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    Inflation Climbs at Fastest Pace in 30 Years as Supply Chain Snarls Linger

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    Inflation, once expected to fade quickly, is proving more stubborn. That ramps up tension among officials as they wait for pressures to fade.The Federal Reserve’s preferred gauge of inflation climbed in August at the quickest pace in 30 years, data released on Friday showed, keeping policymakers on edge as evidence mounts that rapidly rising prices are poised to last longer than practically any of them had expected earlier this year.The numbers come at a pivotal moment, as inflationary warning signals abound. Used car prices show signs of picking up again, costs for raw goods like cotton and crude oil are increasing and companies continue to experience pain from persistent supply chain disruptions.That is stoking fears in Washington and on Wall Street that although rapid price gains will eventually fade, the adjustment could drag on for months. A longer burst of inflation raises the chances that consumers will change their expectations and behavior, paving the way for more permanent price increases.It is a high-stakes juncture for policymakers. The Fed is preparing to withdraw some of its support for the economy soon, but it would prefer to do so only gradually, given the millions of Americans who remain out of work. The White House is trying to pass two big policy packages at the core of President Biden’s economic agenda, and Republicans have begun wielding every new inflation data point as an argument against more federal spending.Pandemic-related disruptions have caused the bulk of this year’s pop in prices, which is why economists and White House officials continue to predict they will eventually recede. A spike in demand from stuck-at-home workers and families for furniture, electronics and other products collided with factory shutdowns in Asia and overwhelmed shipping routes.The inflation measure released on Friday, the Personal Consumption Expenditures index, rose 4.3 percent in the year through August, beating out the previous month’s reading of 4.2 percent. And it is increasingly clear that getting back to normal will not be a quick process. Factory shutdowns continue to ripple through the global supply chain. Shipping snarls may worsen as the holiday season approaches. Rents are rebounding at a breakneck pace after a pandemic swoon, threatening to push housing inflation — an important part of overall price indexes — higher.“It’s still quite an inflationary environment going into next year, and that isn’t going to be good for growth,” said Laura Rosner-Warburton, an economist at the research firm MacroPolicy Perspectives. “They need to be monitoring things very closely. This is a huge shock.”Wages are rising, but in many cases not quickly enough to overcome the rapid run-up in prices, Ms. Rosner-Warburton pointed out. A reduction in purchasing power threatens to create a cycle in which consumers buy less while goods and services are becoming more expensive because of supply limits, a situation often called “stagflation.”That remains a risk — not a baseline expectation — but the possibility of lingering inflation increasingly worries economists, companies and even some policymakers.It is “frustrating to see the bottlenecks and supply chain problems not getting better — in fact, at the margin, apparently getting a little bit worse,” Jerome H. Powell, the Fed’s chair, said while speaking on a panel on Wednesday. “We see that continuing into next year, probably, and holding inflation up longer than we had thought.”Phil Levy, the chief economist at the logistics firm Flexport, said his company expected supply chain issues to begin easing next summer at the earliest. But as labor issues bubble up at long-overburdened ports, that could take even longer.And in the near term, trouble finding shipping space could translate to shortages of toys and trinkets during the holiday season, causing companies to lift prices to make sure their supply lasts, Mr. Levy said.“Ports are under strain, with ships backed up. We are short on truckers. We have warehouses that are packed full,” he said, later adding: “There was a sense a year ago that this would be a short-lived thing — there would be a craze, a squeeze, and then it would let up. The interpretation of ‘transitory’ has changed.”While central bankers have long expected price gains to slow down, their guesses at how quickly that moderation will happen have been increasingly glum. In their latest economic projections, Fed officials forecast that the Personal Consumption Expenditures index will average 4.2 percent in the final quarter of 2021 — up from 3.4 percent in their June estimates — before declining to 2.2 percent by the end of next year.The Fed aims for 2 percent inflation on average over time, though it is happy to tolerate higher periods as long as they are not expected to last.Today’s price problem is a surprising one. Central bankers across advanced economies had spent most of the last decade wrestling with too-low, rather than too-high, inflation. That’s one of the reasons officials expect price gains to cool — once the pandemic shock recedes, long-running forces like population aging and technology should dominate.But for now, officials are watching to make sure the current jump fades, and they are positioning themselves for the possibility that it might not.The Fed clearly signaled at its latest meeting that it could announce a plan to dial back its big bond-buying program as soon as November, the first step in removing monetary policy support for the economy. Some Fed officials have pointed out that bringing the bond-buying program to a close soon could leave the central bank more nimble, should it find that it needs to raise interest rates — its more powerful tool, currently still near zero — to tamp down demand and wrestle inflation back to its goal.Inflation and supply issues also pose a headache for President Biden’s White House, as rising costs chip away at voters’ paychecks and as houses and cars prove sharply more expensive and difficult to buy.Administration officials are focusing on the fact that a “core” price index, which strips out volatile food and fuel prices, has been slowing somewhat on a monthly basis, a senior White House official said on Friday. That measure climbed 0.3 percent in August from July, roughly the same as the previous month and down from a peak of 0.6 percent earlier this year.But the headline-grabbing annual numbers are giving Republicans political fodder, with many blaming the jump in prices on government spending and using it to argue against additional outlays.Container ships waiting at sea to dock at the Los Angeles Port this week.Etienne Laurent/EPA, via Shutterstock“Regardless of what the White House press team says, I think people are really seeing the impact of higher prices, day in, day out,” Representative Bryan Steil, a Republican from Wisconsin, said while questioning Treasury Secretary Janet L. Yellen and Mr. Powell during a hearing on Thursday. He later suggested that “runaway spending” in Washington would increase consumer inflation expectations.The White House argues that stimulus from Mr. Biden’s infrastructure and social spending legislation would trickle out over time and could improve economic capacity, relieving supply chain pressures over the longer run.But the administration and Fed alike are watching closely to make sure that consumers do not come to expect ever-higher prices amid today’s burst in inflation.“The real question is, when your boss says, ‘Hey, I’m giving you a 4 percent raise this year,’ are you happy or upset?” Mr. Levy, the Flexport economist, said. “Once that stuff gets built in, it can be very painful to change.”Encouragingly, consumer and financial market expectations of where inflation will settle over the longer term — typically five years — seem to have leveled off after climbing slightly earlier in 2021. Still, companies are planning for the possibility that supply chain disruptions and rising costs will persist for some time.“We’re not expecting supply chain pressures to ease,” Mark J. Tritton, chief executive officer at Bed Bath & Beyond, said during an earnings call on Friday. He noted that the company was trying to adjust how it operated to deal with the issues, including by trying to carefully manage inventory.General Motors and Honda both reported significant declines from a year earlier in sales during the three months that ended in September as chip shortages forced them to idle plants, leaving dealers with few vehicles to offer customers. And as used cars remain in short supply, their prices — a major driver of inflation this year — could rise again.The pain is being felt across many advanced economies: Inflation in the eurozone climbed to 3.4 percent in September from a year earlier, the highest in 13 years, according to an estimate by the region’s statistical agency released on Friday.Omair Sharif, founder of the research firm Inflation Insights, said he still expected U.S. price increases to fade to more normal levels by the middle of next year — but acknowledged that it was going to take longer to resolve supply problems than he would have expected even three months ago.“We just had blinders on with the global supply chain,” he said.Neal E. Boudette More

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    Elizabeth Warren Calls Jerome Powell a ‘Dangerous Man’

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    Senator Elizabeth Warren, Democrat of Massachusetts, blasted the Federal Reserve chair, Jerome H. Powell, for his financial regulation track record and said that she would not support him if the White House renominated him, calling him a “dangerous man to head up the Fed.”Mr. Powell’s term as head of the central bank ends in early 2022, and the Biden administration is considering whether to reappoint him. Mr. Powell, a Republican, was nominated to the Fed’s Board of Governors by former President Barack Obama and elevated to chair by former President Donald J. Trump.While some prominent Democratic economists and advocacy groups support Mr. Powell, who has been intensely focused on the labor market during his term as Fed chair, some progressives openly oppose him. They often cite his track record on financial regulation — as Ms. Warren did to his face on Tuesday, as he testified before the Senate Banking Committee.“The elephant in the room is whether you’re going to be renominated,” Ms. Warren said, looking down at the Fed chair during the hearing. “Renominating you means gambling that, for the next five years, a Republican majority at the Federal Reserve, with a Republican chair who has regularly voted to deregulate Wall Street, won’t drive this economy over a financial cliff again.”Ms. Warren, and those who agree with her, have worried that leaving Mr. Powell in place will prevent the Fed from taking a tougher stance on financial regulation. Mr. Powell has said that when it comes to regulatory matters, he defers to the Fed’s vice chair for supervision, noting that Congress created that job to lead up bank oversight following the 2008 financial crisis.“I respect that that’s the person who will set the regulatory agenda going forward,” Mr. Powell said during a news conference last week. “And furthermore, it’s fully appropriate to look for a new person to come in and look at the current state of regulation and supervision and suggest appropriate changes.”Ms. Warren’s colleague Senator Michael Rounds, a Republican from South Dakota, followed her scathing comments by saying that Mr. Powell deserved to be renominated, and that he looked forward to working with him for the next several years.The White House has so far given little indication of whom it will pick to lead the central bank.President Biden already has the opportunity to fill one open governor position at the Fed, and several other roles will soon become available: The governor seat of the Fed’s vice chair, Richard Clarida, will expire in the coming months, as will Randal K. Quarles’s position as vice chair for supervision. The openings could give the administration a chance to remake the central bank from the top with its nominations, who must pass Senate confirmation.Other lawmakers at the Senate hearing pushed Mr. Powell to focus on improving diversity at the central bank — highlighting another key concern among Democrats as the leadership shuffle gets underway.Senator Sherrod Brown, a Democrat from Ohio and the head of the Senate Banking Committee, pointed out that there had never been a Black woman on the Federal Reserve’s Board of Governors in Washington, while also referring to reporting from earlier this year that showed a dearth of Black economists at the central bank.He asked if Mr. Powell believed that the central bank should have a Black woman on its Board of Governors.“I would strongly agree that we want everyone’s voice heard around the table, and that would of course include Black women,” Mr. Powell said. “We of course have no role in the selection process, but we would certainly welcome it.”Lisa Cook, a Michigan State University economist, and William Spriggs, chief economist of the labor union AFL-CIO, are often raised as possible candidates for governor positions or leadership roles. Both are Black. Lael Brainard, a white woman who is currently a Fed governor, is frequently raised as a possible replacement for Mr. Powell if he is not renominated, and Sarah Bloom Raskin, a white woman who is a former top Fed and Treasury official, is often suggested as a replacement for Mr. Quarles.Mr. Powell, as he noted, has no formal role in selecting his future colleagues at the Fed Board.He and his colleagues at the Fed Board will, however, have a chance to weigh in on who will take over two newly open positions around the Fed’s decision-making table. The central bank has 19 total officials at full strength, seven governors and 12 regional bank presidents.Robert S. Kaplan, the Dallas Fed president, and Eric S. Rosengren, the Boston Fed president, both announced their imminent retirements on Monday, amid widespread criticism of the fact that they were trading securities in 2020 — during a year in which the Fed unrolled a widespread market rescue in response to the pandemic.Mr. Powell addressed that scandal on Tuesday, pledging to lawmakers that the Fed would change its ethics rules and saying that the Fed was looking into the trading activity to make sure it was in compliance with those rules and with the law.“Our need to sustain the public’s trust is the essence of our work,” Mr. Powell said, adding that “we will rise to this moment.”Beyond grabbing headlines, the departures will leave two regional bank jobs available at the Fed. The regional branches’ boards, except for bank-tied members, will search for and select replacement presidents. The Fed’s governors in Washington have a “yes” or “no” vote on the pick.The Fed has never had a Black woman as a regional bank president, either. Raphael Bostic, president of the Federal Reserve Bank of Atlanta, is the first Black man to serve in one of those roles.At the Board of Governors, Mr. Quarles’s leadership term ends most imminently, on Oct. 13. His position as governor does not expire until 2032, and he has signaled that he will likely stay on as a Fed governor at least through the end of his leadership term at the Financial Stability Board, a global oversight body, in December. Mr. Powell’s leadership term ends in early 2022, though he could stay on as governor since his term in that role does not expire until 2028. Mr. Clarida will have to leave early next year unless he is reappointed. More

