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    Top U.S. Officials Consulted With BlackRock as Markets Melted Down

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    The world’s largest asset manager was central to the pandemic crisis response. Emails and calendar records underscore that critical role.As Federal Reserve Chair Jerome H. Powell and Treasury Secretary Steven Mnuchin scrambled to save faltering markets at the start of the pandemic last year, America’s top economic officials were in near-constant contact with a Wall Street executive whose firm stood to benefit financially from the rescue. More

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    The Federal Reserve chair says the United States needs ‘more inclusive prosperity.’

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    Jerome H. Powell, the Federal Reserve chair, said on Tuesday that the central bank was focused on returning the economy to full strength, and he emphasized that the Fed would be more ambitious and expansive in its understanding of what that meant.Speaking before House lawmakers on Tuesday afternoon, Mr. Powell emphasized that the Fed was looking at maximum employment as a “broad and inclusive goal” — a standard it set out when it revamped its policy framework last year. That, he said, means the Fed will look at employment outcomes for different gender and ethnic groups.“There’s a growing realization, really across the political spectrum, that we need to achieve more inclusive prosperity,” Mr. Powell said in response to a question, citing lagging economic mobility in the United States. “These things hold us back as an economy and as a country.”The Fed cannot solve issues of economic inequality itself, he said. Congress would need to play a role in establishing “a much broader set of policies.”But Mr. Powell’s explanation of full employment came as many lawmakers wanted to talk about the second of the central bank’s two goals: stable inflation. The Fed chair was quizzed repeatedly about the recent pickup in price gains, with Republicans warning that the trend could become dangerously entrenched — even quoting statistics about recent jumps in bacon and used-car prices — as Democrats warned that the central bank should not be quick to react to the price pressures.“There’s sort of a perfect storm of very strong demand and weak supply due to the reopening of the economy,” Mr. Powell said, adding that much or all of the recent overshoot in inflation came from short-term bottlenecks. “They don’t speak to a broadly tight economy.”Mr. Powell added that price jumps have been bigger than expected and that the Fed was monitoring them closely, but he said they were still expected to wane over time. He also acknowledged that economic data was uncertain now, given quirks in supply and demand as businesses reopen.“We have to be very humble about our ability to really try to draw a signal out of it,” Mr. Powell said.He said he had “a level of confidence” that strong price gains would be temporary but was not certain when bottlenecks would clear up. Nevertheless, the goods and services categories where costs are picking up quickly, like restaurants and travel, are clearly tied to the pandemic.“It should not leave much of a mark on the ongoing inflation process,” he said. More

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    The Economic Gauges Are Going Nuts. Jerome Powell Is Taking a Longer View.

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    Despite the current confusion, his outlook, based on hard lessons from the 2010s, is essentially optimistic.Jerome Powell, the Federal Reserve chair, made clear that he believes the fundamentals of the economy are stable, even though the pandemic has thrown it for a loop.Eric Baradat/Agence France-Presse — Getty ImagesThe economy is changing so fast that just making sense of it is no easy task. Within a few months, the United States has gone from no jobs and depressed prices to widespread labor shortages and uncomfortably high inflation.In this most unusual recovery, the signals that economic policymakers use to inform their decisions are going haywire. What is one to make, for example, of the combination of strong growth in jobs and wages paired with millions of working-age people who seem to have no interest in returning to the work force?It’s easy to imagine Jerome Powell, the Federal Reserve chair, as a pilot in unfamiliar territory with malfunctioning gauges. He’s doing what you’d want a pilot to do in those circumstances: looking to the horizon.A recurring theme on Wednesday, as he spoke to the news media after a Fed policy meeting, was his focus on the things that haven’t changed about the economy, the lessons learned in the expansion of the 2010s. He is resisting the urge to conclude that the pandemic fundamentally changed the most important dynamics.To Mr. Powell’s mind, these are those lessons: American workers are capable of great things. The labor market can run hotter for longer than a lot of economists once assumed, with widely beneficial results. There are many powerful structural forces that will keep inflation in check. And for those reasons, the Fed should move cautiously in raising interest rates, rather than risk choking off a full economic recovery too soon.His is a profoundly optimistic view of the coming years. He does not see the labor shortages of 2021 as evidence of lasting scars to the potential of American workers, but rather as a reflection of the difficulty of reopening large sectors of the economy and reallocating labor after a pandemic.“You look through the current time frame and look one and two years out — we’re going to be looking at a very, very strong labor market,” Mr. Powell said, describing an environment of low unemployment, high rates of participation and “rising wages for people across the spectrum.”And he was dismissive of the possibility that spikes in both wages and prices would turn into a lasting 1970s-style spiral.“Is there a risk that inflation will be higher than we think? Yes,” Mr. Powell said. “We don’t have any certainty about the timing or the extent of these effects from reopening.”But he added: “We think it’s unlikely they would materially affect the underlying inflation dynamics that the economy has had for a quarter of a century. The underlying forces that have created those dynamics are intact.” These include globalization and an aging world population.If you squint, you can even see the application of lessons from three big missteps in Mr. Powell’s career as a central banker.In 2013, as a Fed governor, he helped push Chair Ben Bernanke toward “tapering” the pace of bond-buying in the Fed’s quantitative easing program, which created global financial tremors and led the central bank to reverse course. (In one sign of how deep the scars of that experience are, Mr. Powell carefully said on Wednesday that at this meeting, they merely talked about talking about tapering their current Q.E. purchases, which was itself a subtle shift from his previous guidance that it was not yet time to talk about talking about tapering.)In 2015, Mr. Powell supported a decision to begin raising interest rates to prevent inflation from taking off. This also caused global economic problems — and an under-the-radar economic slowdown in the United States — even though with hindsight the American job market had lots of remaining potential to improve.And in 2018, under his leadership, the Fed raised interest rates four times despite an absence of inflationary pressure. The last of these, especially, came to look like a mistake within days, and Mr. Powell soon reversed course.At each of those junctures, the people who argued that the American labor market was already at or near its potential — a fundamentally pessimistic view about the number of people who could be coaxed to work by the right mix of compensation and job opportunities — looked with hindsight to be wrong. So were the people who routinely predicted that an outburst of problematic inflation was right around the corner.The risk with this approach is that Mr. Powell is, in effect, fighting the last battle — applying the lessons of those episodes to a different economic environment.There are, after all, quite a few differences between then and now. Most significantly, fiscal policymakers have acted on a much larger scale now, and the trillions of dollars coursing through the economy surely create different types of inflation risks. All else being equal, looser fiscal policy — larger continuing deficits — implies that tighter monetary policy is needed to keep a lid on inflation.Moreover, there are some signs — early, but striking — of a more lasting change in the power dynamics between capital and labor. Workers appear to have the upper hand with employers in ways they haven’t in a generation.This could turn out to be a temporary result of the post-pandemic moment, and is mostly positive (Mr. Powell explicitly characterizes higher wages and more expansive job opportunities as a good thing). But if we are returning to a more 1960s-style dynamic in which workers demand pay that is higher than productivity gains would imply are justified, and employers readily give it to them and raise their prices, it will mean that Mr. Powell’s Fed is on track to get behind the curve on inflation.Ultimately, then, the question of whether the Fed is on a wise course will depend on whether the pandemic fundamentally changed things, or just created a miserable year for the economy, after which things return to normal.One trait Mr. Powell has shown, including in the 2013, 2015 and 2018 episodes, is a willingness to pivot when evidence emerges that his judgment is wrong. The best hope for the economy of the 2020s is that his pilot’s view of the horizon is correct. The second best is that if it turns out to be wrong, he adjusts quickly. More

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    The Fed Meets as Economic Data Offers Surprises and Mixed Signals

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    The central bank will release its policy statement on Wednesday, followed by a news conference with Chair Jerome H. Powell.Investors will scour the Federal Reserve’s policy statement and economic projections Wednesday for any hint that recent data surprises — including faster-than-expected inflation and slower job growth — have shaken up the central bank’s plans for its cheap-money policies.Economic policymakers are unlikely to make major changes at a time when interest rates are expected to stay near zero for years to come, but a series of tiny adjustments to their policy messaging and new economic projections could combine to make this week’s meeting one to watch, and an important moment for markets.The central bank will release new economic forecasts from its 18 officials for the first time since March, when the Fed projected no rate increase until at least 2024. Policymakers could pencil in an earlier move, pulling the initial rate rise forward to 2023.Markets will also watch for even the subtlest hint at what lies ahead for the Fed’s $120 billion in monthly bond purchases, which have kept many kinds of borrowing cheap and pushed up prices for stocks and other assets. Several Fed officials have said they would like to soon discuss plans for slowing their bond buying, though economists expect it will be months before they send investors any clear signal about when the “taper” will start.The Fed is scheduled to release the policy announcement from its two-day meeting at 2 p.m., followed by a news conference with Chair Jerome H. Powell.The central bank may want to use the meeting and Mr. Powell’s remarks to “start getting us ready, otherwise, we’re going to be in complete denial until we realize — ‘Ouch, the Fed is stepping away,’” said Priya Misra, head of global rates strategy at T.D. Securities. The point may be to say “they are not running for the exits, but they are at least planning the escape route.”As it charts a path forward for policy, the Fed will have to weigh signs of economic resurgence — rapid price gains as demand jumps back faster than supply, as well as plentiful job openings — against the reality that millions of people have yet to return to work. The shortfall probably owes to a cocktail of factors, as older workers retire, would-be immigrants remain in their home countries, and virus fears, child-care issues and expanded government benefits combine to keep potential employees at home.Many workers may simply need time to shuffle into new and suitable jobs, and the Fed is likely to signal that it plans to continue providing policy support as they do that. Here’s what else to watch for.The Fed is working with higher inflation.The Fed is aiming for inflation that runs “moderately above 2 percent for some time” so that it eventually averages 2 percent. Its policy statement has long noted that price gains have run “persistently below this longer-run goal.” After several months of above-2 percent inflation numbers, it may be time to update that language to reflect recent price spikes.The Fed’s preferred inflation gauge jumped 3.6 percent in April from a year earlier, and the more up-to-date and closely related Consumer Price Index inflation measure popped by 5 percent in May.But the Fed — like many financial economists — expects that pop to prove temporary. The 5 percent increase in C.P.I. happened partly because prices fell during last year’s intense lockdowns, making current year-over-year comparisons look artificially elevated. Without that so-called base effect, the increase would have been in the neighborhood of 3.4 percent.Prices are definitely up, but will it last?The Consumer Price Index slumped early in the pandemic, but now it’s up relative to its pre-pandemic trend growth.

    Data reflect the Consumer Price Index for all urban consumers, indexed so that 1982-1984=100.Source: Bureau of Labor Statistics, New York Times calculationsBy The New York TimesThat is still obviously on the high side. The rest of the surge came as wages increased and demand bounced back faster than global supply chains, fueling shortages in computer chips and causing shipping snarls. While base effects should fade quickly, it is unclear how rapidly supply bottlenecks will be sorted out. The semiconductor issue may clear up over the coming months, for instance, but some importers have estimated that a shipping container shortage could last at least into next year, potentially lifting prices for some products.Compounding that uncertainty, the jump in inflation came faster than officials had expected. If the Fed’s preferred inflation index stood completely still at its April level, inflation would grow by 2 percent this year. Instead, prices have continued to grind higher and are most likely already on track to exceed the Fed’s 2.4 percent forecast for 2021. That means officials are going to have to revise their estimates upward when they release new economic projections. The big questions are by how much and whether the revisions bleed into next year.Mr. Powell is likely to maintain that the recent surge is temporary, yet he will probably have to address the risk that inflation expectations and wages will rise more briskly, locking in the faster price gains. He has previously said that is a possibility, but an unlikely outcome.“He may be a little less strident than he was at the April press conference,” said Michael Feroli, chief U.S. economist at J.P. Morgan.Policy plans may take some tweaking.Economists at Goldman Sachs don’t expect the Fed to begin hinting that it is planning to slow its bond purchases until August or September, with a formal announcement in December, and an actual start to tapering at the beginning of next year.Even then, it’s going to take a long time for the Fed to really unwind its policy support. The Fed has suggested it will first signal that it is thinking of slowing bond purchases, then actually taper, and only then lift rates. Strategists at Goldman estimate that “even if the labor market recovery accelerates rapidly from here,” the first rate increase would probably still be “at least” 15 months away.Mr. Powell could say or suggest that the policy-setting Federal Open Market Committee is taking the first baby step toward that process — what has been called “talking about talking about tapering” — during his news conference.The Fed balance sheet has exploded The central bank is buying $120 billion in government-backed bonds each month, keeping its balance sheet steadily expanding.

    Source: Federal Reserve, accessed via FREDBy The New York TimesOfficials could also begin to pencil in a timetable for rate increases. The Fed’s so-called dot plot of interest rate projections showed no interest rate increases through 2023, the last year in the forecast, as of March. Many economists expect it to show one rate increase in 2023 after revisions.Labor is lagging.But the Fed’s outlook is likely to remain patient — signaling years of low rates ahead — because the job market has a lot of room left to recover. About seven million fewer people reported being employed in May than in February 2020.While recent job gains have been robust by normal standards, they’ve been slow compared with the hole that remains in the labor market. After climbing by a solid 785,000 jobs in March, hiring has slowed to a more subdued 418,500 jobs on average over the past two months.The Fed has two goals — stable inflation and maximum employment — and the recent hiring slowdown means the second target could take a little bit longer to achieve.“Bottom line, I would like to see further progress than where we are right now,” Loretta Mester, president of the Federal Reserve Bank of Cleveland, said on CNBC shortly after the May jobs report was released. “We want to be very deliberately patient here, because this was a huge, huge shock to the economy.”That’s why economists are looking out for tweaks this week — but no major shift away from the Fed’s supportive stance. More

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    Biden Says Enhanced Unemployment Benefits Will Expire Soon

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    As Republicans blame enhanced unemployment insurance for slower-than-expected job gains, the White House stresses that the benefit will expire in September as planned.With fresh data showing that American employers added jobs at a decent but unexceptional pace in May, President Biden on Friday emphasized that his administration would not try to extend enhanced unemployment benefits that Republicans have criticized as a key factor in fueling a labor shortage.The extent to which the extra $300 in weekly jobless benefits may be keeping workers sidelined is unclear. Some economists say insufficient child care and health concerns may be the main drivers behind Americans not seeking jobs, while unemployment insurance and other pandemic-era policies are giving people the financial flexibility to choose to remain out of work.But the pace of hiring has been somewhat disappointing in recent months, and business complaints about worker shortages abound. The U.S. added 559,000 jobs in May, a solid number but one that fell short of analyst expectations of 675,000 jobs. The prior month was a more significant miss: Just 278,000 jobs were added at a time when analysts were expecting a million.The Biden administration on Friday celebrated the May job gains as a sign that the labor market is healing from the pandemic downturn and that its policies are working. But White House officials indicated they would not try to renew the enhanced jobless benefits, which expire in September, saying they were meant to be temporary.“It’s going to expire in 90 days,” Mr. Biden said, speaking in Rehoboth Beach, Del. “That makes sense.”At least 25 states have already moved to end the extra $300 beginning this month, a decision that Jen Psaki, the White House press secretary, said on Friday was completely within their purview. While the administration views the benefit as an “extra helping hand” for workers, some governors disagree and “that’s OK,” she said.“Every governor is going to make their own decision,” she said.The White House’s move to de-emphasize the benefit, which Democrats included in the $1.9 trillion economic relief bill that passed in March, risks angering progressives. But it could also help to shift the narrative toward the broader set of priorities the Biden administration hopes to pass in the months ahead, including a huge infrastructure plan.“This is progress — historic progress,” Mr. Biden said. “Progress that’s pulling our economy out of the worst crisis it’s been in in 100 years.”He added that the recovery was not going to be smooth — “we’re going to hit some bumps along the way” — and that further support that bolsters the economy for the longer term was needed.“Now’s the time to build on the foundation we’ve laid,” Mr. Biden said.Payrolls are still 7.6 million jobs below their prepandemic level. Economic officials, including those at the Federal Reserve, had been hoping for a series of strong labor market reports this spring as vaccinations spread and the economy reopens more fully from state and local lockdowns that were meant to contain the pandemic. In April, Jerome H. Powell, the Fed chair, pointed approvingly to the March jobs report, which had shown payrolls picking up by nearly a million positions.“We want to see a string of months like that,” he said.Instead, gains have proceeded unevenly. Job openings are high and wages are rising, suggesting that at least part of the disconnect comes from labor shortages. That is surprising at a time when the unemployment rate is officially 5.8 percent, and even higher after accounting for people who have dropped out of the labor market during the pandemic.Economists say many things could be driving the worker shortage — it takes time to reopen a large economy, and there is still a pandemic — but the trend has opened a line of attack for Republicans. They blame the enhanced unemployment benefits for discouraging people from returning to work and holding back what could be a faster recovery.“Long-term unemployment is higher than when the pandemic started, and labor force participation mirrors the stagnant 1970s,” Representative Kevin Brady of Texas, the top Republican on the House Ways and Means Committee, said in a news release. “It’s time for President Biden to abandon his attack on American jobs, his tax increases, his anti-growth regulations and his obsession with more emergency spending and endless government checks.”Republican governors across the country have in recent weeks moved to end the supplemental unemployment benefits that began under President Donald J. Trump. The idea is that doing so will prod would-be workers back into jobs.A gas station near Rehoboth Beach offers incentives for new hires. Critics of the Biden administration say enhanced unemployment benefits are discouraging people from returning to work.Alyssa Schukar for The New York TimesMany progressives disagree with that assessment. Democratic leaders in Congress cited the latest employment report as a sign that lawmakers should move to enact the rest of Mr. Biden’s plans to invest in roads, water pipes, low-emission energy deployment, home health care, paid leave and a variety of other infrastructure and social programs — but also that the government should continue to support workers who remain on the sidelines.“The American people need all the support they can get, especially Black and Hispanic communities that were among the hardest hit by the pandemic,” Representative Donald S. Beyer Jr., Democrat of Virginia and the chairman of Congress’s Joint Economic Committee, said in a news release, urging lawmakers to “step up.”Fed officials, who are in charge of setting the stage for full employment and stable prices by guiding the cost of borrowing money, are likely to interpret the May report cautiously. The acceleration in job growth was good news, but the report also offered clear evidence that the labor market remains far from healed.“I view it as a solid employment report,” Loretta J. Mester, president of the Federal Reserve Bank of Cleveland, said on CNBC following the release. “But I’d like to see further progress.”The central bank is buying $120 billion in bonds each month and holding its main policy interest rate at near-zero, policies that keep borrowing cheap and help to stoke demand. Fed officials have said they would need to see “substantial” further progress toward their two goals — maximum employment and stable inflation — before beginning to remove monetary support by scaling down their bond buying program.Ms. Mester made clear that the May report did not reach that standard.“I would like to see a little bit more on the labor market to really see that we’re on track,” she said.Officials have an even higher hurdle for lifting interest rates: They want to see a return to full employment and signs that inflation is likely to stay above 2 percent for some time.Inflation has been moving higher this year, but Fed officials have said they expect much of the pop in prices to be temporary, caused by data quirks and a temporary mismatch as the economy reopens and demand outpaces supply.While the Fed is primarily in charge of controlling inflation, the Biden administration has also been reviewing supply chain issues and hoping to address some of them.Brian Deese, the director of the White House’s National Economic Council, said the administration had identified concrete steps and a long-term strategy to make supply chains for things like semiconductors more resilient. In other areas, like housing materials, the solution may involve convening private-sector actors to figure out a possible strategy.Ms. Psaki said the White House would talk about their plans “when we have more details to share, and hopefully that will be next week.” More

