Inflation (Economics)

More stories

  • 138 Shares199 Views

    in Economy

    Corporate America Has Dodged the Damage of High Rates. For Now.

    by

    Small businesses and risky borrowers face rising costs from the Federal Reserve’s moves, but the biggest companies have avoided taking a hit.The prediction was straightforward: A rapid rise in interest rates orchestrated by the Federal Reserve would confine consumer spending and corporate profits, sharply reducing hiring and cooling a red-hot economy.But it hasn’t worked out quite the way forecasters expected. Inflation has eased, but the biggest companies in the country have avoided the damage of higher interest rates. With earnings picking up again, companies continue to hire, giving the economy and the stock market a boost that few predicted when the Fed began raising interest rates nearly two years ago.There are two key reasons that big business has avoided the hammer of higher rates. In the same way that the average rate on existing household mortgages is still only 3.6 percent — reflecting the millions of owners who bought or refinanced homes at the low-cost terms that prevailed until early last year — leaders in corporate America locked in cheap funding in the bond market before rates began to rise.Also, as the Fed pushed rates above 5 percent, from near zero at the start of 2022, chief financial officers at those businesses began to shuffle surplus cash into investments that generated a higher level of interest income.The combination meant that net interest payments — the money owed on debt, less the income from interest-bearing investments — for American companies plunged to $136.8 billion by the end of September. It was a low not seen since the 1980s, data from the Bureau of Economic Analysis showed.That could soon change.While many small businesses and some risky corporate borrowers have already seen interest costs rise, the biggest companies will face a sharp rise in borrowing costs in the years ahead if interest rates don’t start to decline. That’s because a wave of debt is coming due in the corporate bond and loan markets over the next two years, and firms are likely to have to refinance that borrowing at higher rates.Overall Corporate Debt Interest Payments Have PlummetedAlthough the Fed has rapidly raised interest rates, net interest payments paid by corporations are reaching 40-year lows.

    Note: Data consists of interest paid by private enterprises (minus interest income received) as well as rents and royalties paid by private enterprises.Source: Bureau of Economic AnalysisBy The New York TimesThe junk bond market faces a ‘refinancing wall.’Roughly a third of the $1.3 trillion of debt issued by companies in the so-called junk bond market, where the riskiest borrowers finance their operations, comes due in the next three years, according to research from Bank of America.The average “coupon,” or interest rate, on bonds sold by these borrowers is around 6 percent. But it would cost companies closer to 9 percent to borrow today, according to an index run by ICE Data Services.Credit analysts and investors acknowledge that they are uncertain whether the eventual damage will be containable or enough to exacerbate a downturn in the economy. The severity of the impact will largely depend on how long interest rates remain elevated.“I think the question that people who are really worrying about it are asking is: Will this be the straw that breaks the camel’s back?” said Jim Caron, a portfolio manager at Morgan Stanley. “Does this create the collapse?”The good news is that debts coming due by the end of 2024 in the junk bond market constitute only about 8 percent of the outstanding market, according to data compiled by Bloomberg. In essence, less than one-tenth of the collective debt pile needs to be refinanced imminently. But borrowers might feel higher borrowing costs sooner than that: Junk-rated companies typically try to refinance early so they aren’t reliant on investors for financing at the last minute. Either way, the longer rates remain elevated, the more companies will have to absorb higher interest costs.Among the firms most exposed to higher rates are “zombies” — those already unable to generate enough earnings to cover their interest payments. These companies were able to limp along when rates were low, but higher rates could push them into insolvency.Even if the challenge is managed, it can have tangible effects on growth and employment, said Atsi Sheth, managing director of credit strategy at Moody’s.“If we say that the cost of their borrowing to do those things is now a little bit higher than it was two years ago,” Ms. Sheth said, more corporate leaders could decide: “Maybe I’ll hire less people. Maybe I won’t set up that factory. Maybe I’ll cut production by 10 percent. I might close down a factory. I might fire people.”Small businesses have a different set of problems.Some of this potential effect is already evident elsewhere, among the vast majority of companies that do not fund themselves through the machinations of selling bonds or loans to investors in corporate credit markets. These companies — the small, private enterprises that are responsible for roughly half the private-sector employment in the country — are already having to pay much more for debt.They fund their operations using cash from sales, business credit cards and private loans — all of which are generally more expensive options for financing payrolls and operations. Small and medium-size companies with good credit ratings were paying 4 percent for a line of credit from their bankers a couple of years ago, according to the National Federation of Independent Business, a trade group. Now, they’re paying 10 percent interest on short-term loans.Hiring within these firms has slowed, and their credit card balances are higher than they were before the pandemic, even as spending has slowed.“This suggests to us that more small businesses are not paying the full balance and are using credit cards as a source of financing,” analysts at Bank of America said, adding that it points to “financial stress for certain firms,” though it is not yet a widespread problem.Corporate buyouts are also being tested.Carvana renegotiated its debt this year to defer mounting interest costs.Caroline Brehman/EPA, via ShutterstockIn addition to small businesses, some vulnerable privately held companies that do have access to corporate credit markets are already grappling with higher interest costs. Backed by private-equity investors, who typically buy out businesses and load them with debt to extract financial profits, these companies borrow in the leveraged loan market, where borrowing typically comes with a floating interest rate that rises and falls broadly in line with the Fed’s adjustments.Moody’s maintains a list of companies rated B3 negative and below, a very low credit rating reserved for companies in financial distress. Almost 80 percent of the companies on this list are private-equity-backed leveraged buyouts.Some of these borrowers have sought creative ways to extend the terms of their debt, or to avoid paying interest until the economic climate brightens.The used-car seller Carvana — backed by the private-equity giant Apollo Global Management — renegotiated its debt this year to do just that, allowing its management to cut losses in the third quarter, not including the mounting interest costs that it is deferring.Leaders of at-risk companies will be hoping that a serene mix of economic news is on the horizon — with inflation fading substantially as overall economic growth holds steady, allowing Fed officials to end the rate-increase cycle or even cut rates slightly.Some recent research provides a bit of that hope.In September, staff economists at the Federal Reserve Bank of Chicago published a model forecast indicating that “inflation will return to near the Fed’s target by mid-2024” without a major economic contraction. If that comes to pass, lower interest rates for companies in need of fresh funds could be coming to the rescue much sooner than previously expected.Few, at this point, see that as a guarantee, including Ms. Sheth at Moody’s.“Companies had a lot of things going for them that may be running out next year,” she said.Emily Flitter More

  • 113 Shares149 Views

    in Economy

    Even Most Biden Voters Don’t See a Thriving Economy

    by

    A majority of those who backed President Biden in 2020 say today’s economy is fair or poor, ordinarily a bad omen for incumbents seeking re-election.Presidents seeking a second term have often found the public’s perception of the economy a pivotal issue. It was a boon to Ronald Reagan; it helped usher Jimmy Carter and George H.W. Bush out of the White House.Now, as President Biden looks toward a re-election campaign, there are warning signals on that front: With overall consumer sentiment at a low ebb despite solid economic data, even Democrats who supported Mr. Biden in 2020 say they’re not impressed with the economy.In a recent New York Times/Siena College poll of voters in six battleground states, 62 percent of those voters think the economy is only “fair” or “poor” (compared with 97 percent for those who voted for Donald J. Trump).What the Economy Looks Like to Biden Voters in Swing StatesPercent of President Biden’s 2020 supporters who …

    Notes: Respondents of other races were omitted because of low sample sizes. The figures may not add up to 100 percent because of rounding.Source: New York Times/Siena College polls of 3,662 registered voters conducted Oct. 22 to Nov. 3 in Arizona, Georgia, Michigan, Nevada, Pennsylvania and WisconsinBy The New York TimesThe demographics of Mr. Biden’s 2020 supporters may explain part of his challenge now: They were on balance younger, had lower incomes and were more racially diverse than Mr. Trump’s. Those groups tend to be hit hardest by inflation, which has yet to return to 2020 levels, and high interest rates, which have frustrated first-time home buyers and drained the finances of those dependent on credit.But if the election were held today, and the options were Mr. Biden and Mr. Trump, it’s not clear whether voter perceptions of the economy would tip the balance.“The last midterm was an abortion election,” said Joshua Doss, an analyst at the public opinion research firm HIT Strategies, referring to the 2022 voting that followed the Supreme Court’s decision to overturn the Roe v. Wade ruling. “Most of the time, elections are about ‘it’s the economy, stupid.’ Republicans lost that because of Roe. So we’re definitely in uncharted territory.”There are things working in Mr. Biden’s favor. First, Mr. Doss said, the economic programs enacted under the Biden administration remain broadly popular, providing a political foundation for Mr. Biden to build on. And second, social issues — which lifted the Democrats in the midterms — remain a prominent concern.Take Oscar Nuñez, 27, a server at a restaurant in Las Vegas. Foot traffic has been much slower than usual for this time of year, eating into his tips. He’d like to start his own business, but with the rising cost of living, he and his wife — who works at home answering questions from independent contractors for her employer — haven’t managed to save much money. It’s also a tough jump to make when the economy feels shaky.Mr. