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    Behind the Powell Pick: A Bet the Economy Has Room to Grow

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    President Biden’s decision to renominate Jerome H. Powell to head the Federal Reserve reflects the president’s belief that despite high inflation, America’s economy still has a long way to go to deliver strong gains to women, Black and Hispanic Americans and low-wage workers trying to climb into the middle class.Mr. Biden made clear during a White House appearance that he believes Mr. Powell is philosophically aligned with his vision that the central bank needs to keep interest rates low and continue supporting the economy until it reaches maximum employment.“That’s an economy where companies have to compete to attract workers, instead of workers competing with each other for jobs, where American workers get steady wage increases after decades of stagnation, and where the benefits of economic growth are broadly shared by everyone in the country, not just concentrated for those at the top,” Mr. Biden said Monday.The president’s decision is also based on his belief that Mr. Powell and Lael Brainard, the Fed governor whom Mr. Biden nominated for vice chair on Monday, share his views on stabilizing inflation while being careful not to snuff out the recovery before the labor market heals.It is a gamble on several fronts for the president. He is betting that Mr. Powell will be more aligned with his views on the economy than he is with Republicans in the Senate who have decried rising inflation for months and demanded action from the Fed. Many of those Republicans endorsed Mr. Powell quickly on Monday, expressing hope that he would act swiftly to combat inflation.The president is also betting that his team is correct in its economic diagnosis that the inflation risk is fading and marginalized groups of workers still need help to reap the full gains of economic growth.Mr. Biden and his aides view the recent burst of inflation, which surged to its highest levels in three decades last month, as largely the product of crimps in global supply chains — and not a function of monetary policy that necessitates quick rate increases from the central bank.The decision to renominate Mr. Powell and to elevate Ms. Brainard is the sum of a wide range of political and economic calculations. Chief among them was choosing the chair with the desire, and bipartisan support, to pursue full employment.But administration officials say other considerations also favored Mr. Powell’s reappointment, like the need to maintain central bank stability in the midst of the economic disruption of a pandemic and the record of independence that Mr. Powell built over a four-year term that included withering criticism from former President Donald J. Trump, who appointed him to the chairmanship.Mr. Powell also appears to have defused, in the eyes of the president and his aides, liberal Democrats’ concerns that on his watch the Fed has not regulated big banks and other financial institutions stringently enough. In conversations with Mr. Biden leading up to the decision, Mr. Powell convinced the president he would follow the lead of the Fed’s vice president for supervision — an open position that Mr. Biden has yet to fill — in determining the central bank’s policies on financial regulations.Mr. Biden is expected to announce his pick for that job early next month, and Democrats expect him to nominate someone who will take a hard line on banks, a key demand of Senator Elizabeth Warren of Massachusetts, a progressive who opposes Mr. Powell’s renomination and has called him “dangerous.” Mr. Biden recently discussed his Fed picks with Ms. Warren, and he has been in regular contact with Senator Sherrod Brown of Ohio, the Democrat who leads the banking committee. More

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    Elizabeth Warren Says She Will Oppose Jerome Powell’s Nomination

