Inflation (Economics)

More stories

  • 113 Shares159 Views

    in Economy

    Fed Will Scour Jobs Report for Signs of Weakness

    by

    Federal Reserve officials held off on cutting interest rates this week because they want slightly more data to feel confident that inflation is truly coming under control. But while that approach is cautious when it comes to price increases, it could prove to be risky when it comes to the labor market.High Fed interest rates help to cool inflation by slowing demand in the economy. When it costs more to borrow to buy a house or expand a business, people make fewer big purchases and companies hire fewer workers. As economic activity pulls back, businesses struggle to raise prices as quickly, and inflation moderates.But that chain reaction can come at a serious cost to the job market. And as inflation comes down, Fed policymakers are increasingly attuned to the risk that they might overdo it, tipping the economy into a severe enough slowdown that it pushes unemployment higher and leaves Americans out of work.Those concerns were not enough to prod central bankers to cut interest rates at their meeting this week. For now, Fed officials think that the ongoing slowdown in hiring and a recent tick up in joblessness signal that labor market conditions are returning to normal after a few years of booming hiring. But policymakers are sure to carefully watch the July jobs report set for release on Friday for any sign that labor conditions are cracking — and have been clear that they will be quick to react if they see evidence that the job market is taking a sudden and unexpected turn for the worse.“A broad set of indicators suggests that conditions in the labor market have returned to about where they stood on the eve of the pandemic,” Jerome H. Powell, the Fed chair, said during a news conference this week. He later added that “I would not like to see material further cooling in the labor market.”Mr. Powell said the Fed stood prepared to react if the labor market weakened more than expected.While the central bank is already widely expected to lower rates in September, economists think that officials could move them down faster than they otherwise might if the job market is cooling notably. In fact, investors expect the central bank to cut rates by three-quarters of a point — equivalent to three normal sized rate cuts — by the end of the 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

  • 63 Shares129 Views

    in Economy

    Productivity Surges 2.3%, Beating Forecasts

    by

    The NewsProductivity grew at a 2.3 percent annual rate in the second quarter, the U.S. Bureau of Labor Statistics reported on Thursday, surpassing economists’ expectations. The pickup was a major improvement upon the sluggish 0.4 percent rate in the first quarter. And on a yearly basis, productivity increased 2.7 percent. That far exceeds prepandemic averages.An assembly line at a car plant in Michigan in April.Bill Pugliano/Getty ImagesWhy It Matters: A key to prosperity.A highly productive economy generally means businesses and workers are operating efficiently, making more money in fewer hours. In the second quarter, production was up 3.3 percent, while hours worked rose 1 percent.On a less technical level, productivity is best explained by the old axiom of “doing more with less” or the folksy virtue of “getting the biggest bang for your buck.”Economists tend to sigh with relief when they see productivity gains because it offers a potential “win-win” for workers, customers and business owners: If businesses can make more money in fewer work hours, then — according to basic economic logic — they can presumably make more dollars per hour, while also reinvesting and giving workers raises, without sacrificing profits.Being able to make more with less (or with the same amount of labor and machinery) also means businesses may not feel as much pressure to set higher prices to push profits. That, too, is welcome news after a yearslong bout of inflation.Facts to Keep in Mind: A volatile indicator.Productivity, at a basic level, is calculated as a simple ratio: the total amount of output an economy produces per hour worked by its labor force. But the output side of the equation is adjusted for inflation on a quarterly basis. That can cause volatility, in both directions.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

