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    Fed Officials Keep an Eye Out for Cracks in the Job Market

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    The labor market has maintained surprising vigor over the past year, but as fewer jobs go unfilled and a growing number of people linger on unemployment insurance rosters, Federal Reserve officials have begun to watch for cracks.Central bankers have recently begun to clearly say that if the labor market softens unexpectedly, they could cut interest rates — a slight shift in their stance after years in which they worked to cool the economy and bring a hot job market back into balance.Policymakers have left interest rates at 5.3 percent since July 2023, a decades-long high that is making it more expensive to get a mortgage or carry a credit card balance. That policy setting is slowly weighing on demand across the economy, with the goal of wrestling rapid inflation fully under control.But as inflation cools, Fed officials have made it clear that they are trying to strike a careful balance: They want to ensure that inflation is in check, but they want to avoid upending the job market. Given that, policymakers have signaled over the past month that they would react to a sudden labor market weakening by slashing borrowing costs.The Fed would like to see more cooling inflation data “like what we’ve been seeing recently” before cutting rates, Jerome H. Powell, the Fed chair, said during a speech this week. “We’d also like to see the labor market remain strong. We’ve said that if we saw the labor market unexpectedly weakening, that is also something that could call for a reaction.”That’s why employment reports are likely to be a key reference point for central bankers and Wall Street investors who are eager to see what the Fed will do next.For years, the Fed had been watching the job market for a different reason.Officials had worried that if conditions in the labor market remained too tight for too long, with employers fighting to hire and paying ever-rising wages to attract workers, it could help keep inflation faster than usual. That’s because companies with higher labor costs would probably charge more to protect profits, and workers earning more would probably spend more, fueling continued demand.But recently, job openings have come down and wage growth has abated, signals that the job market is cooling from its boil. That has caught the Fed’s attention.“At this point, we have a good labor market, but not a frothy one,” Mary C. Daly, the president of the Federal Reserve Bank of San Francisco, said in a recent speech. “Future labor market slowing could translate into higher unemployment, as firms need to adjust not just vacancies but actual jobs.”The unemployment rate has ticked up slightly this year, and officials are watching warily for a more pronounced move. Research shows that a sudden and marked uptick in unemployment is a signal of recession — a rule of thumb set out by the economist Claudia Sahm and often referred to as the “Sahm Rule.” More

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    America’s Divided Summer Economy Is Coming to an Airport or Hotel Near You

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    The gulf between higher- and lower-income consumers has been widening for years, but it is expected to show up especially clearly in travel this season.The travel industry is in the midst of another hot summer as Americans hit the road and make for the airport to take advantage of slightly cheaper flights and gas. But the 2024 vacation outlook isn’t all sunny: Like the rest of the American consumer experience this year, it is sharply divided.Many richer consumers — always the lifeblood of the travel industry — are feeling good this year as a strong stock market and rising home values boost their wealth. While they have felt the bite of rapid inflation over the last few years, they are likely to have more wiggle room in their budgets and more options to ease the pain by trading down from name brands to generic, or Whole Foods to Walmart.Poorer families have had less room to maneuver to avoid the brunt of high prices. Although the job market is strong, with low unemployment and wages that have risen especially rapidly at the bottom of the income scale in recent years, some signs of economic strain have been surfacing among lower-income Americans. Credit card delinquencies have risen, many lower earners report feeling less confident in their own household finances, and companies that serve lower-income groups report that they are under stress.The gulf between higher- and lower-income consumers has been widening for years, but it is expected to show up especially clearly in travel this summer. Surveys show that richer households are more optimistic about their ability to take trips, and services that they are more likely to use — like full-service hotels — are flourishing. Budget hotel chains, by contrast, are expected to report a pullback.“If you go to upscale, you’re actually seeing growth there,” said Adam Sacks, the president of tourism economics at Oxford Economics. “A lot of that has to do with the different financial situations of different income groups.”Bookings, survey responses and spending trends so far suggest that the travel industry will see muted but healthy growth this summer and in 2024 as a whole. That growth is expected even after several years of breakneck vacationing as people took “revenge” for the trips they missed during the pandemic.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    The Fed’s Preferred Inflation Measure Cools, Welcome News

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    The economy appears to be downshifting and price gains are moderating, as Federal Reserve officials creep closer to beating inflation.The Federal Reserve’s preferred inflation measure continued to cool as consumer spending grew only moderately, good news for central bankers who have been trying to weigh down demand and wrestle price increases under control.The Personal Consumption Expenditures index climbed 2.6 percent in May from a year earlier, matching what economists had forecast and down from 2.7 percent previously.After stripping out volatile food and fuel prices to give a better sense of the inflation trend, a “core” price measure was also up 2.6 percent from a year earlier, down from 2.8 percent in the April reading. And on a monthly basis, inflation was especially mild, and prices did not climb on an overall basis.The Fed is likely to watch the fresh inflation data closely as central bankers think about their next policy steps. Officials raised interest rates sharply starting in 2022 to hit the brakes on consumer and business demand, which in turn can help to slow price increases. But they have held borrowing costs steady at 5.3 percent since July as inflation has slowly come down, and have been contemplating when to begin lowering interest rates.While officials went into 2024 expecting to make several rate cuts this year, they have pushed those expectations back after inflation proved stubborn early in the year. Policymakers have suggested that they still think they could make one or two rate cuts before the end of the year, and investors now think that the first reduction could come in September.Given Friday’s fresh inflation data, the sticky inflation early in 2024 looks “more and more like a bump in the road,” Omair Sharif, founder of Inflation Insights, wrote in note after the release. “However you want to slice and dice it, we’ve made considerable progress on core inflation over the last year.”We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    How Inflation Has Changed: Timeline

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    “The signal that we’re taking is that it’s likely to take longer for us to gain confidence that we are on a sustainable path down to 2 percent inflation,” Mr. Powell said in May, after price increases had stalled for months. Inflation has recently cooled again, and policymakers are waiting to see if the trend […] More

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    New Home Construction Slows as Mortgage Rates Remain High

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    Home building in May fell to its slowest pace in four years despite a supply shortage. That trend could put even greater strain on buyers.Construction of new homes in the United States dropped below expectations in May as builders pull back on new residential projects largely in response to high interest rates, reinforcing concerns about stubbornly high housing prices.Government data released on Thursday showed that new-home construction, or housing starts, fell 5.5 percent last month to an annualized rate of 1.28 million, a sign of more cracks in the already shaky housing market. Slower construction of both single-family and multifamily homes contributed to the overall drop. Building permits dipped 3.8 percent, pointing to less future construction.This downturn in home building comes as the average rate on 30-year mortgages, the nation’s most popular home loan, has reached highs not seen in decades, though the rate dipped slightly this week to 6.87 percent, Freddie Mac reported on Thursday.The magnitude of the decrease in construction last month underscores that high interest rates are both weakening housing demand and raising costs for builders — two dynamics that are ultimately contributing to builders’ reluctance to start projects. Home builder sentiment dropped in May to its lowest level this year before falling even further this month, suggesting relatively tepid home construction data in the coming months, Daniel Vielhaber, an economist at Nationwide, said in a statement.The weakening in construction, in turn, is only putting more strain on prospective home buyers.“If you’re a consumer, if you’re someone looking to buy a home, what you ultimately want is a lot more supply,” said Chen Zhao, who leads the housing economics team at the real estate services company Redfin. “The key to having more housing supply is that we need more building. So any time we see that there is less building, that is bad news.”The latest housing construction data, released by the U.S. Census Bureau and the Department of Housing and Urban Development, reinforces that consumers are unlikely to see home prices drop by much over the next couple of years, Ms. Zhao said. The data point, she added, represents “one more factor that would keep home price growth high” because it points to a tighter housing supply in the next year or two.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Dilemma on Wall Street: Short-Term Gain or Climate Benefit?

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    A team of economists recently analyzed 20 years of peer-reviewed research on the social cost of carbon, an estimate of the damage from climate change. They concluded that the average cost, adjusted for improved methods, is substantially higher than even the U.S. government’s most up-to-date figure.That means greenhouse gas emissions, over time, will take a larger toll than regulators are accounting for. As tools for measuring the links between weather patterns and economic output evolve — and the interactions between weather and the economy magnify the costs in unpredictable ways — the damage estimates have only risen.It’s the kind of data that one might expect to set off alarm bells across the financial industry, which closely tracks economic developments that might affect portfolios of stocks and loans. But it was hard to detect even a ripple.In fact, the news from Wall Street lately has mostly been about retreat from climate goals, rather than recommitment. Banks and asset managers are withdrawing from international climate alliances and chafing at their rules. Regional banks are stepping up lending to fossil fuel producers. Sustainable investment funds have sustained crippling outflows, and many have collapsed.So what explains this apparent disconnect? In some cases, it’s a classic prisoner’s dilemma: If firms collectively shift to cleaner energy, a cooler climate benefits everyone more in the future. But in the short term, each firm has an individual incentive to cash in on fossil fuels, making the transition much harder to achieve.And when it comes to avoiding climate damage to their own operations, the financial industry is genuinely struggling to comprehend what a warming future will mean.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    The Fed Holds Rates Steady and Predicts Just One Reduction This Year

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    Federal Reserve officials signaled that interest rates could stay higher this year as policymakers pause to ensure they’ve stamped out inflation.Federal Reserve officials left interest rates unchanged at their June meeting on Wednesday and predicted that they will cut borrowing costs just once before the end of 2024, taking a cautious approach as they try to avoid declaring a premature victory over inflation.While the Fed had been expected to leave rates unchanged, its projections for how interest rates may evolve surprised many economists.When Fed officials last released quarterly economic estimates in March, they anticipated cutting interest rates three times this year. Investors had expected them to revise that outlook somewhat this time, in light of stubborn inflation early in 2024, but the shift to a single cut was more drastic.Jerome H. Powell, the Fed chair, made clear in a postmeeting news conference that officials were taking a careful and conservative approach after months of bumpy inflation data.With price increases proving volatile and the job market remaining resilient, policymakers believe they have the wiggle room to hold interest rates steady to make sure they fully stamp out inflation without running too much of a risk to the economy. But the Fed chair also suggested that more rate cuts could be possible depending on economic data.“Fortunately, we have a strong economy, and we have the ability to approach this question carefully — and we will approach it carefully,” Mr. Powell said. He added that “we’re very much keeping an eye on downside economic risks, should they emerge.” More

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    CPI Data Will Arrive Just Before the Fed Meets. Will It Be a Game Changer?

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    The latest data could help to restore policymakers’ conviction that inflation is in the process of returning to the Federal Reserve’s goal.Just hours before the release of the Federal Reserve’s latest rate decision, fresh inflation data showed that price increases slowed notably in May.The new report is a sign that inflation is cooling again after proving sticky early in 2024, and it could help to inform Fed officials as they set out a future path for interest rates. Policymakers had embraced a rapid slowdown in price increases in 2023, but have turned more cautious after inflation progress stalled early this year. The latest data could help to restore their conviction that inflation is in the process of returning to the central bank’s goal.Here’s what to know: More