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    Senator Elizabeth Warren, the Massachusetts Democrat, said on Monday that she would not vote to confirm Jerome H. Powell for a second term as chair of the Federal Reserve, citing “failures on regulation, climate and ethics.”Ms. Warren, who has called Mr. Powell “a dangerous man,” had been pushing for President Biden to name Lael Brainard as the next chair of the central bank. Mr. Biden’s decision to name Ms. Brainard to the No. 2 spot at the Fed drew Ms. Warren’s support but she said she would continue to push for additional governors who support aggressive financial regulation.“It’s no secret I oppose Chair Jerome Powell’s renomination, and I will vote against him,” Ms. Warren said in a statement.Other powerful Democrats, along with Republican lawmakers expressed. support for Mr. Biden’s decision, saying it would keep the central bank on a steady course and protect its political independence at a time of inflation and economic uncertainty for the country.Senator Sherrod Brown, Democrat of Ohio and the chair of the Senate Banking Committee, which oversees the Fed, praised Mr. Powell’s role in helping the labor market heal from the pandemic downturn and giving workers greater bargaining power in terms of higher wages.“The Federal Reserve must continue to help steer our economic recovery in the right direction — toward full employment and an economy that empowers workers and their families,” Mr. Brown said. “I look forward to working with Powell to stand up to Wall Street and stand up for workers, so that they share in the prosperity they create.”Senator Jon Tester, a Montana Democrat, said on Twitter that the decision “a smart move.”Mr. Biden’s decision to reappoint Mr. Powell, who was first appointed by former President Donald J. Trump, returns the country to a long tradition in which presidents of both parties have embraced the Fed chairs selected by their predecessors, in an expression of support for the central bank’s political independence. Mr. Trump bucked the tradition, replacing Janet L. Yellen with Mr. Powell in 2018.Some progressive Democrats had urged Mr. Biden to also break with tradition and appoint someone else to the role. In addition to Ms. Warren, Senators Sheldon Whitehouse of Rhode Island and Jeff Merkley of Oregon had called for Mr. Powell to be replaced, citing his views on climate change, financial regulation and an ethics scandal at the central bank.Mr. Whitehouse said in a statement on Monday that he was “disappointed” in the decision, adding that Mr. Powell had done too little to address climate change.“Our Fed Chair must devote immediate and thorough attention to the climate threat before it is too late,” Mr. Whitehouse said in the statement. “I sincerely hope that, if confirmed, Powell will reassess his past opposition to utilizing the Fed’s regulatory tools to minimize climate-related risks to the financial sector.”Americans for Financial Reform, a coalition of community, labor and civil rights groups, called the decision “a major disappointment to those of us who have fought for tougher regulation of Wall Street.”Mr. Biden’s decision to nominate Ms. Brainard for vice chair could help mollify some of those concerns. Some progressive groups had been pushing for Ms. Brainard to lead the central bank, in part because of her views on climate change and financial regulation.Mr. Whitehouse applauded Ms. Brainard’s nomination in his statement, saying “she clearly recognizes the gravity of the climate-related financial and economic risks facing our nation and will push the Fed to fully utilize its regulatory authorities in this space.”Other groups that have been critical of the Fed expressed support for the picks, particularly Ms. Brainard.The Fed Up Campaign, which advocates more accommodative monetary policies and full employment, said the Fed needed “to continue pro-employment, pro-wage growth, pro-racial justice macroeconomic policies for as long as economic conditions allow.”“Governor Brainard is a strong choice for Vice Chair, and we are expecting Biden to continue to name truly bold and pro-worker choices to the vacant governor seats,” the group said.Lawmakers also expressed support for the move, though some Republicans expressed concerns about Ms. Brainard, who has pushed for tougher financial regulations.Senator Patrick J. Toomey of Pennsylvania, the ranking member on the Senate Banking Committee, said that he disagreed with some of Mr. Powell’s decisions during the crisis, but that he would support his nomination.“When the pandemic hit in 2020, Chairman Powell acted swiftly and took extraordinary and necessary steps to help stabilize financial markets and the economy,” Mr. Toomey said in a statement.The senator expressed “concerns about regulatory policies that Governor Brainard would support as Vice Chair,” but said looked forward to discussing those issues.Both Mr. Powell and Ms. Brainard must win 60 votes in order to be confirmed by the Senate. More

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    Inflation Sped up in October, Economists Expect

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    White House officials have embraced a key talking point as a bout of high inflation hits consumers and hands Republicans ammunition to argue against President Biden’s policies: Price gains may be faster than usual, but at least they are slowing down from rapid summertime readings.Data to be released on Wednesday is likely to eliminate that shred of comfort.Consumer price inflation probably picked up to 0.6 percent last month from September, a Labor Department report is expected to show, faster than the prior month’s increase of 0.4 percent and the fastest pace since June. Even so-called core price gains, which strip out products like food and fuel, are expected to accelerate.Those big October gains will mean that prices overall have climbed by 5.9 percent over the past 12 months, with the core index up 4.3 percent, based on the median estimate in a Bloomberg survey of economists.Those inflation rates would be far faster than the 2 percent annual gains the Federal Reserve, which has primary responsibility for maintaining price stability, aims for on average over time. While the Fed sets its goal using a separate measure of inflation — the Personal Consumption Expenditures index — that too has picked up sharply this year. The C.P.I. reports come out faster, and help to feed into the Fed’s favored gauge, so they are closely watched by economists and Wall Street investors.Administration officials and Fed policymakers alike have spent months emphasizing that inflation, while high, is likely to fade. But they have had to revise how quickly that might happen: Supply chains remain badly snarled, and demand for goods is holding up and helping to fuel higher prices. As wages begin to rise in many sectors amid labor shortages, there are reasons to expect that some employers might charge their customers more to cover climbing worker costs.“It is now clear that this process will take longer than initially expected, and the inflation overshoot will likely get worse before it gets better,” Goldman Sachs economists wrote in a research analysis this week.Inflation Is High. Will It Go Higher? Price gains have rocketed up in 2021, and though gains had begun to moderate somewhat, October data could mark a turnaround in the trend.

    Source: Bureau of Labor StatisticsBy The New York TimesThe factors that probably pushed up inflation in October were varied: Used and new car shortages have sent prices skyrocketing, supply chain issues have made furniture costlier, labor shortages are raising service-industry price tags, and rents are rising after a weak 2020. In the headline data, food and fuel prices have picked up sharply.It is difficult to predict when those trends might moderate. Many of them are intertwined with the reopening of businesses from state and local lockdowns meant to contain the coronavirus, and the economy has never gone through such a widespread shutdown and restart before.But policymakers have become increasingly wary that price gains that are too quick for comfort might linger. While they were willing to overlook a burst of temporary inflation, long-lasting gains would be more of a problem, potentially spurring the Fed to raise interest rates to cool off demand and contain price pressures.There are some worrying signs. Consumers have been increasing their expectations for future price gains. Households expecting to face climbing grocery, department store and gas bills might demand pay raises — setting off an upward cycle in which wages and prices push one another ever higher.Understand the Supply Chain CrisisCard 1 of 5Covid’s impact on the supply chain continues. More

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    Fed Warns Meme Stocks Could Pose Some Risks

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    Stocks that experience major volatility as a result of social media attention — often called meme stocks — have not threatened broader financial stability so far but could open the door to vulnerabilities, the Federal Reserve said in a report on Monday.The Fed’s twice-yearly update on America’s financial system included a special section on the meme stock phenomenon. It attributed the trend, in which attention on Twitter, Reddit and other platforms encourages rapid inflows into or out of buzzy stocks, to new trading technologies including mobile apps and to changing demographics, as younger people enter the retail trading market.“Along with the rise in risk appetite and the growing share of younger retail investors, access to retail equity trading opportunities has expanded over the past decade,” the report said.Social media can pump up interest in stocks, and it can also create an echo chamber, one in which “investors find themselves communicating most frequently with others with similar interests and views, thereby reinforcing their views, even if these views are speculative or biased.”Still, internet-inspired pile-ons do not necessarily create conditions that will spur a broad market crash, the Fed’s report suggested.“To date, the broad financial stability implications of changes in retail equity investor characteristics and behaviors have been limited,” the Fed said. The central bank specifically assessed what happened to shares of AMC Entertainment and GameStop in January, noting that activity and volatility in those stocks came alongside high activity on Twitter.While the report concluded that “recent episodes of meme stock volatility did not leave a lasting imprint on broader markets,” the Fed said a few trends “should be monitored.”The report pointed out that young and debt-laden investors may be more vulnerable to stock price swings, especially since they are now using “options,” which allow traders to place bets on whether prices will rise or fall and which can magnify leverage and potential losses.The Fed also warned that “episodes of heightened risk appetite may continue to evolve with the interaction between social media and retail investors and may be difficult to predict,” and that financial firms may not have calibrated their risk-management systems to reflect the volatility and losses that meme stock episodes might trigger.“More frequent episodes of higher volatility may require further steps to ensure the resilience of the financial system,” it said.Looking across a broader range of asset classes and recent trading activity, the Fed’s financial stability analysis generally suggested that the vulnerabilities have moderated compared with earlier in the pandemic — but it did flag high asset prices and a number of lingering risks.Stock prices have increased “notably,” the report said, and prices relative to forecast earnings remain near historical highs. Home prices have climbed, it noted, though mortgage lending standards have not deteriorated too badly. When lenders start to lower their standards, that can make the market more vulnerable.The Fed noted that “corporate bond issuance remained robust, supported by low interest rates,” also pointing out that “across the ratings spectrum, the composition of newly issued corporate bonds has become riskier.”And while many markets show signs of investor optimism, some financial strains from the pandemic shock persist.Some commercial real estate sectors continue to face challenges because “office vacancies are elevated and hotel occupancy rates remain depressed,” the report noted. Plus, “structural vulnerabilities persist in some types of money market funds,” which could amplify a future shock to the system.Money market mutual funds melted down during the pandemic and required a Fed rescue for the second time in a dozen years, and regulators are now looking at how to make them more resilient.The report also warned that life insurers might struggle to raise cash in a pinch.And it delved into climate risks. The central bank is among regulators now trying to understand what risks climate change might pose to banks, insurers and the broader financial system.“The Federal Reserve is developing a program of climate-related scenario analysis,” the report noted. “The Federal Reserve considers an effective scenario analysis program, which is designed to be forward looking over a period of years or decades, to be separate from its existing regulatory stress-testing regime.” More

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    Labor force participation is static, a conundrum for the Fed.

