climb at its fastest pace since late 1981.Consumer prices rose 8.6 percent from a year earlier and 1 percent from April — a monthly increase that was more rapid than economists had predicted and about triple the previous pace. The pickup partly reflected surging gas costs, but even with volatile food and fuel prices stripped out the climb was 0.6 percent, a brisk monthly rate that matched April’s reading.Friday’s Consumer Price Index report offered more reason for worry than comfort for Fed officials, who are watching for signs that inflation is cooling on a monthly basis as they try to guide price increases back down to their goal. A broad array of products and services, including rents, gas, used cars and food, are becoming sharply more expensive, making this bout of inflation painful for consumers and suggesting that it might have staying power. Policymakers aim for 2 percent inflation over time using a different but related index, which is also elevated.The quick pace of inflation increases the odds that the Fed, which is already trying to cool the economy by raising borrowing costs, will have to move more aggressively and inflict some pain to temper consumer and business demand. The central bank is widely expected to raise rates half a percentage point at its meeting next week and again in July. But Friday’s data prompted a number of economists to pencil in another big rate increase in September. A more active Fed would increase the chances of a marked pullback in growth or even a recession. More

  • 100 Shares159 Views

    in Economy

    Inflation soared again in May, fresh data showed.

    by

    Prices climbed 8.6 percent in the year through May, a re-acceleration of inflation that makes it increasingly difficult for consumers to afford everyday purchases and poses a major challenge for the Federal Reserve and White House as they try to secure a strong and stable economy.The Consumer Price Index climbed 1 percent from April — far more quickly than in the previous month — and by 0.6 percent after stripping out food and fuel prices, which can be volatile. That so-called core inflation reading matched April’s reading.Fed officials are watching for signs that inflation is cooling on a monthly basis as they try to guide price increases back down to their goal, but Friday’s report offered more reason for worry than comfort. The headline inflation rate was the fastest since late 1981, as a broad array of products and services including rents, gas, used cars, and food became sharply more expensive.Policymakers aim for 2 percent inflation over time using a different but related index, which is also sharply elevated. Central bankers are raising interest rates to make borrowing money more expensive, hoping to cool off consumer and business demand and give supply a chance to catch up, setting the stage for more moderate inflation.The Fed’s attempt to temper inflation by slowing down the economy is contributing to an already sour economic mood. Consumer confidence has been sinking all year as households shoulder the burden of higher prices, and President Biden’s approval ratings have also suffered. Both Wall Street economists and small business owners increasingly worry that a recession is possible in the next year.That glum attitude spells trouble for Mr. Biden and Democrats as November midterm elections approach. As climbing prices weigh on voters’ wallets and minds, policymakers across the administration have been clear that helping to return inflation to a more sustainable pace is their top priority, but that doing so mainly falls to the Fed.Economists warn that wrestling inflation lower could be a slow and painful process. Production and shipping snarls tied to the pandemic have shown early signs of easing but remain pronounced, keeping products like cars and trucks in short supply. The war in Ukraine is elevating food and fuel prices, and its trajectory is unpredictable. And consumer demand remains strong, buoyed by savings amassed during the pandemic and wages that are rising quickly, albeit not enough to fully offset inflation.“There does seem to be considerable resilience in consumer spending,” Matthew Luzzetti, chief U.S. economist at Deutsche Bank, said ahead of the report, explaining that he expects consumer prices to still be climbing at 7.3 percent over the year as of December.While uncertainty is high, economists in a Bloomberg survey expect inflation as measured by the Consumer Price Index to remain at 6.3 percent — lower than today, but still sharply elevated — in the final quarter of 2022. More