  • 138 Shares199 Views

    in Economy

    Trump Promises Lower Interest Rates, but the President Doesn’t Control Those

    by

    The Federal Reserve sets interest rates, and it operates independently of the White House. But rates could come down as inflation cools.Former President Donald J. Trump, the Republican candidate for the 2024 presidential race, promised lower interest rates — which a president does not actually control — if he is elected.Asked on Wednesday what he would do on “Day 1” of a new presidency during a panel at the National Association of Black Journalists convention in Chicago, Mr. Trump said one priority would be to “drill, baby, drill,” the shorthand tagline he has adopted for promoting oil and gas production in the United States.“I bring energy way down, I bring, interest rates are down, I bring inflation way down,” Mr. Trump expanded.The president exerts no direct control over interest rates. The Federal Reserve sets a key policy rate, which then trickles out to influence borrowing costs across the economy, and the Fed is independent from the White House.Mr. Trump has at times implied that the Fed will lower rates because inflation is likely to be lower on his watch, which could have been what he meant on Wednesday. Economists have suggested that some of his proposed policies may in fact speed up inflation.Still, the candidate’s comments underscore how politically salient both price increases and high interest rates remain as the Nov. 5 election nears, even after years in which inflation has been gradually cooling. And they make it clear that the coming months are likely to be politically fraught for the Fed as the technocratic institution tries to stay outside the political fray.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

  • 175 Shares119 Views

    in Economy

    Is the Labor Market About to Crack? It’s the Key Question for the Fed.

    by

    Central bankers are paying more attention to the strength of the job market as inflation cools. But it’s a tough time to gauge its resilience.David Gurley Jr.’s bank account benefited from a hot pandemic labor market. Mr. Gurley, a video game programmer, switched jobs twice in quick succession, boosting his salary and nabbing a fully remote position.By late last year, he was worried that a pullback in the tech industry could make his job precarious. But when it comes to the outlook now, “it seems like things are more or less OK,” Mr. Gurley, 35, said. Opportunities for rapid wage gains are not as widespread and some layoffs have happened, but he feels he could find a job if he needed one.Mr. Gurley’s experience — a rip-roaring labor market, then a wobbly one and now some semblance of normality — is the kind of postpandemic roller-coaster ride that many Americans have encountered. After breakneck hiring and wage growth in 2022 and 2023, conditions have moderated. Now economic officials are trying to figure out whether the labor market is settling into a new holding pattern or is poised to take a turn for the worse.The answer will be pivotal for the future of Federal Reserve policy.Central bankers spent 2022 and 2023 focused mainly on wrestling rapid inflation under control. They have left interest rates unchanged at 5.3 percent for more than a year now and are likely to keep them there at their meeting this week, making money expensive to borrow in a bid to restrain consumer demand and weigh down the overall economy.But now that inflation is returning to normal, officials are again concentrating keenly on their second major goal: maintaining a strong job market. They are trying to strike a careful balance in which they fully stamp out inflation without causing unemployment to spike in the process.The labor market still looks solid. Joblessness is low by historical standards, and claims for unemployment insurance have stabilized after moving up earlier this year. A fresh jobs report set for release Friday is expected to show that employers continued to hire in July, albeit at a slower pace.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

  • 100 Shares99 Views

    in Economy

    Fed’s Preferred Inflation Number Cooled Overall in June

    by

    The Personal Consumption Expenditures Index climbed 2.5 percent, still more than the Fed’s 2 percent target, as price increases take time to come down.The Federal Reserve’s preferred inflation measure continued to gradually cool overall in June even as a “core” inflation measure held steady, likely keeping the central bank on track for a rate cut later this year without stoking any urgency for a reduction at its meeting next week.The Personal Consumption Expenditures index was 2.5 percent higher in June than a year earlier, slower than May’s 2.6 percent and in line with economist expectations.A “core” price measure that strips out food and fuel costs for a better sense of the underlying inflation trend proved more stubborn. Yearly core inflation was 2.6 percent, matching its reading in May. And on a monthly basis, both measures of inflation climbed modestly.Overall, the report served as a reminder that inflation is substantially lower than it was at its 2022 peak, but is not yet entirely vanquished.This inflation measure peaked above 7 percent in 2022, so June’s reading is much cooler. But inflation has lingered above the Fed’s 2 percent goal for more than three years now. That long period of rapid increases has left price levels much higher than they were as recently as 2020, a reality that has caused dismay among consumers who continue to balk at heftier price tags. That in turn has been bad news for incumbent Democrats, who have struggled to take credit for a strong job market and a burst of infrastructure spending at a time when inflation is souring voters’ view of the economy.The long period of inflation has also made the Fed cautious. Policymakers have been holding interest rates at 5.3 percent for the past year, making it expensive to borrow money in a bid to weigh on consumer demand and cool the broader economy. Even though inflation is now coming down — suggesting that rates may no longer need to be so punishingly high — policymakers have not wanted to cut borrowing costs before they are sure that they have fully wrestled price increases under control.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

