Inflation (Economics)

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Federal Reserve Keeps Rates Unchanged but Cites ‘Progress’ Toward Goals

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The central bank gave the clearest hint yet that it will soon begin to shift bond-buying from emergency mode.The chair, Jerome H. Powell, said the Fed was keeping interest rates unchanged and would continue to buy large amounts of government debt, but suggested that these purchases could taper off as recovery continued.Stefani Reynolds for The New York TimesThe Federal Reserve on Wednesday offered the most direct signal yet that it will begin to dial back its emergency support for the economy in the near future, as its chair, Jerome H. Powell, made it clear that policymakers will do so deliberatively and with plenty of warning.Fed officials voted to leave both of their key policy supports intact before wrapping up their two-day July meeting, holding interest rates near zero and continuing government-backed bond purchases unabated. Those two tools fuel economic demand by making money cheap to borrow and spend.But they spent the meeting debating when and how to slow the bond-buying program, which is expected to be the first step toward a more normal policy setting as the economy rebounds strongly from its pandemic stupor. A decision isn’t imminent, but officials used their July policy statement to signal that one is coming.The Fed had said in December that it would keep buying bonds at a steady pace — $120 billion per month — until it had made “substantial” further progress toward its two targets, stable inflation and maximum employment.“Since then, the economy has made progress toward these goals, and the committee will continue to assess progress in coming meetings,” the Fed’s policy-setting committee said in its postmeeting statement on Wednesday.Mr. Powell offered an even more detailed outlook for the purchase program during his subsequent news conference. He explained that officials had not yet decided on the pace or structure of the coming slowdown, and that there were a “range of views” on when it should happen.“We’re going to continue to try to provide clarity as appropriate,” Mr. Powell said, adding that this meeting had involved the first deep-dive discussion on those issues.Mr. Powell delivered another message: The Fed isn’t ready to withdraw support just yet. He said that while the economy was progressing toward “substantial” progress, “we have some ground to cover on the labor market side.”Investors have been keenly watching for any news on when and how the Fed will begin to withdraw from buying assets, worried that the announcement of a tapering program might whipsaw markets. Fed critics have been asking why the central bank continues to buy bonds, fueling an already-scorching housing market and pushing up sky-high stock prices.Fed officials are trying to strike a balance, ensuring they are prepared to slow stimulus measures as the economy strengthens while avoiding an abrupt pullback. The latter could undermine the Fed’s credibility and potentially roil markets, causing lending to dry up and slowing the recovery when millions of prepandemic jobs are still missing and risks to the economy persist.“They don’t want to cause a sharp and fast increase in interest rates — that would be detrimental,” said Roberto Perli, head of global policy research at Cornerstone Macro. “The labor market is still not where it should be.”Lingering threats to the outlook have been underscored by rising coronavirus cases in the United States and around the world tied to the Delta variant.Mr. Powell acknowledged risks from the variant, but he suggested that any economic pullback it drove might not be as severe as last year’s. Still, he said, “it might weigh on the return to the labor market,” noting that the Fed will be monitoring that “carefully.”But the Fed chair conveyed a generally optimistic tone about the economy on Wednesday.While he pointed out that the labor market had a lot of room left to heal, he also suggested that workers were lingering on the sidelines because they were afraid of the virus, had caregiving duties or were receiving generous unemployment insurance benefits. Those factors should fade as life returns to normal.The United States is on a path to a strong labor market, and “it shouldn’t take too long, in macroeconomic time, to get there,” Mr. Powell said.He discussed at length another reality of the reopening era: rising prices. As economic growth roars back, with strong consumer spending supported by repeated government stimulus checks, inflation is surging. That is partly the result of data quirks, but also because demand for washing machines, electronics, cars and housing is outstripping what producers can supply.The Consumer Price Index picked up by 5.4 percent in June compared with a year earlier, the quickest pace since 2008. The Fed’s preferred inflation gauge has been slightly more muted, at 3.9 percent in May, but that, too, is well above the central bank’s 2 percent average inflation goal.“Inflation has increased notably” Mr. Powell said, adding that it is likely to remain elevated in coming months. But as supply bottlenecks abate, he said, “inflation is expected to drop back toward our longer-run goal.”Price gains could turn out to be higher and more persistent than Fed officials expect, Mr. Powell acknowledged. But expectations of where prices might head next seem consistent with the Fed’s goal, he said.When Fed officials say they expect today’s pressures to prove “transitory,” Mr. Powell said, they mean that increases today will not lead to ever-higher prices down the road.To put it even more plainly: A bag of flour might cost 5 cents more this year, but if the increase is transitory, it will not keep going up 5 cents with each passing year.“The increases will happen — we’re not saying they will reverse,” Mr. Powell said, but “the process of inflation will stop.”For now, officials are monitoring price increases but also staying focused on a different set of risks: About 6.8 million jobs are still missing compared with February 2020 levels. Workers are taking time to sort back into suitable employment, and the central bank wants to make sure the economic recovery is robust as they try to do that.Even when the Fed begins to dial back bond-buying, interest rates are likely to remain low. Long-running forces, including the aging population and rising inequality, have pushed them down naturally, and the central bank is expected to keep its main policy rate — the federal funds rate — at rock bottom, where it has been since March 2020.Officials have signaled that, barring a sustained burst in inflation or financial stability risks, they would like to leave interest rates near zero until the job market has returned to full employment. Their latest economic projections, released in June, suggested that most officials did not expect the economy to meet that high bar until 2023.Mr. Powell reiterated a commitment to seeing the recovery through.“The labor market has a ways to go,” he said. “We at the Fed will do everything we can to support the economy for as long as it takes to complete the recovery.” More

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    Fed Considers Tapering Bond Purchases as Economy Grows