  • 138 Shares199 Views

    in Economy

    White House Struggles to Talk About Inflation, the ‘Problem From Hell’

    by

    Inflation is upending voter confidence and posing a glaring political liability that looms over the Biden administration’s major policy decisions.WASHINGTON — President Biden was at a private meeting discussing student debt forgiveness this year when, as happens uncomfortably often these days, the conversation came back to inflation.“He said with everything he does, Republicans are going to attack him and use the word ‘inflation,’” said Representative Tony Cárdenas, Democrat of California, referring to Mr. Biden’s meeting with the Congressional Hispanic Caucus in April. Mr. Cárdenas said Mr. Biden was aware he would be attacked over rising prices “no matter what issue we’re talking about.”The comment underscored how today’s rapid price increases, the fastest since the 1980s, pose a glaring political liability that looms over every major policy decision the White House makes — leaving Mr. Biden and his colleagues on the defensive as officials discover that there is no good way to talk to voters about inflation.The administration has at times splintered internally over how to discuss price increases and has revised its inflation-related message several times as talking points fail to resonate and new data comes in. Some Democrats in Congress have urged the White House to strike a different — and more proactive — tone ahead of the November midterm elections.But the reality the White House faces is a hard one: There is little politicians can do to quickly bring price increases to heel. Federal Reserve policy is the nation’s main solution to inflation, but the central bank tempers price gains by making money more expensive to borrow to cool off demand, a slow and potentially painful process for the economy.“For a president, inflation is the problem from hell — you can’t win,” said Elaine Kamarck, a senior fellow at the Brookings Institution and the founding director of the Center for Effective Public Management. “Because it’s so difficult economically, politically it is even worse: There’s nothing you can do in the short run to solve it.”Consumer prices increased by 8.3 percent in the year through April, and data this week is expected to show inflation at 8.2 percent in May. Inflation averaged 1.6 percent annual gains in the five years leading up to the pandemic, making today’s pace of increase painfully high by comparison. A gallon of gas, one of the most tangible household costs, hit an average of $4.92 this week. Consumer confidence has plummeted as families pay more for everyday purchases and as the Fed raises interest rates to cool the economy, which increases the risk of a recession.A gallon of gas surpassed $5 at a Sunoco station in Sloatsburg, N.Y., last month.An Rong Xu for The New York TimesThe White House has long realized that rising prices could sink Mr. Biden’s support, with that risk telegraphed in a series of confidential memos sent to Mr. Biden last year by one of his lead pollsters, John Anzalone. Inflation has only continued to fuel frustration among voters, according to a separate memo compiled by Mr. Anzalone’s team last month, which showed the president’s low approval rating on the economy rivaling only his approach to immigration.“Economic sentiment among the public remains poor, with most worried about both inflation and the possibility of a recession in the coming months,” according to the memo, dated May 20. The information was sent to “interested parties,” and it was not clear if the White House had received or reviewed the memo.The polling data shows that about eight in 10 Americans “consider the national economy to be in poor condition” and that “concerns are high about the potential for an economic recession in the near future.”Economic anxieties have been echoed by members of Congress, leading academics and pop culture standard bearers. “When y’all think they going to announce that we going into a recession?” Cardi B, the Grammy-winning rapper, wrote in a tweet that went viral this weekend.The White House knows it is in a tricky position, and the administration’s approach to explaining inflation has evolved over time. Officials spent the early stages of the current price burst largely describing price pressures as temporary.When it became clear that rising costs were lasting, administration officials began to diverge internally on how to frame that phenomenon. While it was clear that much of the upward pressure on prices came from supply chain shortages exacerbated by continued waves of the coronavirus, some of it also tied back to strong consumer demand. That big spending had been enabled, in part, by the government’s stimulus packages, including direct checks to households, expanded unemployment insurance and other benefits.Some economists in the White House have begun to emphasize that inflation was a trade-off: To the extent that Mr. Biden’s stimulus spending spurred more inflation, it also aided economic growth and a faster recovery.“Inflation is absolutely a problem, and it’s critical to address it,” Janet L. Yellen, the Treasury secretary, recently told members of Congress. “But I think at the same time, we should recognize how successful that plan was in leading to an economy where instead of having a large number of workers utterly unable to find jobs, exactly the opposite is true.”Treasury Secretary Janet Yellen has said she supports relaxing tariffs on Chinese goods to ease prices.Jason Andrew for The New York TimesBut the president’s more political aides have tended to sharply minimize that the March 2021 package, known as the American Rescue Plan, helped to goose inflation, even as they have claimed credit for strong economic growth.“Some have a curious obsession with exaggerating impact of the Rescue Plan while ignoring the degree high inflation is global,” Gene Sperling, a senior White House adviser overseeing the implementation of the stimulus package, wrote on Twitter last week, adding that the law “has had very marginal impact on inflation.”Brian Deese, the director of the National Economic Council, acknowledged in an interview last week that there were some disagreements among White House economic officials when it came to how to talk about and respond to inflation, but he portrayed that as a positive — and as something that is not leading to any kind of dysfunction.“If there wasn’t healthy disagreement, debate and people feeling comfortable bringing issues and ideas to the table, then I think we would be not serving the president and the public interest well,” he said.He also pushed back on the idea that the administration was deeply divided on the March 2021 package’s aftereffects, saying in a separate emailed comment that “there is agreement across the administration that many factors contributed to inflation, and that inflation has been driven by elevated demand and constrained supply across the globe.”How to portray the Biden administration’s stimulus spending is far from the only challenge the White House faces. As price increases last, Democrats have grappled with how to discuss their plans to combat them.The president and his top political aides have trotted out a few main talking points, including blaming President Vladimir V. Putin’s invasion of Ukraine for what Mr. Biden calls the “Putin price hike,” pointing to deficit reduction as a way to lower inflation and arguing that Republicans have a bad plan to deal with rising costs. Mr. Biden regularly acknowledges the pain that higher prices are causing and has emphasized that the problem of taming inflation rests largely with the Fed, an independent entity whose work he has promised not to interfere with.The administration has also highlighted that inflation is widespread globally, and that the United States is better off than many other nations.Student Loans: Key Things to KnowCard 1 of 4Corinthian Colleges. More

  • 163 Shares199 Views

    in Economy

    Fed Vice Chair Says Another Big Interest Rate Increase Could Come in September

    by

    Lael Brainard, the Federal Reserve’s vice chair, suggested on Thursday that the central bank might make another large rate increase into September and threw cold water on the idea that policymakers might pause rate moves after the summer — signaling instead that they are intently focused on controlling too-high inflation.Ms. Brainard, in an interview on CNBC, said market expectations for half-percentage-point increases in June and July, increases that would be twice the size of the Fed’s typical ones, seemed “reasonable.” She does not know where the economy will be in September, she said, but explained that if inflation remained rapid, another big move “might well be appropriate.” If it slows, then a smaller pace of increase might make sense.She added, however, that it was “hard to see the case for a pause” at a time when the Fed had “a lot of work to do” to get inflation down to its goal, which is 2 percent on average over time. Prices picked up by 6.3 percent on a headline basis and 4.9 percent on a core basis over the year through April.Fed officials are fighting the fastest rate of inflation since the 1980s by lifting borrowing costs, which slows down consumer and business demand, helping to bring the economy back into balance. Central bankers began to shrink their balance sheet of bond holdings this week and have already lifted their main policy interest rate by 0.75 percentage points since March, efforts that are already making mortgages and other loans pricier.“We do expect to see some cooling of a very, very strong economy over time,” Ms. Brainard said, explaining that the Fed is looking for moderation and “better balance” in the labor market.Ms. Brainard said she was looking for “a string of decelerating inflation data” to feel more confident that inflation would get back no a more sustainable path.The Fed is operating against a fraught backdrop. Ms. Brainard said there was a “fair amount of uncertainty” about the economy, citing Russia’s war in Ukraine and lockdowns in China as factors clouding the outlook.Economists have warned that the Fed could struggle to slow down the economy without tipping it into an outright recession, especially as it withdraws support rapidly and in tandem with other central banks around the world. But Ms. Brainard said there was a path where demand could cool and inflation could come down while the labor market remained strong.“We are starting from a position of strength — the economy has a lot of momentum,” she said, also citing solid business and household balance sheets. More

  • 125 Shares179 Views

    in Economy

    Economic Scorecard: Biggest Numbers May Not Be Best, for Now

    by

    As the Federal Reserve tries to rein in inflation without causing a recession, slower job creation and wage growth could be a plus.When it comes to the economy, more is usually better.Bigger job gains, faster wage growth and more consumer spending are all, in normal times, signs of a healthy economy. Growth might not be sufficient to ensure widespread prosperity, but it is necessary — making any loss of momentum a worrying sign that the economy could be losing steam or, worse, headed into a recession.But these are not normal times. With nearly twice as many open jobs as available workers and companies struggling to meet record demand, many economists and policymakers argue that what the economy needs right now is not more, but less — less hiring, less wage growth and above all less inflation, which is running at its fastest pace in four decades.Jerome H. Powell, the Federal Reserve chair, has called the labor market “unsustainably hot,” and the central bank is raising interest rates to try to cool it. President Biden, who met with Mr. Powell on Tuesday, wrote in an opinion article this week in The Wall Street Journal that a slowdown in job creation “won’t be a cause for concern” but would rather be “a sign that we are successfully moving into the next phase of recovery.”“We want a full and sustainable recovery,” said Claudia Sahm, a former Fed economist who has studied the government’s economic policy response to the pandemic. “The reason that we can’t take the victory lap right now on the recovery — the reason it is incomplete — is because inflation is too high.”But a cooling economy carries its own risks. Despite inflation, the recovery from the pandemic recession has been among the strongest on record, with unemployment falling rapidly and incomes rebounding fastest for those at the bottom. If the recovery slows too much, it could undo much of that progress.“That’s the needle we’re trying to thread right now,” said Harry J. Holzer, a Georgetown University economist. “We want to give up as few of the gains that we’ve made as possible.”Economists disagree about the best way to strike that balance. Mr. Powell, after playing down inflation last year, now says reining it in is his top priority — and argues that the central bank can do so without cutting the recovery short. Some economists, particularly on the right, want the Fed to be more aggressive, even at the risk of causing a recession. Others, especially on the left, argue that inflation, while a problem, is a lesser evil than unemployment, and that the Fed should therefore pursue a more cautious approach.But where progressives and conservatives largely agree is that evaluating the economy will be particularly difficult over the next several months. Distinguishing a healthy cool-down from a worrying stall will require looking beyond the indicators that typically make headlines.“It’s a very difficult time to interpret economic data and to even understand what’s happening with the economy,” said Michael R. Strain, an economist with the American Enterprise Institute. “We’re entering a period where there’s going to be tons of debate over whether we are in a recession right now.”Slower job growth could be good (or bad).The jobs report for May, which the Labor Department will release on Friday, will provide a case study in the difficulty of interpreting economic data right now.Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Measuring Inflation: Over the years economists have tweaked one of the government’s standard measures of inflation, the Consumer Price Index. What is behind the changes?Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.Interest Rates: As it seeks to curb inflation, the Federal Reserve began raising interest rates for the first time since 2018. Here is what that means for inflation.Ordinarily, one number from the monthly report — the overall jobs added or lost — is enough to signal the labor market’s health. That is because most of the time, the driving force in the labor market is demand. If business is strong, employers will want more workers, and job growth will accelerate. When demand lags, then hiring slows, layoffs mount and job growth stalls.Right now, though, the limiting factor in the labor market is not demand but supply. Employers are eager to hire: There were 11.4 million job openings at the end of April, close to a record. But there are roughly half a million fewer people either working or actively looking for work than when the pandemic began, leaving employers scrambling to fill available jobs.The labor force has grown significantly this year, and forecasters expect more workers to return as the pandemic and the disruptions it caused continue to recede. But the pandemic may also have driven longer-lasting shifts in Americans’ work habits, and economists aren’t sure when or under what circumstances the labor force will make a complete rebound. Even then, there might not be enough workers to meet the extraordinarily high level of employer demand.A coffee shop advertised open positions in New York. The limiting factor in the labor market is not demand but supply.Amir Hamja for The New York TimesMost forecasters expect the report on Friday to show that job growth slowed in May. But that number alone won’t reveal whether the mismatch between supply and demand is easing. Slowing job growth coupled with a growing labor force could be a sign that the labor market is coming back into balance as demand cools and supply improves. But the same level of job growth without an increase in the supply of workers could indicate the opposite: that employers are having an even more difficult time finding the help they need.Many economists say they will be watching the labor force participation rate — the share of the population either working or looking for work — just as closely as the headline job growth figures in coming months.“One can unambiguously root for higher labor force participation,” said Jason Furman, a Harvard economist who was an adviser to President Barack Obama. “Beyond that, nothing else is unambiguous.”Wage growth may need to slow.Another number will be getting a lot of attention from economists, policymakers and investors: wage growth.Employers have responded to the hot competition for workers exactly the way Econ 101 says they should, by raising pay. Average hourly earnings were up 5.5 percent in April from a year earlier, more than twice the rate they were rising before the pandemic.Normally, faster wage growth would be good news. Persistently weak pay increases were a bleak hallmark of the long, slow recovery that followed the last recession. But even some economists who bemoaned those sluggish gains at the time say the current rate of wage growth is unsustainable.“That’s something that we’re used to saying pretty unequivocally is good, but in this case it just raises the risk that the economy is overheating further,” said Adam Ozimek, chief economist of the Economic Innovation Group, a Washington research organization. As long as wages are rising 5 or 6 percent per year, he said, it will be all but impossible to bring inflation down to the Fed’s 2 percent target.Inflation F.A.Q.Card 1 of 5What is inflation? More

  • 188 Shares159 Views

    in Economy

    Inflation moderated in April but was still close to its highest level in 40 years.

    by

    An important measure of consumer prices showed that inflation slowed in April, but remained close to a four-decade high.The Personal Consumption Expenditures price index rose 0.2 percent last month from March and was up 6.3 percent from a year earlier, the Commerce Department said Friday. That is down from a 6.6 percent annual increase in March, which represented the fastest pace of inflation since 1982.Economists and investors closely watch the index, an alternative to the better-known Consumer Price Index, because the Federal Reserve prefers it as a measure of inflation. The central bank has been raising interest rates and announced that it will begin paring asset purchases in a bid to cool the economy and tame inflation.The slowdown in inflation in April was largely the result of a drop in the price of gasoline and other energy sources. Gas prices soared in February and March largely because of Russia’s invasion of Ukraine, then moderated somewhat in April. They have risen again in recent weeks, however, which could push measures of inflation back up in May. Food prices have also been rising quickly in recent months, a pattern that continued in April.Stripping out the volatile food and fuel categories, consumer prices were up 4.9 percent in April from a year earlier. That core measure, which some economists view as a more reliable guide to the underlying rate of inflation, was up 0.3 percent from a month earlier, little changed from the rate of increase in March.The comparatively tame increase in core prices in the data released Friday stood in contrast to the sharp acceleration in the equivalent measure in the Consumer Price Index report released by the Labor Department this month. The divergence was mostly the result of differences in the way the two measures count airline fares, however, and economists said the Fed was unlikely to take much comfort from the Commerce Department data.“My suspicion is they will probably look through the slowdown,” said Omair Sharif, the founder of the research firm Inflation Insights. He noted that the core index also slowed last fall, only to pick up again at the end of the year, catching the Fed off guard.Many forecasters believe that the headline inflation rate peaked in March and that April marked the beginning of a gradual cool-down. But the recent rebound in gas prices is threatening to complicate that picture. And even if inflation continues to ebb, prices are still rising far more quickly than the Fed’s target of 2 percent over time.“For the past year, inflation has been high and rising and we’re at a point now where it’s high and falling,” said Tim Quinlan, a senior economist at Wells Fargo.The public, Mr. Quinlan added, is unlikely to see the slight moderation in inflation as much to celebrate.“To them, the year over year growth in prices doesn’t matter,” he said. “It’s why does a crappy lunch cost $12 now?” More

  • 163 Shares169 Views

    in Economy

    Fed Minutes Show Officials Expecting to Raise Rates Three Times to Address Inflation

    by

    Federal Reserve officials agreed at their last meeting that the central bank needed to move “expeditiously” to bring down the most rapid pace of inflation in 40 years, with most participants expecting as many as three half-a-percentage-point interest rate increases in the months ahead, minutes of the Fed’s May meeting showed.They also discussed the prospect of raising interest rates beyond the so-called neutral rate, at which they are neither supporting nor dampening the economy, to further slow economic growth as policymakers try to combat inflation.The officials noted that inflationary pressures were evident in a broad array of goods and services, causing hardship for Americans by eroding their incomes and making it hard for businesses to plan for the future. They said further supply chain disruptions from the Russian invasion of Ukraine and pandemic lockdowns in China were also threatening to push inflation higher.Their discussion highlighted the urgency of the task ahead, with some officials emphasizing “that persistently high inflation heightened the risk that longer-term inflation expectations could become unanchored,” making it more difficult for the central bank to return inflation to the 2 percent annual average that the Fed aims for.Officials also debated whether price pressures might be beginning to abate. Several observed that recent economic data suggested inflation might no longer be worsening, though they said it was too soon to say whether it had peaked. While they said the job market and consumer and business spending remained strong, they also expressed concern about “downside” risks to the economy “and the likelihood of a prolonged rise in energy and commodity prices.”Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.Interest Rates: As it seeks to curb inflation, the Federal Reserve began raising interest rates for the first time since 2018. Here is what that means for inflation.State Intervention: As inflation stays high, lawmakers across the country are turning to tax cuts to ease the pain, but the measures could make things worse. How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.The Fed raised rates half a percentage point in May, its biggest rate increase since 2000. Officials also detailed a plan to shrink the central bank’s $9 trillion in bond holdings and signaled that it would continue making money more expensive to borrow and spend until it got inflation under control. In the May meeting, officials reiterated plans to begin winding down on June 1 a stimulus program that has been in place since early in the pandemic.The Fed’s policy rate is now set in a range of 0.75 to 1 percent.Its decision to raise rates by half a percentage point in May initially buoyed Wall Street, which had been worried about a larger increase of 0.75, as some officials had been suggesting. The Fed chair, Jerome H. Powell, speaking at a news conference after the May meeting, appeared to rule out such a large move, saying it was “not something the committee is actively considering.” Investors took notice of that comment, and stocks rallied.But in the weeks since, Mr. Powell has made clear that economic conditions remain incredibly uncertain and that the Fed may need to go bigger — or smaller — depending on how things evolve.“If things come in better than we expect, then we’re prepared to do less,” Mr. Powell said during an interview with “Marketplace,” a radio program distributed by American Public Media. “If they come in worse than when we expect, then we’re prepared to do more.”Still, as of the May meeting, “most participants judged that 50-basis-point increases in the target range would likely be appropriate at the next couple of meetings,” according to the minutes, which were released on Wednesday.Inflation F.A.Q.Card 1 of 5What is inflation? More

  • 113 Shares99 Views

    in Economy

    Biden’s Curious Talking Point: Lower Deficits Offer Inflation Relief

    by

    The administration says federal spending trends are helping rein in price increases, but the economic calculus may be more complicated.As Americans deal with the highest inflation in decades, President Biden has declared that combating rising costs is a priority for his administration. Lately, he has cited one policy in particular as an inflation-fighting tool: shrinking the nation’s budget deficit.“Bringing down the deficit is one way to ease inflationary pressures in an economy,” Mr. Biden said this month. “We reduce federal borrowing and we help combat inflation.”The federal budget deficit — the gap between what the government spends and the tax revenue it takes in — remains large. But Mr. Biden has pointed out that it shrank by $350 billion during his first year in office and is expected to fall more than $1 trillion by October, the end of this federal budget year.Rather than stemming from any recent budget measures by his administration or Congress, the deficit reduction largely reflects the rise in tax receipts from strong economic growth and the winding down of pandemic-era emergency programs, like expanded unemployment insurance. And for many experts, that — plus the reality that deficits have a complicated relationship with inflation — makes the budget gap a surprising talking point.“It’s probably not something they should be taking credit for,” Dan White, director of government consulting and fiscal policy research at Moody’s Analytics, said of the Biden team’s emphasis on deficit reduction. The expiration of the programs is mostly “not making things worse,” he said.The Biden administration’s March 2021 spending package helped the economic rebound, but it also meant the deficit shrank less than it otherwise would have last year. In fact, the $1.9 trillion relief plan probably added to inflation, because it pumped money into the economy when the labor market was starting to heal and businesses were reopening.But the White House has explained its new emphasis on deficit reduction and fiscal moderation in terms of timing. Administration officials argue that back in March 2021, the world was uncertain, vaccines were only beginning to roll out and spending heavily on support programs was an insurance policy. Now, as the labor market is booming and consumer demand remains high, the administration says it wants to avoid ramping up spending in ways that could feed further inflation.“Supply chains have created challenges in ramping up production as quickly as we were able to support demand,” said Heather Boushey, a member of the White House Council of Economic Advisers. “The point he’s trying to make is that the plan, moving forward, is responsible and is not aimed at adding to demand.”Moody’s Analytics estimates that inflation will be about a percentage point lower this year than it would be had the government continued spending at last year’s levels.But few people, if anyone, expected those programs to continue. And while it is possible to make a rough estimate about how much fading fiscal support is helping with the inflation situation, as Moody’s did, a range of economists have said that it is hard to know how much it matters for inflation with precision.Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.Interest Rates: As it seeks to curb inflation, the Federal Reserve began raising interest rates for the first time since 2018. Here is what that means for inflation.State Intervention: As inflation stays high, lawmakers across the country are turning to tax cuts to ease the pain, but the measures could make things worse. How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.The tie between budget deficits and inflation is also more complex than Mr. Biden’s statements suggest.Deficits, which are financed by government borrowing, are not inherently inflationary: Whether they push up prices hinges on the economic environment as well as the nature of the spending or cutback in revenue that created the budget shortfall.Policies that reduce the deficit could be inflationary, for instance. A big, broadly distributed stimulus that gives direct cash aid to low- and middle-income households could be more than offset in a budget by revenue from large tax increases on the wealthy. But shuffling much of that money to people who are likely to spend it quickly could cause demand to outstrip supply, leading to inflation. Alternatively, spending that would enlarge deficits — like debt-financed investments in energy infrastructure — could reduce inflation over time if the program improves efficiency, expands capacity or makes production cheaper.“I’ll fall back on the typical economist answer and say: It depends,” said Andrew Patterson, a senior international economist at Vanguard.The last time the federal government had a budget surplus was 2001. Since 1970, there have only been four years in which the U.S. government taxed more than it spent. Over that period, there have been times of both high and low inflation.“There’s no simple-minded deficit-to-inflation link — you have to look at both the demand and the supply side of the economy,” said Glenn Hubbard, a professor of finance and economics at Columbia University who headed the Council of Economic Advisers under President George W. Bush. The existence or absence of high inflation has more to do with imbalances in the real economy than with complex budget math. “If aggregate demand grows much faster than aggregate supply, you will see inflation,” he said.Complicating matters in the current situation, the stimulus from the last couple of years is still trickling out into the economy because consumers have amassed savings stockpiles that they are spending down, and because state and local governments continue to use untapped relief funds.And stimulus-stoked demand is far from the only reason prices are rising. Over the past year, because of factory shutdowns and overburdened transit routes, companies have struggled to expand supply to meet booming demand. Shortages of cars, couches and construction materials and raw components have helped to push costs higher.Grocery shoppers in Los Angeles. The White House has argued that a shrinking federal budget deficit will help rein in consumer prices.Alisha Jucevic for The New York TimesRecent global developments are worsening the situation. The Chinese government’s latest lockdowns to contain the coronavirus threaten to shake up factory production and shipping, while the war in Ukraine has caused fuel and food prices to increase.Employers are also raising wages as they scramble to hire in a hot job market, and that increase in labor costs is prompting some companies to raise prices to protect their profit levels. Some companies are even increasing their profits, having discovered that they can charge more in an era of hot demand.The demand drag from fading pandemic relief doesn’t appear to have been large enough to substantially offset those other forces. To date, price gains for a range of goods and services have mostly accelerated.Inflation F.A.Q.Card 1 of 5What is inflation? More