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    Janet Yellen and Jerome Powell warn that the Delta variant is slowing the recovery.

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    America’s two top economic policymakers will warn lawmakers on Tuesday that the Delta variant of the coronavirus has slowed the economic recovery but will convey optimism about the economy’s overall trajectory, according to prepared remarks.Treasury Secretary Janet L. Yellen and the Federal Reserve chair, Jerome H. Powell, will testify before the Senate Banking Committee as the U.S. economy is at a crossroads, with businesses facing labor shortages and consumers coping with rising prices amid a resurgent pandemic. Congress is also grappling with a thicket of legislative challenges in the coming days, all of which could have an impact on the economy. They include extending federal funding to avoid a U.S. government shutdown, raising the debt limit to prevent defaulting on the nation’s financial obligations and passing President Biden’s infrastructure and social safety net packages.“While our economy continues to expand and recapture a substantial share of the jobs lost during 2020, significant challenges from the Delta variant continue to suppress the speed of the recovery and present substantial barriers to a vibrant economy,” Ms. Yellen will say, according to her prepared remarks. “Still, I remain optimistic about the medium-term trajectory of our economy, and I expect we will return to full employment next year.”The testimony will offer Ms. Yellen and Mr. Powell a chance to publicly press lawmakers to take action to raise or suspend the nation’s borrowing cap and to warn of the calamitous consequences if the United States defaulted on its obligations. Ms. Yellen has cautioned that debt-limit brinkmanship is eroding confidence in the United States and that a default, which could happen as soon as mid-October, would do irreparable harm to the economy.For weeks, Ms. Yellen has been quietly pressing lawmakers to put politics aside and ensure that the United States can continue to meet its fiscal obligations. She has been in touch with Wall Street chief executives and former Treasury secretaries as she looks to keep markets calm and find allies who can help her make the case to recalcitrant Republicans, who believe Democrats must deal with the debt limit on their own.“It is imperative that Congress swiftly addresses the debt limit,” Ms. Yellen will say. “The full faith and credit of the United States would be impaired, and our country would likely face a financial crisis and economic recession.”Mr. Powell is slated to tell senators that the Fed will continue to support the economy with its monetary policies, which influence how expensive it is to borrow and spend. But he will also make it clear that Fed officials will act if a recent jump higher in prices persists.“Inflation is elevated and will likely remain so in coming months before moderating,” Mr. Powell is prepared to say, based on remarks released Monday afternoon.He will cite the lingering coronavirus pandemic as a risk to the economic outlook, according to his prepared statement.Mr. Powell has also fretted about the debt limit in recent weeks, saying during a news conference last week that default is “just not something that we should contemplate,” and that “no one should assume that the Fed or anyone else can protect the markets or the economy in the event of a failure, fully protect in the event of a failure to make sure that we do pay those debts when they’re due.”Ms. Yellen and Mr. Powell will testify again on Thursday before the House Financial Services Committee. More

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    Kaplan and Rosengren, Fed Presidents Under Fire for Trades, Will Step Down