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    Fed Minutes April 2021: Officials Hint They Might Soon Talk About Slowing Bond-Buying

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    Minutes from the Federal Reserve’s April meeting showed some officials wanted to soon talk about a plan to pull back some central bank support for the economy if “rapid progress” persisted.Federal Reserve officials were optimistic about the economy at their April policy meeting as government aid and business reopenings paved the way for a rebound — so much so that and “a number” of them began to tiptoe toward a conversation about dialing back some support for the economy.Fed policymakers have said they need to see “substantial” further progress toward their goals of inflation that averages 2 percent over time and full employment before slowing down their $120 billion in monthly bond purchases. The buying is meant to keep borrowing cheap and bolster demand, hastening the recovery from the pandemic recession.Officials said “it would likely be some time” before their desired standard was met, minutes from the central bank’s April 27-28 meeting released Wednesday showed. But the minutes also noted that a “number” of officials said that “if the economy continued to make rapid progress toward the committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.”The line was among the clearest signals yet that some Fed officials had considered beginning a serious conversation about pulling back monetary help. Jerome H. Powell, the Fed’s chair, has been repeatedly asked whether the central bank is “talking about talking about” slowing its so-called quantitative easing program — and he has consistently said “no.”In fact, when he faced the question at a news conference following the April meeting, Mr. Powell said, “No, it is not time yet. We have said we’ll let the public know when it is time to have that conversation, and we’ve said we’d do that well in advance of any actual decision to taper our asset purchases, and we will do so.”That could be because while a “number” of individual policymakers are beginning to think out loud about when to begin discussing the policy shift, the full committee has yet to decide to start the conversation.In any case, the April minutes may already be out of date. Surprising and at times confusing data released since the meeting could make the Fed’s assessment of when to dial back support — or even to start talking about doing so in earnest — more difficult. A report on the job market showed that employers added far fewer new hires than expected. At the same time, an inflation report showed that an expected increase in prices is materializing more rapidly than many economists had thought it would.“You just have to gather more information,” said Julia Coronado, founder of MacroPolicy Perspectives and a former Fed economist. “It’s going to be noisy for months, and months, and months.”The Fed has also set its policy interest rates at near-zero since March 2020, in addition to its bond purchases. Both policies are meant to help an economy damaged by pandemic shutdowns to recover more quickly.Officials have been clear that they plan to slow down bond-buying first, while leaving interest rates at rock bottom until the annual inflation rate has moved sustainably above 2 percent and the labor market has returned to full employment.Markets are extremely attuned to the Fed’s plans for bond purchases, which tend to keep asset prices high by getting money flowing around the financial system. Central bankers are, as a result, very cautious in talking about their plans to taper those purchases. They want to give plenty of forewarning before changing the policy to avoid inciting gyrations in stocks or bonds.Stocks whipsawed in the moments after the 2 p.m. release, tumbling as yields on government bonds spiked. The S&P 500 regained some of its losses by the end of the day, ending down 0.3 percent. The yield on 10-year Treasury notes jumped to 1.68 percent.Even before the recent labor market report showed job growth weakening, Fed officials thought it would take some time to reach full employment, the minutes showed.“Participants judged that the economy was far from achieving the committee’s broad-based and inclusive maximum employment goal,” the minutes stated. Many officials also noted that business leaders were reporting hiring challenges — which have since been blamed for the April slowdown in job gains — “likely reflecting factors such as early retirements, health concerns, child-care responsibilities, and expanded unemployment insurance benefits.”When it comes to inflation, Fed officials have repeatedly said they expect the ongoing pop in prices to be temporary. It makes sense that data are very volatile, they have said: The economy has never reopened from a pandemic before. That message echoed throughout the April minutes and has been reiterated by officials since.“We do expect to see inflationary pressures over the course, probably, of the next year — certainly over the coming months,” Randal K. Quarles, the Fed’s vice chair for supervision, said during congressional testimony on Wednesday. “Our best analysis is that those pressures will be temporary, even if significant.”“But if they turn out not to be, we do have the ability to respond to them,” Mr. Quarles added.Mr. Quarles pointed out that the central bank lifted interest rates to guard against inflationary pressures after the global financial crisis. The expected pickup never came, and in hindsight pre-emptive moves were “premature,” he said. He suggested that the central bank should avoid repeating that mistake.He said that the key was for the central bank to be prepared, but that if it tried to stay ahead of inflation now it could end up “significantly constraining the recovery.”Mr. Quarles’s comments came in response to repeated — and occasionally intense — questioning by Republican lawmakers during a House Financial Services Committee hearing, many of whom cited concerns about the recent price inflation report. The back-and-forth underlined how politically contentious the Fed’s patient approach could prove in the coming months. Inflation is expected to remain elevated amid reopening data quirks and as supply tries to catch up to consumer demand.Some lawmakers pressed Mr. Quarles on how long the Fed would be willing to tolerate faster price gains — a parameter the central bank as a whole has not clearly defined.When it comes to increases, “I don’t think that we can say that one month’s, or one quarter’s, or two quarters’ or more is necessarily too long,” Mr. Quarles said. More

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    A Fed vice chair says trying to choke off inflation could ‘constrain’ the recovery.

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    Randal K. Quarles, the Federal Reserve’s vice chair for supervision and regulation, said that the central bank was monitoring inflation but that for now it expected the pickup underway to be temporary — and that reacting too soon would come at a cost.“For me, it’s a question of risk management,” Mr. Quarles said during testimony before the House Financial Services Committee. “History would tell us that the economy is unlikely to undergo these inflationary pressures for a long period of time.”Mr. Quarles pointed out that after the global financial crisis, the central bank lifted interest rates to guard against inflationary pressures. The expected pickup never came, and in hindsight the moves were “premature,” he said. He suggested that the central bank should avoid repeating that mistake.“We’re coming out of an unprecedented event,” Mr. Quarles said, noting that officials have the tools to tamp down inflation if it does surprise central bankers by remaining elevated. The Fed could dial back bond purchases or lift interest rates to slow growth and weigh down prices.He said that the key is for the central bank to be prepared, but that if it tried to stay ahead of inflation now it could end up “significantly constraining the recovery.”Mr. Quarles’s comments came in response to repeated — and occasionally intense — questioning by Republican lawmakers, many of whom cited concerns about a recent and rapid pickup in consumer prices. The back and forth underlined how politically contentious the Fed’s patient approach to its policy could prove in the coming months. Inflation is expected to remain elevated amid reopening data quirks and as supply tries to catch up to consumer demand.Some lawmakers pressed Mr. Quarles on how long the Fed would be willing to tolerate higher prices — a parameter the central bank as a whole has not clearly defined.When it comes to increases, “I don’t think that we can say that one month’s, or one quarter’s, or two quarters’ or more is necessarily too long,” Mr. Quarles said. He noted that it was possible that inflation expectations could climb amid a temporary real-world price increase. But if that happened and caused a “more durable inflationary environment, then the Fed has the tools to address it,” he said. More

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    Inflation Fears Rise as Prices Surge for Lumber, Cars and More

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    Federal Reserve officials believe low and stable price expectations give them room to heal the job market. But what if outlooks change?Turn on the news, scroll through Facebook, or listen to a White House briefing these days and there’s a good chance you’ll catch the Federal Reserve’s least-favorite word: Inflation. If that bubbling popular concern about prices gets too ingrained in America’s psyche, it could spell trouble for the nation’s central bank. More