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    Federal Reserve officials are gathering in Washington this week with monetary policy still set to emergency mode, even as the economy rebounds and inflation accelerates.Economists expect the central bank’s postmeeting statement at 2 p.m. Wednesday to leave policy unchanged, but investors will keenly watch a subsequent news conference with the Fed chair, Jerome H. Powell, for any hints at when — and how — officials might begin to pull back their economic support.That’s because Fed policymakers are debating their plans for future “tapering,” the widely used term for slowing down monthly purchases of government-backed debt. The bond purchases are meant to keep money chugging through the economy by encouraging lending and spending, and slowing them would be the first step in moving policy toward a more normal setting.Big and often conflicting considerations loom over the taper debate. Inflation has picked up more sharply than many Fed officials expected. Those price pressures are expected to fade, but the risk that they will linger is a source of discomfort, ramping up the urgency to create some sort of exit plan. At the same time, the job market is far from healed, and the surging Delta coronavirus variant means that the pandemic remains a real risk. Policy missteps could prove costly.The Fed’s balance sheet has grown, thanks to bond-buying.The Federal Reserve has swollen its balance sheet by buying bonds to bolster the economy during the pandemic, making it a bigger player in markets.

    Source: Federal ReserveBy The New York TimesHere are a few key things to know about the bond-buying, and key details that Wall Street will be watching:The Fed is buying $120 billion in government backed bonds each month — $80 billion in Treasury debt and $40 billion in mortgage-backed securities.Economists mostly expect the central bank to announce plans to slow those purchases this year, perhaps as soon as August, before actually dialing them back late this year or early next. That slowdown is what Wall Street refers to as a “taper.”There’s a hot debate among policymakers about how that taper should play out. Some officials think the Fed should slow mortgage debt buying first because the housing market is booming. Others have said mortgage security buying has little special effect on the housing market. They have hinted or said they would favor tapering both types of purchases at the same speed.The Fed is moving cautiously, and for a reason: Back in 2013, markets convulsed when investors realized that a similar bond-buying program after the financial crisis would slow soon. Mr. Powell and crew do not want to stage a rerun.Bond-buying is just one of the Fed’s policy tools, and is used to lower longer-term interest rates and to get money chugging around the economy. The Fed also sets a policy interest rate, the federal funds rate, to keep borrowing costs low. It has been near zero since March 2020.Central bankers have been clear that tapering off bond purchases is the first step toward moving policy away from an emergency setting. Increases in the funds rate remain off in the distant future. More

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    I.M.F. World Economic Outlook Forecasts 6 Percent Global Growth

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    The International Monetary Fund warned on Tuesday that the gap between rich and poor countries was widening amid the pandemic, with low vaccination rates in emerging economies leading to a lopsided global recovery.The I.M.F. maintained its 2021 global growth forecast of 6 percent in its latest World Economic Outlook report, largely because advanced economies, including the United States, expect slightly faster growth than the global body previously forecast. Economic growth in developing countries is expected to be more sluggish, and the global body said the spread of more contagious variants of the virus posed a threat to the recovery. It called on nations to work together to accelerate the protection of their citizens.“Multilateral action is needed to ensure rapid, worldwide access to vaccines, diagnostics and therapeutics,” Gita Gopinath, the I.M.F.’s chief economist, wrote in the report. “This would save countless lives, prevent new variants from emerging and add trillions of dollars to global economic growth.”The I.M.F. projected that the U.S. economy will expand 7 percent in 2021. The euro area was projected to expand 4.6 percent and Japan 2.8 percent. Rapid expansion was expected for China, at 8.1 percent, and India, 9.5 percent, but both of their outlooks have been downgraded since April. The outlook in China was lowered because of a scaling back of public investment, while India was downgraded because of a severe second wave of the virus slowing the recovery.The global expansion in 2022 was projected to be stronger than previously forecast, with growth of 4.9 percent. That, too, will be led by advanced economies, the I.M.F. predicted.More than a year after the coronavirus emerged, economic fortunes are closely tied to how successfully governments have been at providing fiscal support and acquiring and deploying vaccines. The I.M.F. said about 40 percent of the population in advanced economies had been fully vaccinated, while that figure is just 11 percent or less in emerging markets and low-income developing economies. Varying levels of financial support from governments are also amplifying the divergence in economic fortunes.The I.M.F.’s executive board announced this month that it had approved a plan to issue $650 billion worth of reserve funds that countries could use to buy vaccines, finance health care and pay down debt. If finalized in August, as expected, the funds should provide additional support to countries that have been lagging behind in combating the health crisis.Concerns about price increases have grabbed headlines in the United States and elsewhere, but the I.M.F. said it continued to believe that the recent bout of inflation was “transitory.” The organization noted that jobless rates remained below their prepandemic levels and that long-term inflation expectations remained “well anchored.” Ms. Gopinath said that predicting the path of inflation was subject to much uncertainty because of the unique nature of the economic shock that the world had faced.“More persistent supply disruptions and sharply rising housing prices are some of the factors that could lead to persistently high inflation,” Ms. Gopinath said.As the Federal Reserve prepared to meet on Tuesday and Wednesday, she advised central banks to be nimble in setting monetary policy and urged them not to raise interest rates too soon.“Central banks should avoid prematurely tightening policies when faced with transitory inflation pressures but should be prepared to move quickly if inflation expectations show signs of de-anchoring,” Ms. Gopinath added.During a press briefing on Tuesday, I.M.F. officials said they had been observing how supply shortages were depressing manufacturing activity and hurting sectors such as the automobile industry.While the I.M.F. expects inflation in the United States to remain high this year and normalize by next year, it is looking for signs that rising prices could “de-anchor” from the Fed’s 2 percent target. That will become clear, it said, if medium-term inflation expectations begin to rise and if higher prices become locked into wages and business contracts. Officials are also watching to see if the recent sharp increase in house prices continues to lead to higher rents, which would lift the inflation outlook.Mutations of the virus remain the most daunting challenge facing the global economy. The I.M.F. projected that highly infectious variants, if they emerged, could derail the recovery and wipe out $4.5 trillion in gross domestic product by 2025.The brunt of that pain would most likely be felt in the poorest parts of the world, which have been hardest hit by the initial waves of the pandemic.“It was already diverging, and that has exacerbated in this period,” Ms. Gopinath said of global inequality. “It is a reflection of some very big fault lines that are growing.” More

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    Inflation Has Arrived, but Washington Isn’t Racing to Limit Price Pops

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    Policymakers, now more attuned to the costs of choking off growth early, are sticking by a patient approach as prices rise.Inflation has long been the boogeyman haunting the nightmares of economic policymakers from both parties — and controlling it has been a top economic priority. But as the economy reopens from pandemic shutdowns and prices spike, it is becoming clear just how much that conventional wisdom has shifted in recent years.After three decades of relative price stability and a long stretch of weak price gains, many economists and lawmakers had in recent years come to believe that trying too hard to avoid overheating the economy created its own risk by prematurely cooling growth and leaving workers on the sidelines.The tools that policymakers used to prevent overheating — raising interest rates and reining in government spending — also contributed to less hiring and slower wage growth. Policymakers have paid increasing attention to those trade-offs, especially as chronically slow price gains across the globe made government efforts to control inflation seem somewhere between futile and self-defeating.That view has remained mostly intact at the Federal Reserve and the White House even as prices pop, virus variants threaten to perpetuate supply-chain bottlenecks and some price increases, like rising rents, create the risk that high inflation might last for a while.The Biden administration is emphasizing the benefits of the current moment, which include higher wages and more bargaining power for workers, as it insists that inflation will fade over time. The Fed, which meets this week, is openly nervous about rising prices, but it isn’t doing anything abrupt to counteract them. It says it needs to weigh the risk of inflation against the threat of slowing a labor market that is still missing nearly seven million jobs compared with prepandemic levels.Republicans are condemning rising prices, warning that the administration needs to rein in its spending plans and that the Fed should withdraw support. Even some left-leaning economists have warned that things could get out of control and that central bank officials need to be on watch.Here is a snapshot of what is happening with inflation, including the risks, the rewards and how policymakers are thinking through a strange economic moment.Prices are up this year, and pretty markedly.Inflation is up across a variety of measures, and by significantly more than economists predicted earlier this year.The Consumer Price Index, a Labor Department gauge of how much a basket of goods and services costs to buy, rose 5.4 percent in the year through June. The Fed prefers a separate measure, the Personal Consumption Expenditures index. That gauge tracks both out-of-pocket expenses and the cost of things people consume but don’t directly pay for, like medical care. It climbed 3.9 percent through May.Prices have risen by more than Fed officials expected, based on both their public statements and their economic projections this year.Why the big jump? Some of it owes to temporary data quirks, which were expected to push inflation higher this year. Part of it has come as prices for airline tickets, hotel rooms and other pandemic-affected purchases rebound from last year, also as anticipated. But the surprisingly large part of the increase has come from a surge in consumer demand that is straining delivery routes and outstripping available supply for electronics, housing and laundry machines.That portion of the inflation is more tied to government policies, which put money into consumers’ pockets — and its future trajectory is a lot less predictable. Economists think the bottlenecks will fade, but by how much and how long it will take is uncertain.Those price increases could have a downside.Whether today’s inflation matters and warrants a response will depend on several factors.If, as the White House predicts, quick price gains fade as the economy returns to normal, they shouldn’t be terribly problematic. Households are likely to have to spend a little bit more on some goods and services but may also find that they are earning more. Workers are now seeing decent wage gains, though not quite enough to outpace price gains, and the labor market is expected to continue strengthening as inflation fades.The biggest price gains have also been concentrated in just a few categories, like used cars. Most families do not buy automobiles that often, so the hit from higher costs will not be as salient for consumers as an across-the-board rapid rise in prices for everything consumers buy, like clothing and milk.But if consumers and businesses come to expect higher prices and start accepting bigger price tags and demanding higher wages, that could broaden inflation and keep it elevated. That would be a problem. Rapid inflation makes life hard for people who live on savings, like retirees. If it outstrips pay gains, it can erode a consumer’s ability to buy goods and services. And if inflation becomes hard to predict, as it did in the 1970s and 1980s, it makes planning for the future hard for businesses and households.There are risks that inflation could take time to get back to normal.There are real reasons to worry that inflation could stick around. Supply-chain snarls are expected to fade with time, but new Covid-19 variants and renewed lockdowns in some countries could keep global trade chains from getting back to normal. That could keep prices for goods elevated. (On the flip side, Jason Furman at Harvard points out that renewed lockdowns would also probably drag down consumer demand, which could lead to softer price pressures.)There are other hot inflation risks. Wages are rising, which might feed into faster prices as employers try to cover costs. Rents — which were depressed — are accelerating, potentially a stickier source of inflationary pressure.If inflation becomes pernicious, the Fed has tools to contain it. The central bank is already coming up with a plan to slow its big bond purchases, which keep longer-term borrowing cheap and lift markets. It could also raise its main interest rate, which would trickle through the economy to slow lending and spending.“One way or another, we’re not going to be going into a period of high inflation for a long period of time, because, of course, we have tools to address that,” Jerome H. Powell, the Fed chair, testified this month. “But we don’t want to use them in a way that is unnecessary, or that interrupts the rebound of the economy.”A job fair in St. Louis last month. The Fed is nervous about rising prices, but it says it also needs to weigh the risk of slowing a labor market still missing seven million workers.Whitney Curtis for The New York TimesBut there are also real risks to premature action.As Mr. Powell alluded to, policymakers do not want to move too hastily in response to the recent data. Many officials argue that it does not make sense to react to what is expected to be a short-lived price pickup by dialing back fiscal ambitions or weakening monetary support — policy changes that would reduce demand and lead to slower hiring down the road.Should the Fed pull back support for the economy before many of the 6.8 million jobs that have gone missing since the start of the pandemic return, it could lead to a painful situation in which workers end up stuck out of work.That would cost families paychecks, hurt the country’s potential for growth and tip the economic scales toward employers, who benefit when many available workers are competing for jobs.For decades, “the sensible adult consensus — that the most important thing was to protect against inflation — had a huge cost, and that cost was wages stagnating,” said Benjamin Dulchin, director of the organizing group Fed Up. “The Fed can err on the side of corporate interests and keeping wages lower, or it can err on the side of workers’ interests.”Today’s inflation could offer benefits.Inflation does have some winners. People who owe debts find that they are easier to pay off, and middle-class households who own houses may find that their values appreciate. Research has suggested that inflation in advanced economies can shrink inequality, for instance.But that isn’t even the argument the Fed and the White House are making: They simply do not expect the higher prices to last forever, and they think the short-term costs are worth the long-term benefits of helping the economy through a tough period.Some Democrats think that voracious hiring bolstered by government spending and central bank support will give workers the power to bargain for higher wages — an ability that might last beyond the inflationary phase. And they have been trying to foster a swift recovery from the pandemic downturn, getting people back into jobs and businesses back into full swing quickly.Officials are being patient, even as inflation surprises them.Government officials are setting economic policy today with an eye on the last battle. After the deep 2007-9 recession, the government cut back on spending early and monetary policymakers lifted interest rates before price gains had returned to their 2 percent annual inflation goal. Price gains proceeded to get stuck below that target, and the labor market recovery may have taken longer than it needed to, since the economy had less support.As that episode underlined, slow-moving global trends — including aging demographics and free trade — seem to keep a lid on price gains these days. In Japan and in Europe, policymakers have spent years battling to coax inflation higher. They are worried in part by the looming threat of deflation, which discourages consumption and crushes debtors, who find their pay stagnating or declining as their debt loads remain unchanged.America’s current bout of price pressures actually seems to be helping to guide consumer expectations, which had been slipping lower, back into the comfort zone.And a few heady inflation numbers are a good problem to have, if you ask Kenneth Rogoff, a Harvard economist. The globe just experienced a devastating pandemic that was expected to wreck the economy.“In the current situation, the fact that the economy is booming and they didn’t quite plan for it is still a blessing,” he said. “It’s a rich man’s problem that we’re getting inflation.” More

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    Rising Rents Threaten to Prop Up Inflation

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    Officials at the Federal Reserve and White House thought fast price gains would pass. Rent increases could make it a slow fade.Kaitlin Cindrich is facing a $200 monthly increase in rent this August if she and her husband can renew their apartment lease in Provo, Utah. That 25 percent jump is not something she expected, and the 21-year-old fears she may have to skip doctor appointments for her autoimmune disease to keep up with the payments.Still, she acknowledges there isn’t much choice but to pay more. “We are hoping to stay because everything is so expensive right now that I would be paying the same whether I’m here or somewhere else,” Ms. Cindrich said.The rental market, which slumped during the pandemic, has snapped back more quickly than many economists predicted, and renters across the country are facing sticker shock. When the pandemic hit, many people who lost their jobs discontinued their apartment leases to live with parents or roommates temporarily. Others fled big cities out of health concerns. Apartments went empty, and landlords began offering incentives, such as a free month, to entice tenants.Now, as people move out on their own again or return to cities and office jobs, and as existing renters find they can’t afford to buy a home in a booming housing market, demand for apartments and single-family rentals is rebounding — and even looking hot in some places. Rents last month rose 7 percent nationally from a year earlier, Zillow data shows. While that was measured against a weak June 2020, the gain was also a robust 1.8 percent from May.“After a year, jobs are coming back strongly, and this is recreating the housing demand for rental units and occupancy is rising,” said Lawrence Yun, chief economist at the National Association of Realtors.If rents continue to take off, it could be bad news both for those seeking housing and for the nation’s inflation outlook. Rental costs play an outsize role in the Consumer Price Index, so a meaningful rise in them could help keep that closely watched government price gauge, which has picked up sharply, higher for longer. Rents are only about half as important to the Federal Reserve’s preferred Personal Consumption Expenditures inflation index, but a long bout of high C.P.I. inflation may influence consumers’ expectations for future price gains, which could in turn quicken them.Consumer prices jumped a rapid 5.4 percent in the year through June, but much of the increase was tied back to the economy’s reopening from the pandemic. Policymakers at the Fed and White House have maintained that today’s strong price pressures should fade as the economy gets back to normal, as one-off problems pushing up used car prices are resolved and as a spike in demand that’s elevating furniture and washing machine costs begins to abate.Yet that’s where housing costs could kick in. Measures of rent and what’s called “owners’ equivalent rent” — which uses rental data to try to put a price on how much owners would pay for their housing if they hadn’t bought a home — make up nearly one-third of the Consumer Price Index. Both tend to move slowly, but are defying expectations that they would take time to bounce back.“We’re seeing owners’ equivalent rent move up fairly sharply already,” said Alan Detmeister, an economist at UBS and a former Fed staff official. “I expect it’s going to get worse later this year and into early next.”He and other economists said it was too early to tell to what extent, and for how long, rents would prop up overall prices.“I do think we’ll see some upside from rents, and that will offset some of the declines in goods categories,” said Michelle Meyer, head of U.S. economics at Bank of America. But the “only way” that rents rise enough to keep inflation uncomfortably high, she added, is “if wages are persistently higher.”How much landlords can charge hinges on how much tenants can afford. Lower-paid workers are seeing strong pay gains, but many economists expect those to fade as the economy gets through reopening.Another key factor, Mr. Yun said, is whether “homebuilders are being active to supply new homes and apartments to match up with this rise in rent.”Data do suggest that a substantial new supply of apartments should be on the way this year, but it’s unclear whether they will match up with the demand in location and timing.For now, the rental experience diverges across markets. Rents have appreciated rapidly in places like Boise, Idaho; Spokane, Wash.; and Phoenix, while big cities on the coasts have lagged, based on Zillow data. Rents in New York City and San Francisco are recovering quickly but remain cheaper than two years ago.In New York, “the rental market was crushed,” said Jonathan Miller, chief executive of Miller Samuel, a local real estate appraisal firm. But the pace of new leases over the past three months, with tales of bidding wars, is turning that around. Mr. Miller expects rents to fully recover as companies bring workers back to the office this autumn, pulling them back from far-flung remote work locations, he said.“There’s going to be another wave,” he added. “We’re just past peak Zoom.”Data from Apartment List, a listing site, confirms the trend visible in the Zillow numbers: So far in 2021, rental prices nationally have grown 9.2 percent, compared with the 2 to 3 percent that is typical from January to June. According to the most recent data available, prices were higher than economists at Apartment List would have expected had prepandemic trends persisted.Movers in New York City last summer. “In the short run, prices are going to continue to soar,” said Igor Popov, an economist at Apartment List.OK McCausland for The New York Times“In the short run, prices are going to continue to soar, because occupancy rates are sky high right now,” said Igor Popov, an economist at Apartment List. He said that price gains should moderate as supply increased, but that it was unclear when that would happen.In the meantime, the hot housing market should keep rental demand strong.“Rents are a trailing spouse to house price appreciation,” said Nela Richardson, chief economist at the employment data provider ADP, who previously worked at the real estate company Redfin. “You have a housing market that is chronically undersupplied, and has been for a decade. That isn’t going away.”Higher rental costs can have a big impact on people’s lives. Christine Gitau, 23, of Homewood, Ala., is going back to live with her parents because she can’t afford the $100 increase to renew her lease on the $530-a-month apartment she started renting last July.“I’m very frustrated, angry and stressed because of the rent hike,” Ms. Gitau said.Ms. Cindrich in Provo, a full-time student at Brigham Young University, worries she will have to apply for more student loans to pay for her apartment or cut expenses in other areas.“I have a severe autoimmune disease, and I spend hundreds of dollars each month on medication,” she said. “The rent hike probably means I might not be able to go to my monthly doctor appointments.”That human impact makes rising rent a political challenge, especially when the Biden administration is already fending off attacks from Republicans over the burst in inflation.Administration officials say they are watching housing prices and their effects on inflation. They continue to insist that most of the price pressures in the economy are temporary.The officials, and President Biden himself, have also pushed for additional spending measures that would over time increase the supply of housing and, the officials say, hold down rental increases, spikes in housing prices and inflationary pressure.Mr. Biden’s $4 trillion economic agenda includes $213 billion to help jump-start more affordable housing. Those efforts were not included in the bipartisan infrastructure agreement that he struck with centrist lawmakers, but they could end up, at least in part, in a go-it-alone spending bill that Democrats plan to push this summer in Congress.Even if they succeed, those efforts would take years to bear fruit.Some, like Dr. Popov, expect recent gains to moderate on their own this year. Others said bigger increases might lay ahead: Many consumers are flush with cash from government stimulus checks, and the Fed’s cheap-borrowing policies are heating up the housing market.“There’s a tremendous amount of stimulus, and I think that has potential to create upward pressure on rent prices,” Mr. Miller, the appraisal executive, said. More

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    Senators and Biden Aides Struggle to Save Bipartisan Infrastructure Deal

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    A looming deadline and a last-minute need for a new revenue source are complicating a deal that was announced nearly a month ago.WASHINGTON — Congressional negotiators and the Biden administration tried on Monday to salvage a nearly $600 billion bipartisan agreement to invest in roads, water pipes and other physical infrastructure, after Republicans rejected a key component to pay for the plan and resisted Democratic plans for an initial procedural vote on Wednesday.Senators and administration officials are still working to hammer out the details of the deal, including how to ensure that a plan to finance it will secure 60 votes for Senate passage. White House officials expressed confidence on Monday that the agreement could be finalized. But its fate was uncertain.Mr. Biden is pushing his economic agenda in parts. The bipartisan agreement is meant to be Step 1 — with a much larger, Democratic bill to follow. But weeks after their announcement of a deal, the bipartisan group has not released legislative text or received external confirmation that it is fully financed. A top negotiator said over the weekend that the group jettisoned a key plan included in the deal that would have raised revenue by giving the I.R.S. more power to catch tax cheats.Republicans have come under pressure to oppose that funding method from conservative anti-tax groups, who say it would empower auditors to harass business owners and political targets. Democrats say the increased enforcement would target large corporations and people who earn more than $400,000 — and note that improved tax enforcement has been a bipartisan goal of administrations dating back decades.Still, on Monday evening Senator Chuck Schumer of New York, the majority leader, set up a procedural vote to begin moving toward debate on the bipartisan deal, even without the text of the plan, on Wednesday. Mr. Schumer said that if senators agreed to consider infrastructure legislation, he would move to bring up either the bipartisan deal, should one materialize this week, or a series of individual infrastructure bills that have been approved on a bipartisan basis by Senate committees.The plan was an effort to force negotiators to move toward finalizing details and a critical mass of Republicans to commit to advancing the deal, with Democrats eager to advance the legislation before the Senate leaves for its August recess. Mr. Schumer said he had support from the five main Democratic negotiators involved in talks.“It is not a deadline to determine every final detail of the bill,” he said. A vote of support on Wednesday, he added, would signal that “the Senate is ready to begin debating and amending a bipartisan infrastructure bill.”On Monday, Mr. Biden pushed for passage of the agreement during remarks at the White House, where he promoted his administration’s economic progress. But administration officials made clear later in the day that their patience for the finalization of the bipartisan agreement was running thin.“We believe it’s time to move forward with this vote — with congressional action,” Jen Psaki, the White House press secretary, said at a news briefing. Asked what the administration’s backup plan was if the plan failed to clear the test vote, Ms. Psaki demurred.“We’re not quite there yet,” she said. “There is a lot of good work that’s happened. Two days is a lifetime in Washington, so I don’t think we’re going to make predictions of the death of the infrastructure package.”Republican leaders said they wanted to see legislative text before voting on a deal.“We need to see the bill before voting to go to it. I think that’s pretty easily understood,” Senator Mitch McConnell of Kentucky, the Republican leader, told reporters on Monday. “I think we need to see the bill before we decide whether or not to vote for it.”Democrats have argued that negotiators have had nearly a month to iron out the details and that the Senate has previously taken procedural votes without finalized bill text — including when Mr. McConnell led his caucus in a failed attempt to repeal and replace the Affordable Care Act in 2017.The biggest sticking point remains how to pay for the plan. The I.R.S. plan was estimated to bring in more than $100 billion in new tax revenue over a decade.It is unclear what the group will turn to as a substitute. White House officials and the 10 core Senate negotiators — five Democrats and five Republicans — were working on Monday to find a new revenue source.Senator Rob Portman, Republican of Ohio and a key negotiator, floated the prospect on Sunday of undoing a Trump-era rule that changes the way drug companies can offer discounts to health plans for Medicare patients as an option. The Congressional Budget Office estimated in 2019 that it would cost $177 billion over 10 years, and the rule has not yet been implemented.Ms. Psaki told reporters that the administration is “open to alternatives, very open to alternatives from this end.”“But we’ll let those conversations happen privately and be supportive of them from our end,” she said.Senators were expected to virtually meet Monday evening as they continued to haggle over the details. The group met for more than two hours Sunday evening.“I think we need to see the bill before we decide whether or not to vote for it,” Senator Mitch McConnell, the Republican leader, told reporters on Monday.Stefani Reynolds for The New York TimesMr. Biden continued to push on Monday for legislative action, casting his economic policies, along with vaccination efforts, as a critical driver of accelerating growth. He promised that his remaining agenda items would help Americans work more and earn more money while restraining price increases, pushing back on a critique from Republicans.Administration officials and Mr. Biden say the Democrats’ $3.5 trillion plan — the larger bill that would follow the bipartisan infrastructure bill — will dampen price pressures by increasing productivity. The president said the proposals would free up Americans to work more through subsidized child care, national paid leave and other measures, as well as improve the efficiency of the economy.The spending “won’t increase inflation,” Mr. Biden said. “It will take the pressure off inflation.”He also said he had faith in the independent Federal Reserve and its chair, Jerome H. Powell, to manage the situation. The Fed is responsible for maintaining both price stability and maximum employment.“As I made clear to Chairman Powell of the Federal Reserve when we met recently, the Fed is independent. It should take whatever steps it deems necessary to support a strong, durable economic recovery,” Mr. Biden said. “But whatever different views some might have on current price increases, we should be united on one thing: passage of the bipartisan infrastructure framework, which we shook hands on — we shook hands on.”Mr. Biden used more of the speech to push for the $3.5 trillion plan, which Democrats aim to pursue without Republican support through a process known as budget reconciliation, which bypasses a Senate filibuster.In describing the varied social and environmental initiatives he hopes to include in the plan, the president repeatedly stressed the need for government action as a means to raising living standards and creating jobs.That plan contains the bulk of Mr. Biden’s $4 trillion economic agenda that is not included in the bipartisan bill, like expanding educational access, building more affordable and energy-efficient housing, incentivizing low-carbon energy through tax credits and a wide range of other social programs meant to invest in workers.Republicans have also amplified concerns about inflation since Democrats pushed through a $1.9 trillion pandemic relief bill in March. In a letter to his conference this week, Representative Kevin McCarthy of California, the Republican leader, said that “prices on everything from gas to groceries are skyrocketing,” and he vowed that “we will continue to hold Democrats to account for their reckless handling of the economy.”Mr. Biden’s economic team has said repeatedly that inflation increases are largely a product of the pandemic and will fade in the months or years to come.Mr. Biden dismissed a question from a reporter after the speech about the potential for unchecked inflation, which he said no serious economist foresaw.Margot Sanger-Katz More

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    Federal Reserve Chair to Testify Before Congress

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    When Jerome H. Powell, the Federal Reserve chair, appears before the Senate Banking Committee on Thursday, he will be testifying at a fraught moment both politically and economically, given the recent rise in inflation.The Consumer Price Index jumped 5.4 percent in June from a year earlier, the biggest increase since 2008 and a larger move than economists had expected. Price pressures appear poised to last longer than policymakers at the White House or Fed anticipated.In testimony on Wednesday before the House Financial Services Committee, Mr. Powell attributed rapid price gains to factors tied to the economy’s reopening from the pandemic, and indicated in response to questioning that Fed officials expected inflation to begin calming in six months or so.He acknowledged that “the incoming inflation data have been higher than expected and hoped for,” but he said the gains were coming from a “small group” of goods and services directly tied to reopening.For now, he voiced comfort with the central bank’s relatively patient policy path even in light of the hotter-than-expected price data. He said that the labor market was improving but that “there is still a long way to go.”He also said the Fed’s goal of achieving “substantial further progress” toward its economic goals before taking the first steps toward a more normal policy setting “is still a ways off.” More

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    Inflation? Not in Japan. And That Could Hold a Warning for the U.S.

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    If the United States’ current bout of rising prices soon eases, its economy could fall back into the cycle of weak inflation that preceded the pandemic — a situation much like Japan’s.TOKYO — In the United States, everyone is talking about inflation. The country’s reopening from the coronavirus pandemic has unleashed pent-up demand for everything from raw materials like lumber to secondhand goods like used cars, pushing up prices at the fastest clip in over a decade.Japan, however, is having the opposite problem. Consumers are paying less for many goods, from Uniqlo parkas to steaming-hot bowls of ramen. While in the United States average prices have jumped by 5.4 percent in the past year, the Japanese economy has faced deflationary pressure, with prices dipping by 0.1 percent in May from the previous year.To some extent, the situation in Japan can be explained by its continued struggles with the coronavirus, which have kept shoppers at home. But deeper forces are also at play. Before the pandemic, prices outside the volatile energy and food sectors had barely budged for years, as Japan never came close to meeting its longtime goal of 2 percent inflation.It wasn’t for lack of trying. Over nearly a decade, Japanese policymakers have wielded nearly every trick in the economist’s playbook in an effort to coax prices higher. They have juiced the economy with cheap money, spent huge sums on fiscal stimulus like public works, and lowered interest rates to levels that made borrowing nearly free.But as Japan has learned the hard way, low inflation can be an economic quagmire. And that experience carries a warning for the United States if its current bout of inflation eases, as many economists expect, and its economy falls back into the cycle of weak inflation that preceded the pandemic.“Most economists, me included, are pretty confident that the Fed knows how to bring inflation down,” including by raising interest rates, said Joshua Hausman, an associate professor of public policy and economics at the University of Michigan who has studied Japan’s economy.However, “it’s much less clear, partly because of Japan’s experience, that we’re very good at bringing inflation up,” he added.For consumers, falling prices sound like a good thing. But from the perspective of most economists, they are a problem.Consumers are paying less for many goods, from Uniqlo parkas to steaming-hot bowls of ramen.Kazuhiro Nogi/Agence France-Presse — Getty ImagesInflation, they like to say, greases the economy’s gears. In small amounts, it increases corporate profits and wages, stimulating growth. It can also reduce the burden of debt, bringing down the relative costs of college loans and mortgages.Japan’s inability to lift inflation is “one of the biggest unsolved challenges in the profession,” said Mark Gertler, a professor of economics at New York University who has studied the issue.One popular explanation for the country’s trouble is that consumers’ expectations of low prices have become so entrenched that it’s basically impossible for companies to raise prices. Economists also point to weakening demand caused by Japan’s aging population, as well as globalization, with cheap, plentiful labor effectively keeping costs low for consumers in developed countries.The picture once looked very different. In the mid-1970s, Japan had some of the highest inflation rates in the world, approaching 25 percent.It wasn’t alone. Runaway prices set off by the 1970s oil crisis defined the era, including for a whole generation of economists who were groomed to believe that the most likely threat to financial stability was rapid inflation and that interest rates were the best tool to combat it.But by the early 1990s, Japan began experiencing a different issue. An economic bubble, fueled by a soaring stock market and rampant property speculation, burst. Prices began to fall.Japan attacked the problem with innovative policies, including using negative interest rates to encourage spending and injecting money into the economy through large-scale asset purchases, a policy known as quantitative easing.Shops and restaurants closed during a state of emergency in Osaka, Japan, in May. To some extent the situation in Japan can be explained by its continued struggles with the coronavirus.Carl Court/Getty ImagesIt seemed to do little good. Still, economists at the time saw Japan’s experience not as a warning to the world, but as an anomaly produced by bad policy choices and cultural quirks.That began to change with the financial crisis of 2008, when inflation rates around the world plummeted and other central banks adopted quantitative easing.The problem has been most notable in Europe, where inflation has averaged 1.2 percent since 2009, economic growth has been weak and some interest rates have been negative for years. During the same period, U.S. inflation averaged just below 2 percent. The Federal Reserve has kept its main interest rate at close to zero since March 2020.Some prominent economists viewed the low inflation as a sign that the U.S. and E.U. economies might be on the brink of so-called secular stagnation, a condition marked by low inflation, low interest rates and sluggish growth.They have worried that those trends will deepen as both economies begin to gray, potentially reducing demand and pushing up savings rates.In 2013, under newly elected Prime Minister Shinzo Abe, Japan began its most ambitious effort to tackle its weak economic growth and low inflation.The government embarked on a grand experiment of huge monetary and fiscal stimulus, buying enormous quantities of equities and lowering interest rates in hopes of encouraging borrowing and putting more money into the economy. As the supply of cash increased, the thinking went, its relative value would decline, effectively driving up prices. Flush with money, consumers and companies alike would spend more. Voilà, inflation.Former Prime Minister Shinzo Abe leaving his last cabinet meeting in Tokyo last year. Under Mr. Abe, Japan began an ambitious but unsuccessful effort to tackle its weak inflation.Kazuhiro Nogi/Agence France-Presse — Getty ImagesTo encourage spending, Japan adopted a policy, known as forward guidance, aimed at convincing people that prices would go up as it pledged to do everything in its power to achieve its inflation target of 2 percent.But the government’s efforts at persuasion fell short, so there was little urgency to spend, said Hiroshi Nakaso, a former deputy governor of the Bank of Japan and head of the Daiwa Institute of Research.Japan found itself in a vicious circle, said Takatoshi Ito, a professor of international and public affairs at Columbia University, who served on Japan’s Council on Economic and Fiscal Policy.Consumers came to expect “stable prices and zero inflation,” he said, adding that as a result, “companies are afraid of raising prices, because that would attract attention, and consumers may revolt.”The sluggish economy made companies reluctant to raise wages, he said, “and because real wages didn’t go up, probably consumption didn’t go up. So there was no increase for demand for products and services.”As inflation hardly moved, some economists wondered if Japan’s stimulus had been too conservative, even as it racked up one of the world’s largest debt burdens.Policymakers, citing a need to pay off the country’s debts and meet the growing costs of caring for an aging population, hedged against the spending by twice raising the country’s consumption tax, apparently weakening demand.A bus station in Tokyo. Economists point to Japan’s aging population as one reason for weakening demand.Charly Triballeau/Agence France-Presse — Getty ImagesIn the end, Mr. Abe’s experiment, known as Abenomics, may not have been as successful as hoped. But it has informed policymakers’ response to the pandemic, said Gene Park, a professor of political science at Loyola Marymount University in Los Angeles who studies Japan’s monetary policy.One takeaway, he said, is that governments could spend more than they had ever thought possible without setting off a rapid rise in inflation. Another is that they might have to spend considerably more than they had once considered necessary to stimulate growth.Japan “has given the U.S. more freedom to experiment with bolder measures,” Mr. Park said.During the pandemic, Japan, too, has tried to apply the lessons learned since 2013.The government has paid shops and restaurants to stay closed, handed out cash to every person in the country, and financed zero-interest loans for struggling businesses. Prices fell anyway. That was partly at the behest of the government itself, which recently pressured telecom companies to lower mobile phone fees it deemed too high. Most Japanese consumers are also still waiting to be vaccinated against the coronavirus, holding back economic activity.Even after the pandemic wanes, however, Japan’s inflation rates are likely to stay low, said Sayuri Shirai, an economics professor at Keio University in Tokyo and a former board member of the Bank of Japan.After all, the primary problem remains unchanged: No one is really sure why prices have stagnated.“The central bank probably doesn’t want to say that they cannot control inflation,” Ms. Shirai said. “Therefore, this issue has just been left without a clear discussion.” More