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    Robert S. Kaplan will exit his role as head of the Federal Reserve Bank of Dallas next month. Eric S. Rosengren, the head of the Federal Reserve Bank of Boston, is also retiring earlier than planned.Eric S. RosengrenSteven Senne/Associated PressRobert S. KaplanAnn Saphir/ReutersTwo Federal Reserve officials embroiled in controversy for trading securities that could have benefited from the central bank’s 2020 intervention in financial markets announced on Monday that they would leave their positions.Robert S. Kaplan, who heads the Federal Reserve Bank of Dallas, will retire on Oct. 8, according to a statement released Monday afternoon. Mr. Kaplan’s statement acknowledged the controversy as the reason for his departure. Eric S. Rosengren, the president of the Boston Fed, will retire this Thursday, accelerating his planned retirement by nine months. Mr. Rosengren cited health reasons for his early departure.The resignations followed the Fed’s announcement this month that Chair Jerome H. Powell had ordered a review of the central bank’s ethics rules in light of the concern surrounding the trades. When asked about his confidence in Mr. Kaplan and Mr. Rosengren during a news conference last week, Mr. Powell expressed displeasure with what had happened.“No one on the F.O.M.C. is happy to be in this situation, to be having these questions raised,” Mr. Powell said, referring to the policy-setting Federal Open Market Committee. He added, “This is an important moment for the Fed and I’m determined that we will rise to the moment.”Mr. Kaplan noted in his statement that it was his decision to leave the Fed, and that “the recent focus on my financial disclosure risks becoming a distraction” to the central bank’s economic work.Mr. Kaplan drew scrutiny for buying and selling millions of dollars in individual stocks, among other investments, last year — trading first reported on by The Wall Street Journal on Sept. 7. He has maintained that his trades were consistent with Fed ethics rules.Mr. Rosengren announced on Monday morning that he was retiring earlier than planned to try to prevent a kidney condition from worsening, in the hopes of staving off dialysis. The Boston Fed president came under criticism because he held stakes in real estate investment trusts, which invest in and sometimes manage properties, and listed purchases and sales in those in 2020. He spent last year warning publicly about risks in the commercial real estate market, and was helping to set Fed policy on mortgage-backed security purchases, which can help the housing market by improving financing conditions.Both presidents had previously announced that they would convert their financial holdings into broad-based indexes and cash by Sept. 30.Mr. Powell offered statements of support for both of the retiring officials in the news releases announcing their exit.But the controversy has pushed him into a delicate position. His own term as Fed chair expires early next year, and the White House is actively considering whether to reappoint him. A scandal at his central bank is sure to draw questions from senators when he testifies this week, and could even hurt his reappointment chances.As chair, Mr. Powell has also focused on shoring up public support in the central bank and explaining its role. He holds frequent news conferences, aims to speak in simpler language, and championed a series of “Fed Listens” events where top central bank officials meet and hear from community members whom they might not otherwise interact with — from community college students to local food pantry staff.The 2020 trading disclosures, which are shaping up to be the most headline-grabbing scandal the central bank has faced in years, risk chipping away at the widespread trust he has been working to build.Responses to Mr. Kaplan and Mr. Rosengren’s trading disclosures have been swift, and scathing. The group Better Markets had been calling for the Fed to fire both presidents if they did not resign. Other progressive groups had called for at least one of them to be ousted, and ethics watchdogs have said that the rules that had enabled their trades needed to be revisited.After the resignation announcements on Monday, Wall Street promptly began to assess what the departures would mean for monetary policy. Both officials have tended to worry about financial stability, and for that reason were likely to favor removing monetary policy support sooner than some of their colleagues — a stance often referred to as being hawkish.“Their exit will take out two of the nine more hawkish Fed officials who saw a 2022 rate hike as of the September F.O.M.C. meeting last week and remove important voices on financial stability issues in particular,” Krishna Guha at Evercore ISI wrote in a note to clients shortly after the announcement.Mr. Rosengren has been president of the Boston Fed since 2007, and his retirement was previously planned for June. The Fed’s 12 regional members rotate in and out of voting seats, and Mr. Rosengren would have had a vote on monetary policy next year. Mr. Kaplan would have voted in 2023.Kenneth C. Montgomery, the Boston Fed’s first vice president, will serve as interim president at that bank. The Boston Fed’s board members — excluding bank representatives — will need to select a permanent pick for president, subject to approval from the Fed’s Board of Governors in Washington.A longtime Fed employee who worked in research and bank supervision before becoming president, Mr. Rosengren played a key role in the 2020 crisis response. His regional Fed ran both the money market mutual fund and Main Street lending backstop programs that the Fed rolled out last year.The Boston Fed noted in the release that Mr. Rosengren hoped that his health condition would improve, and that he would be able to “explore areas of professional interest” in the future.Mr. Kaplan has been at the head of the Dallas Fed since late 2015, before which he taught at Harvard University and had a long career at Goldman Sachs. Meredith Black, that bank’s first vice president who had planned to retire, will serve as interim president until a successor is named, the Dallas Fed said. More

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    Top Fed officials say the labor market needs more time to heal.

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    Top Federal Reserve officials emphasized on Monday that the labor market was far from completely healed, underlining that the central bank will need to see considerably more progress before it will feel ready to raise interest rates.“We still have a long way to go until we achieve the Federal Reserve’s maximum employment goal,” John C. Williams, the president of the Federal Reserve Bank of New York, said in a speech Monday afternoon.Leading Fed officials — including Mr. Williams, Lael Brainard and Jerome H. Powell, the Fed chair — have given similar assessments of the outlook in recent days and weeks. They have pointed out that the economy is swiftly healing, bringing back jobs and normal business activity, and that existing disruptions to supply chains and hiring issues will not last forever.But they say that the recovery is incomplete and that it’s worth being modest about the path ahead, especially as the Delta variant demonstrates the coronavirus’s ability to disrupt progress.“Delta highlights the importance of being attentive to economic outcomes and not getting too attached to an outlook that may get buffeted by evolving virus conditions,” Ms. Brainard, a Fed governor, said on Monday.Those comments came on the heels of the Fed’s September meeting, at which the central bank’s policy-setting committee clearly signaled that officials could begin to pare back their vast asset-purchase program as soon as November. They have been buying $120 billion in government and government-backed securities each month.The speeches on Monday emphasized that as officials prepare to make that first step away from full-fledged economic support, they are trying to separate the decision from the Fed’s path for its main policy interest rate, which is set to zero.Central bankers have said they want to see the economy return to full employment and inflation on track to average 2 percent over time before lifting rates away from rock bottom.That makes the debate over the labor market’s potential a critical part of the Fed’s policy discussion.Some regional Fed presidents, including James Bullard at the Federal Reserve Bank of St. Louis and Robert S. Kaplan at the Federal Reserve Bank of Dallas, have suggested that the labor market may be tighter than it appears, citing data including job openings and retirements.But Mr. Williams said on Monday that the job market still had substantial room to improve. While the unemployment rate has fallen from its pandemic high, he said the Fed was looking at more than just that number, which tracks only people who are actively looking for work. The Fed also wants the employment rate to rebound. He pointed out that a high level of job openings is not a clear signal that the job market has healed.“Even if job postings are at a record high, job postings are not jobs,” Mr. Williams said. “These vacancies won’t be filled instantly.”Although Mr. Williams said he had been watching the impact of school reopenings on the labor market, he said he did not think they would cause a huge surge in people returning to work this month or in October.“It may take quite a bit longer for the labor supply to come fully back,” he said.Ms. Brainard batted back the idea that labor force participation — the share of adults who are working or looking for jobs — might not return to its prepandemic level.“The assertion that labor force participation has moved permanently lower as a result of a downturn is not new,” she said. A similar debate played out following the 2008 financial crisis and labor force participation ultimately rebounded, especially for people in their prime working years.Ms. Brainard warned that Delta was slowing job market progress. Last week there were more than 2,000 virus-tied school closures across nearly 470 school districts, she said, and “the possibility of further unpredictable disruptions could cause some parents to delay their plans to return to the labor force.” More

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    Could This Covid Wave Reverse the Recovery? Here’s What to Watch.

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    Some businesses are still hurting, and federal aid has wound down. But economists see sources of resilience and signs of strength.The spread of the Delta variant has delayed office reopenings, disrupted the start of school and generally dashed hopes for a return to normal after Labor Day. But it has not pushed the U.S. economic recovery into reverse.Now that recovery faces a new test: the removal of much of the aid that has helped keep households and businesses afloat for the past year and a half.The Paycheck Protection Program, which distributed hundreds of billions of dollars in grants and loans to thousands of small businesses, concluded last spring. A federal eviction moratorium ended last month after the Supreme Court blocked the Biden administration’s last-minute effort to extend it. Most recently, an estimated 7.5 million people lost unemployment benefits when programs that expanded the system during the pandemic were allowed to lapse.Next up: the Federal Reserve, which on Wednesday indicated it could start pulling back its stimulus efforts as early as November.The one-two punch of a resurgent pandemic and waning aid has led Wall Street forecasters, who were once rosy about the economy’s prospects this fall and winter, to turn increasingly glum. Goldman Sachs said this month that it expected third-quarter data to show a decline in consumer spending, the linchpin of the recovery for the past year. Many economists expect jobs numbers for September to show a second straight month of anemic growth.Yet economists also see important sources of strength that could help the recovery overcome the latest coronavirus wave and possibly fuel a strong rebound on the other side of it. Few believe the overall economy is headed for another recession, let alone a repeat of last year’s collapse.“There’s been a clear deceleration, but I would stress deceleration rather than retrenchment,” said Jay Bryson, chief economist for Wells Fargo. “We certainly think that the expansion will continue.”Rather than posing an immediate threat, what the withdrawal of aid does is leave the recovery with less of a safety net if economists are wrong or if the public health situation worsens — both scenarios that have recurred throughout the pandemic.“I think one should be concerned that we could see the recovery weaken further and that appetite for putting in place more fiscal stimulus has diminished,” said Karen Dynan, a Harvard professor who was a Treasury official under President Barack Obama.And even if the recovery stays on course, it will almost certainly leave out some individuals and businesses, who face an increasingly uncertain fall with little government help. Even under the most optimistic scenarios, it will take months for all the workers who lost benefits this month to find jobs.“Fall will be slower for all of us because we’ve withdrawn the support,” said William E. Spriggs, a Howard University professor and chief economist for the A.F.L.-C.I.O. “There will be a slowdown in the labor market, and it will be disproportionately Black and brown workers who will have to deal with it.”The pandemic isn’t holding back activity as it once did.The Delta variant has caused a clear slowdown in certain sectors, particularly dining and air travel. But so far the decline in activity is nothing like the economywide pullback that the United States experienced in previous Covid waves.State and local government officials have not reimposed the lockdown orders and business restrictions put in place in earlier waves of the pandemic, and they appear disinclined to do so. Consumers appear to have become more careful, but they haven’t abandoned in-person activities, and many businesses have found ways to adapt.Restaurant reservations on OpenTable, for example, have fallen less than 10 percent from their early-July peak. That is a far smaller decline than during the last Covid surge, last winter.“It has moved down, but it’s not the same sort of decline,” Mr. Bryson said of the OpenTable data. “We’re living with it.”One wild card is how the Delta variant could affect the supply of workers. If virus rates remain high, people may hesitate to take jobs requiring face-to-face interaction, particularly where vaccination rates are low. And if schools and day care centers can’t stay open consistently, parents may have difficulty returning to work.The government is still providing a boost.Government aid hasn’t dried up entirely. The Federal Reserve said Wednesday that it could soon begin to pare its $120 billion in monthly bond purchases — which have kept borrowing cheap and money flowing through the economy — but it will almost certainly keep interest rates near zero into next year. Millions of parents will continue to receive monthly checks through the end of the year because of the expanded child tax credit passed in March as part of President Biden’s $1.9 trillion aid package.That bill, known as the American Rescue Plan, also provided $350 billion to state and local governments, $21.6 billion in rental aid and $10 billion in mortgage assistance, among other programs. But much has not been spent, said Wendy Edelberg, director of the Hamilton Project, an economic-policy arm of the Brookings Institution.“Those delays are frustrating,” she said. “At the same time, what that also means is that support is going to continue having an effect over the next several quarters.”Household savings could provide a buffer — if they last.Economists, including officials in the Biden administration, say that as the economy heals, there will be a gradual “handoff” from government aid to the private sector. That transition could be eased by a record-setting pile of household savings, which could help prop up consumer spending as government aid wanes.A lot of that money is held by richer, white-collar workers who held on to their jobs and saw their stock portfolios swell even as the pandemic constrained their spending. But many lower-income households have built up at least a small savings cushion during the pandemic because of stimulus checks, enhanced unemployment benefits and other aid, according to researchers at the JPMorgan Chase Institute.“The good news is that people are going into the fall with some reserves, more reserves than normal,” said Fiona Greig, co-director of the institute. “That can give them some runway in which to look for a job.”The risk, for individual households and the broader economy, is that aid will run out before the private sector can take the baton.Michael Ernette, 48, lost his job assembling manufactured homes in January and despite applying to four to five jobs a day, he hasn’t found work. He used his last unemployment check to pay off as many outstanding bills as possible, and now he is on a countdown to when he can’t make rent.“I took the last payment that we had and I paid everything and I’m roughly good through the end of October,” said Mr. Ernette, who lives near Pittsburgh. “That gives me 60 more days to find employment.”Businesses are entering a critical period.Eighty percent of small businesses are worried about the impact of the Delta variant, according to a recent survey by Alignable, a social network for small business owners. Not all have had sales turn lower, said Eric Groves, the company’s chief executive. But the uncertainty is hitting at a crucial moment, heading into the holiday season.“This is a time of year when business owners in the consumer sector in particular are trying to pull out their crystal ball,” he said. “Now is when they have to be purchasing inventory and doing all that planning.”“We pride ourselves on taking hits and getting back up,” said Ken Giddon, co-owner of the men’s clothing store Rothmans.Mohamed Sadek for The New York TimesRothmans, a century-old men’s clothing retailer in New York, is in one of the hardest-hit sectors in one of the nation’s hardest-hit cities. Yet a co-owner, Ken Giddon, is betting on the future: Last week, the company announced it would open a new location as part of a development project on the West Side of Manhattan.“We pride ourselves on taking hits and getting back up,” he said.The pandemic has been hard, Mr. Giddon said, but it has also created opportunities by driving down commercial rents and leaving fewer competitors. The Delta variant has delayed the return-to-office boom that retailers had been hoping for, but Mr. Giddon expects workers to return eventually — and to need new clothes when they do.“We don’t really care if people go back to work in suits or jeans,” he said. “We just want men to think about buying new clothes again.”In Minneapolis, however, Nicole Pomije is still struggling to make payroll.Ms. Pomije opened her baking business, the Cookie Cups, in 2018 after several years of selling at farmers’ markets and other events in the area. Much of her revenue came from cooking classes and birthday parties — activities that were virtually impossible for much of the past year and a half.Ms. Pomije closed one of her two locations for good in June. The other is hanging on, but barely — the store restarted cooking classes this year, which brought in some money, but parents are nervous about signing up their unvaccinated children for indoor activities.“I can’t tell you how many payrolls I’ve pulled out of my savings account the past two years,” Ms. Pomije said.Last year, Nicole Pomije introduced a set of baking kits aimed at children, which she is selling online.Caroline Yang for The New York TimesMs. Pomije is trying to adapt. Last year, she created a set of baking kits aimed at children, which she is selling online. The product has been a success — she has sold nearly 3,500 kits, and is expanding her offerings — but she has been plagued by supply-chain issues. A crucial shipment from Asia, containing the boxes she uses to package her kits, was held up at the Los Angeles port complex for 60 days.Ms. Pomije said she would be out of business already if she hadn’t received help from the federal government. Now, with more help unlikely, she is hoping holiday sales will help save her business.“This fourth quarter is going to be really critical to our success,” she said. “If we do sell enough product online even to just pay our payroll, rent and critical bills to stay afloat, with enough inventory still to sell, I think we’ll be fine.”Supply issues are putting policymakers in a bind.Early in the pandemic, economists had a simple message for policymakers: Go big. If some aid ended up going to people or businesses that didn’t really need help, that was a reasonable trade-off for the benefit of getting money to the millions who did.Today, the calculus is different. The impact of the pandemic is more tightly focused on a few industries and groups. At the same time, many businesses are having trouble getting workers and materials to meet existing demand. Traditional forms of stimulus that seek to stoke demand won’t help them. If automakers can’t get needed parts, for example, giving money to households won’t lead to more car sales — but it might lead to higher prices.That puts policymakers in a tight spot. If they don’t get help to those who are struggling, it could cause individual hardship and weaken the recovery. But indiscriminate spending could worsen supply problems and lead to inflation. That calls for a more targeted approach, focusing on the specific groups and industries that need it most, said Nela Richardson, chief economist for ADP, the payroll processing firm.“There are a lot of arrows in the quiver still, but you need them to go into the bull’s-eye now rather than just going all over,” Ms. Richardson said. More

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    Why Washington Worries About Stablecoins

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    Stablecoins might be the most ironically named innovation of the cryptocurrency era, at least in the eyes of many Washington regulators and policymakers.These digital currencies promise to maintain their value, which is generally pegged to a government currency like the dollar or euro, by relying on stable financial backing like bank reserves and short-term debt. They are exploding in popularity because they are a practical and cheap way to transact in cryptocurrency. Stablecoins have moved from virtual nonexistence to a more than $120 billion market in a few short years, with the bulk of that growth in the past 12 months.But many are built more like slightly risky investments than like the dollars-and-cents cash money they claim to be. And so far, they are slipping through regulatory cracks.The rush to oversee stablecoins — and the industry’s lobbying push to either avoid regulation or get on its profitable side — might be the most important conversation in Washington financial circles this year. How officials handle sticky questions about a relatively new phenomenon will set the precedent for a technology that is likely to last and grow, effectively writing the first draft of a rule book that will govern the future of money.The debate over how to treat stablecoins is also inescapably intertwined with another hot conversation: whether the Federal Reserve ought to offer its own digital currency. A Fed offering could compete with private-sector stablecoins, depending on its features, and the industry is already bracing for the possibility.Below is a rundown of what stablecoins are, why they may be risky, the possible regulatory solutions and the government’s likely next moves when it comes to policing them.What is a stablecoin?A stablecoin — stablevalue coin, if you’re feeling proper — is a type of cryptocurrency that is typically pegged to an existing government-backed currency. To promise holders that every $1 they put in will remain worth $1, stablecoins hold a bundle of assets in reserve, usually short-term securities such as cash, government debt or commercial paper.Stablecoins are useful because they allow people to transact more seamlessly in cryptocurrencies that function as investments, such as Bitcoin. They form a bridge between old-world money and new-world crypto.But many stablecoins are backed by types of short-term debt that are prone to bouts of illiquidity, meaning that they can become hard or impossible to trade during times of trouble. Despite that somewhat shaky backing, the stablecoins themselves promise to function like perfectly safe holdings.That makes them the type of financial product “macroeconomic disasters usually come from,” said Morgan Ricks, a professor at Vanderbilt University Law School and former policy adviser at the Treasury Department. “The stakes are really, really high here.”That said, some people — including George Selgin, director of the Center for Monetary and Financial Alternatives at the Cato Institute — argue that because stablecoins are used as a niche currency and not as an investment, they may be less prone to runs in which investors try to withdraw their funds all at once. Even if their backing comes into question, people will not want the potential taxes and paperwork that come with changing stablecoins into actual dollars.Given that the technology is so nascent, it is hard to know who is correct. But regulators are worried that they may find out the hard way.Are they all equally risky?Stablecoins are not all created equal. The largest stablecoin, Tether, says it is roughly half invested in a type of short-term corporate debt called commercial paper, based on its recent disclosures. The commercial paper market melted down in March 2020, forcing the Fed to step in to fix things. If those types of vulnerabilities strike again, it could be difficult for Tether to quickly convert its holdings into cash to meet withdrawals.Other stablecoins claim different backing, giving them different risks. But there are big questions about whether stablecoins actually hold the reserves that they claim.The company Circle had said its U.S.D. Coin, or U.S.D.C., was backed 1:1 by cashlike holdings — but then it disclosed in July that 40 percent of its holdings were actually in U.S. Treasurys, certificates of deposit, commercial paper, corporate bonds and municipal debt. A Circle representative said U.S.D.C. will, as of this month, hold all reserves in cash and short-term U.S. government Treasurys.The New York attorney general investigated Tether and Bitfinex, a cryptocurrency exchange, alleging in part that Tether had at one point obscured what the stablecoins had in reserve. The companies’ settlement with the state included a fine and transparency improvements.Tether, in a statement, noted that it has never refused a redemption and that it has amended its disclosures in the wake of the New York attorney general’s investigation. The common thread is that, without standard disclosure or reporting requirements, it is hard to know exactly what is behind a stablecoin, so it is tough to gauge how much risk it entails.It is also difficult to track just how stablecoins are being used.Stablecoins “may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money-laundering, tax compliance, sanctions and the like,” Gary Gensler, who heads the Securities and Exchange Commission, told Senator Elizabeth Warren in a letter this year.What can regulators do?The trouble with stablecoins is that they slip through the regulatory cracks. They aren’t classified as bank deposits, so the Fed and the Office of the Comptroller of the Currency have limited ability to oversee them. The S.E.C. has some authority if they are defined as securities, but that is a matter of active debate.State-level regulators have managed to exert some oversight, but the fact that significant offerings — including Tether — are based overseas could make it harder for the federal government to exercise authority. Regulators are looking into their options now.What are the government’s next steps?Treasury, the Fed and other financial oversight bodies have a few choices. It’s not obvious what they will choose, but the issue is clearly top-of-mind: The President’s Working Group on Financial Markets, anchored by Treasury, is expected to issue a report on the topic imminently. An upcoming Fed report on central bank digital currencies could also touch on stablecoin risks.A few of the top regulatory options include:Designate them as systemically risky. Because stablecoins are intertwined with other important markets, the Financial Stability Oversight Council could designate them a systemically risky payments system, making them subject to stricter oversight.While the market may not be big enough to count as a systemic risk now, the Dodd Frank Act gives regulators the ability to apply that designation to a payments activity if it appears to be poised to become a threat to the system in the future. If that happened, the Fed or other regulators would then need up to come up with a plan to deal with the risk.Treat them as if they were securities. The government could also label some stablecoins securities, which would bring bigger disclosure requirements. Mr. Gensler told lawmakers during a recent hearing that stablecoins “may well be securities,” which would give his institution broader oversight.Regulate them as if they were money market mutual funds. Many financial experts point out that stablecoins operate much like money market mutual funds, which also act as short-term savings vehicles that offer rapid redemptions while investing in slightly risky assets. But money funds themselves have required two government rescues in a little more than a decade, suggesting their regulation is imperfect.“Stablecoins don’t look new,” said Gregg Gelzinis, who focuses on financial markets and regulation at the Center for American Progress. “I see them either as an unregulated money market mutual fund or an unregulated bank.”Treat them as if they were banks. Given flaws in money fund oversight, many financial regulation enthusiasts would prefer to see stablecoins treated as bank deposits. If that were to happen, the tokens could become subject to oversight by a bank regulator, such as the Office of the Comptroller of Currency, Mr. Gelzinis said. They could also potentially benefit from deposit insurance, which would protect individuals if the company backing the stablecoin went belly up.Try to compete with central bank digital currency. Jerome H. Powell, the Fed chair, has signaled that outcompeting stablecoins could be one appeal of a central bank digital currency — a digital dollar that, like paper money, ties back directly to the Fed.“You wouldn’t need stablecoins, you wouldn’t need cryptocurrencies, if you had a digital U.S. currency. I think that’s one of the stronger arguments in its favor,” Mr. Powell said during testimony this year.But how a central bank digital currency is designed would be critical to whether it succeeded at replacing stablecoins. And industry experts point out that since stablecoin users prioritize privacy and independence from the government, a new form of government-backed currency might do little to supplant them.Cooperate internationally. If there’s one point everyone in the conversation agrees on, it’s that different jurisdictions will need to collaborate to make stablecoin regulation work. Otherwise, coins will be able to move overseas if they face unattractive oversight in a given country.The Financial Stability Board, a global oversight body, is working on establishing stablecoin-related standards and plans for cooperation, aiming for final adoption in 2023. More

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    The Fed will re-examine ethics rules after trades by two officials drew scrutiny.

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    The Federal Reserve is poised to overhaul the rules regarding what its officials are allowed to invest in and trade after disclosures last week showed that two of the central bank’s officials were active in markets in 2020, drawing an outcry.Robert S. Kaplan, the president of the Federal Reserve Bank of Dallas, and Eric Rosengren, the president of the Boston Fed, bought and sold stocks and real estate-tied assets last year.Those transactions complied with Fed guidelines, but they involved securities that could have been affected by Fed decisions and communications during a year in which it was actively supporting a broad swathe of financial markets amid the pandemic. Policy researchers and even some former Fed employees were upset by the disclosures.In response to the scrutiny, both regional presidents announced that they would sell their holdings and move them to cash and broad-based funds. Still, the episode highlighted that the Fed’s rules governing its officials’ financial activity — although in line with what much of the government uses, and in some cases stricter — allow for considerable individual discretion. The central bank said on Thursday that it would re-examine those policies at the direction of Jerome H. Powell, the Fed chair.“Because the trust of the American people is essential for the Federal Reserve to effectively carry out our important mission, Chair Powell late last week directed board staff to take a fresh and comprehensive look at the ethics rules around permissible financial holdings and activities by senior Fed officials,” a Fed representative said in a statement.“This review will assist in identifying ways to further tighten those rules and standards,” the representative added. “The board will make changes, as appropriate, and any changes will be added to the Reserve Bank Code of Conduct.”The statement came about an hour after Senator Elizabeth Warren, a Massachusetts Democrat, announced that she had sent letters to the Fed’s 12 regional banks urging them to adopt tougher restrictions.“The controversy over asset trading by high-level Fed personnel highlights why it is necessary to ban ownership and trading of individual stocks by senior officials who are supposed to serve the public interest,” Ms. Warren wrote in the letters. More