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    Millions of employees remain on the job market’s sidelines and are only slowly trickling back — posing a serious challenge for the Federal Reserve as its policymakers try to assess how far the United States economy remains from their full employment goal.The labor force participation rate, a measure of how many people work or are actively looking for jobs, has been holding steady for months at 61.6 percent, down 1.7 percentage points from its February 2020 level.Participation of people in their prime working years is ticking up gradually, rising to 81.7 percent in October from 81.6 percent in September, but that too remains depressed compared with the rate before the pandemic. In February 2020, 82.9 percent of those 25 to 54 years old were in the labor force.Prime-age labor force participation improved slightly.Share of those ages 25 to 54 who are in the labor force (employed, unemployed but looking for work or on temporary layoff) More

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    Workers' Pay Is in a Tug of War With Inflation

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    American workers are taking home bigger paychecks as employers pay up to attract and retain employees. But those same people are shelling out more for furniture, food and many other goods and services these days.It is not yet clear which side of that equation — higher pay or higher prices — is going to win out, but the answer could matter enormously for the Federal Reserve and the White House.There are a few ways this moment could evolve. Wage growth could remain strong, driven by a tight labor market, and overall inflation could simmer down as supply chain snarls unravel and a surge in demand for goods eases. That would benefit workers.But troubling outcomes are also possible, and high on the list of worries is what economists call a “wage-price spiral.” Employees could begin to demand higher pay because they need to keep up with a rising cost of living, and companies may pass those labor costs on to their customers, kicking off a vicious cycle. That could make today’s quick inflation last longer than policymakers expect.The stakes are high. What happens with wages will matter to families, businesses and central bankers — and the path ahead is far from certain.“It’s the several-trillion-dollar question,” said Nick Bunker, director of research for the hiring site Indeed.Inflation-Adjusted Wages and SalariesOver the past five years, wages are up sharply in leisure and hospitality even after adjusting for inflation. During the pandemic, total private wage growth has struggled to keep up with prices.

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    Cumulative Change in Employment Cost Index Wages and Salaries From 2016
    Note: Adjusted for inflation using the Consumer Price Index.Source: Bureau of Labor StatisticsBen Casselman and Jeanna SmialekFor now, wage growth is rapid — just not fast enough to keep up with prices. One way to measure the dynamic is through the Employment Cost Index, which is reported by the Labor Department every quarter. In the year through September, the index’s measure of wages and salaries jumped by 4.2 percent. But an inflation gauge that tracks consumer prices rose by 5.4 percent over the same period.A different measure of pay, an index that tracks hourly earnings, did rise faster than inflation in August and September after lagging it for much of the year.And an update to that gauge, set for release in the jobs report on Friday, is expected to show that wages climbed 0.4 percent in October, which is roughly in line with recent monthly price increases. But the data on hourly earnings have been distorted by the pandemic, because low-wage workers who left the job market early in 2020 are now trickling back in, jerking the average around.The upshot is that the tug of war between price increases and pay increases has yet to decisively swing in workers’ favor.Whether wage gains eventually eclipse inflation — and why — will be crucial for economic policymakers. Central bankers celebrate rising wages when they come from productivity increases and strong labor markets, but would worry if wages and inflation seemed to be egging each other upward.The Federal Reserve is “watching carefully,” for a troubling increase in wages, its chair, Jerome H. Powell, said on Wednesday, though he noted that the central bank did not see such a trend shaping up.Recruiters do report some early signs that inflation is factoring into pay decisions. Bill Kasko, president of Frontline Source Group, a job placement and staffing firm in Dallas, said that as gas prices in particular rise, employees are demanding either higher pay or work-from-home options to offset their increased commuting costs.“It becomes a topic of discussion in negotiations for salary,” Mr. Kasko said.But for the most part, today’s wage gains are tied to a different economic trend: red-hot demand for workers. Job openings are high, but many would-be employees remain on the labor market’s sidelines, either because they have chosen to retire early or because child care issues, virus concerns or other considerations have dissuaded them from working.Emily Longsworth Nixon, 27 and from Dallas, is one of Mr. Kasko’s employees. She tried to recruit a woman to an executive assistant position at a technology company that would have given her a $30,000 raise — and saw the candidate walk away for a counter offer of no additional pay but three work-from-home days each week.Understand the Supply Chain CrisisCard 1 of 5Covid’s impact on the supply chain continues. More

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    Federal Reserve Announces Plan to Slow Bond Buying Program

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    The Federal Reserve is dealing with high inflation at a time when millions of workers remain on the job market’s sidelines. Wednesday’s announcement that it will slow bond purchases is a step toward more normal monetary policy.Jerome H. Powell, the Federal Reserve chair, laid out a plan to slow the asset-buying program as the economy continued to heal from pandemic disruptions and inflation remained sharply elevated.Sarahbeth Maney/The New York TimesThe Federal Reserve on Wednesday took its first step toward withdrawing support for the American economy, saying that it would begin to wind down a stimulus program that’s been in place since early in the pandemic as the economy heals and prices climb at an uncomfortably rapid pace.Central bank policymakers struck a slightly more wary tone about inflation, which has jumped this year amid booming consumer demand for goods and supply snarls. While officials still expect quick cost increases to fade, how quickly that will happen is unclear.Fed officials want to be prepared for any outcome at a time when the economy’s trajectory is marked by grave uncertainty. They are not sure when prices will begin to calm down, to what extent the labor market will recover the millions of jobs still missing after last year’s economic slump, or when they will begin to raise interest rates — which remain at rock-bottom to keep borrowing and spending cheap and easy.So the central bank’s decision to dial back its other policy tool, large-scale bond purchases that keep money flowing through financial markets, was meant to give the Fed flexibility it might need to react to a shifting situation. Officials on Wednesday laid out a plan to slow their $120 billion in monthly Treasury bond and mortgage-backed security purchases by $15 billion a month starting in November. The purchases can lower long term interest rates and prod investors into investments that would spur growth.Assuming that pace holds, the bond buying would stop altogether around the time of the central bank’s meeting next June — potentially putting the Fed in a position to lift interest rates by the middle of next year.The Fed is not yet saying that higher rates, a powerful tool that can swiftly slow demand and work to offset inflation, are imminent. Policymakers would prefer to leave them low for some time to allow the labor market to heal as much as possible.But the move announced on Wednesday will leave them more nimble to react if inflation remains sharply elevated into 2022 instead of beginning to moderate. Many officials would not want to lift interest rates while they are still buying bonds, because doing so would mean that one tool was stoking the economy while the other was restraining it.“We think we can be patient,” Jerome H. Powell, the Fed’s chair, said of the path ahead for interest rates. “If a response is called for, we will not hesitate.”Congress has given the Fed two jobs: achieving and maintaining stable prices and maximum employment.Those are tricky tasks in 2021. Twenty months into the global coronavirus pandemic, inflation has shot higher, with prices climbing 4.4 percent in the year through September. That is well above the 2 percent price gains the Fed aims for on average over time.At the same time, far fewer people are working than did before the pandemic. About five million jobs are missing compared to February 2020. But that shortfall is hard to interpret, because businesses across the country are struggling to fill open positions and wages are quickly rising, hallmarks of a strong job market.For now, the Fed is betting that inflation will fade and the labor market will lure back workers, who might be lingering on the sidelines to avoid catching the coronavirus or because they have child care or other issues that are keeping them at home.“There’s room for a whole lot of humility here,” Mr. Powell said, explaining that it was hard to assess how quickly the employment rate might recover. “It’s a complicated situation.”Officials have already been surprised this year by how much inflation has surged and how long that pop has lasted. They had expected some run-up in prices as the cost of dining out and air travel bounced back from pandemic-lockdown lows, but the severity of the supply chain disruptions and the continued strength of consumer demand has caught Fed officials and many economists by surprise.In their November policy statement, Fed officials predicted that this burst of inflation would fade, but they toned down their confidence on that view. They said previously that factors causing elevated inflation were transitory, but they updated that language on Wednesday to say that the drivers were “expected to be” transitory, acknowledging growing uncertainty.“Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors,” the statement added.The Fed is willing to tolerate a temporary bout of quick inflation as the economy reopens from the pandemic, but if consumers and businesses come to expect persistently higher prices, that could spell trouble. High and erratic inflation that persists would make it hard for businesses to plan and might eat away at wage increases for workers who lack bargaining power.“We have to be aware of the risks — particularly now the risk of significantly higher inflation,” Mr. Powell said. “And we have to be in position to address that risk should it create a threat of more-persistent, longer-term inflation.”Understand the Supply Chain CrisisCard 1 of 5Covid’s impact on the supply chain continues. More

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    Fed Plans to Slow Economic Aid Amid Inflation Concerns

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    Whether it’s reporting on conflicts abroad and political divisions at home, or covering the latest style trends and scientific developments, Times Video journalists provide a revealing and unforgettable view of the world.Whether it’s reporting on conflicts abroad and political divisions at home, or covering the latest style trends and scientific developments, Times Video journalists provide a revealing and unforgettable view of the world. More