  • 150 Shares99 Views

    in Economy

    U.S. Economy Grew Faster Than Expected in Second Quarter, at 2.8% Rate

    by

    Gross domestic product rose at a 2.8 percent annual rate in the second quarter, new evidence of the economy’s resilience despite high interest rates.Economic growth picked up more than expected in the spring, as cooling inflation and a strong labor market allowed consumers to keep spending even as high interest rates weighed on their finances.Gross domestic product, adjusted for inflation, increased at a 2.8 percent annual rate in the second quarter, the Commerce Department said on Thursday. That was faster than the 1.4 percent rate recorded in the first quarter, but shy of the unexpectedly strong growth in the second half of last year.Consumer spending, the backbone of the U.S. economy, rose at a 2.3 percent annual rate in the second quarter — a solid pace, albeit much slower than in 2021, when businesses were reopening after pandemic-induced closings. Business investment in equipment rose at its fastest pace in more than two years. Inflation, which picked up unexpectedly at the start of the year, eased in the quarter.The data is preliminary and will be revised at least twice.Taken together, the findings suggest that the economy remains on track for a rare “soft landing,” in which inflation eases without triggering a recession. That is something few forecasters considered likely when the Federal Reserve began raising interest rates two years ago to combat inflation.“It’s the perfect landing,” said Sam Coffin, an economist at Morgan Stanley.Recession fears re-emerged in recent months, first when inflation briefly surged and then when the previously rock-solid job market showed signs of cracking in the spring. But recent data, including the surprisingly strong second-quarter growth figures, indicate that the expansion is on firm footing.“The economy is in a transition, but it’s in a good place,” said Ryan Sweet, chief U.S. economist at Oxford Economics. “The economy is slowing from very strong growth in the second half of last year. We’re just settling down into something that’s a little more sustainable.” More

  • 113 Shares159 Views

    in Economy

    U.S. Economy Grew at 2.8% Rate in Latest Quarter

    by

    The report on gross domestic product offered new evidence of the economy’s resilience in the face of high interest rates.Economic growth remained solid in the spring, as cooling inflation and a strong labor market allowed consumers to keep spending even as high interest rates weighed on their finances.Gross domestic product, adjusted for inflation, increased at a 2.8 percent annual rate in the second quarter, the Commerce Department said on Thursday. That was faster than both the 1.4 percent rate recorded in the first quarter and than forecasters’ expectations, but down from the unexpectedly strong growth in the second half of last year.Consumer spending, the backbone of the U.S. economy, rose at a 2.3 percent annual rate in the second quarter — a solid pace, albeit much slower than in 2021, when businesses were reopening after pandemic-induced closings. Inflation, which picked up unexpectedly at the start of the year, eased in the second quarter.The data is preliminary and will be revised at least twice.Taken together, the data suggested that the economy remains on track for a rare “soft landing,” in which inflation cools without triggering a recession. That is something few forecasters considered likely when the Federal Reserve began raising interest rates to combat inflation two years ago.“The economy is in a transition, but it’s in a good place,” said Ryan Sweet, chief U.S. economist at Oxford Economics. “The economy is slowing from very strong growth in the second half of last year. We’re just settling down into something that’s a little more sustainable.”Fed officials will meet next week to weigh when to begin lowering interest rates, which they have held at their current level, the highest in decades, for the past year. Hardly anyone expects policymakers to cut rates next week, but they could signal that such a move could come as soon as September if inflation continues to cool.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