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    Inflation Likely to Remain High in Coming Months, Fed Chair Powell Says

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    Price gains are up “notably,” Jerome Powell told House lawmakers. That’s because of several temporary factors.Jerome H. Powell told House lawmakers that inflation had increased “notably” in the country’s reopening from the pandemic and would most likely stay higher in the next months before moderating.Pool photo by Graeme JenningsJerome H. Powell, the Federal Reserve chair, told House lawmakers on Wednesday that inflation had increased “notably” and was poised to remain higher in coming months before moderating — but he gave no indication that the recent jump in prices will spur central bankers to rush to change policy.The Fed chair attributed rapid price gains to factors tied to the economy’s reopening from the pandemic, and indicated in response to questioning that Fed officials expected inflation to begin calming in six months or so.Mr. Powell testified before the Financial Services Committee at a fraught moment both politically and economically, given the recent spike in inflation. The Consumer Price Index jumped 5.4 percent in June from a year earlier, the biggest increase since 2008 and a larger move than economists had expected. Price pressures appear poised to last longer than policymakers at the White House or Fed anticipated.“Inflation has increased notably and will likely remain elevated in coming months before moderating,” Mr. Powell said in his opening remarks.He later acknowledged that “the incoming inflation data have been higher than expected and hoped for,” but he said the gains were coming from a “small group” of goods and services directly tied to reopening.Mr. Powell attributed the continuing pop in prices to a series of factors: temporary data quirks, supply constraints that ought to “partially reverse” and a surge in demand for services that were hit hard by the pandemic.He said longer-run inflation expectations remained under control — which matters because inflation outlooks help shape the future path for prices. And he made it clear that if the situation got out of hand, the Fed would be prepared to react.“We are monitoring the situation very carefully, and we are committed to price stability,” Mr. Powell said. He added that “if we were to see that inflation were remaining high and remaining materially higher above our target for a period of time — and that it was threatening to uproot inflation expectations and create a risk of a longer period of inflation — then we would absolutely change our policy as appropriate.”For now, the Fed chair voiced comfort with the central bank’s relatively patient policy path even in light of the hotter-than-expected price data. He said that the labor market was improving but that “there is still a long way to go.” He also said the Fed’s goal of achieving “substantial further progress” toward its economic goals before taking the first steps toward a more normal policy setting “is still a ways off.”Fed officials are debating when and how to slow their $120 billion of monthly government-backed bond purchases, which would be the first step in moving policy away from an emergency mode. Those discussions will continue “in coming meetings,” Mr. Powell said.The central bank is also keeping its policy interest rate near zero, which helps borrowing remain cheap for consumers and businesses. Officials have set out a higher standard for lifting that rate from rock bottom: They want the economy to return to full employment and inflation to be on track to average 2 percent over time.The Fed’s guidance states that officials want to see inflation “moderately” above 2 percent for a time, and Mr. Powell was asked on Wednesday what that standard meant when price pressures were so strong.“Inflation is not moderately above 2 percent — it’s well above 2 percent,” Mr. Powell said of the current data. “The question will be where does this leave us in six months or so — when inflation, as we expect, does move down — how will the guidance work? And it will depend on the path of the economy.”Raising rates is not yet up for discussion, officials have said publicly and privately. The bulk of the Fed’s policy-setting committee does not expect to lift borrowing costs until 2023, based on its latest economic projections.Given Mr. Powell’s comments, that watchful stance is unlikely to shift, economists said.“We still don’t think higher inflation will result in a quicker policy tightening,” Andrew Hunter, senior U.S. economist at Capital Economics, wrote in response to Mr. Powell’s prepared testimony. “Asset purchases probably won’t start to be tapered until next year, with interest rates not raised until the first half of 2023.”The Fed is weighing the risks of higher inflation against the huge number of people who remain out of work. Congress has tasked the central bank with fostering both stable prices and maximum employment. While price pressures have picked up markedly, there are still 6.8 million fewer jobs than there were in February 2020, the month before pandemic layoffs started in earnest.That so many people remain out of work is something of a surprise, because employers report widespread labor shortages, and wage increases and signing bonuses abound as they try to lure talent.“Labor shortages were often cited as a reason firms could not staff at desired levels,” according to the Fed’s latest “Beige Book” of anecdotal economic reports from business contacts across its 12 districts. “All districts noted an increased use of nonwage cash incentives to attract and retain workers.”Mr. Powell said he expected people to return to work as health concerns abated and other issues keeping people sidelined faded, and he predicted that “job gains should be strong in coming months.” More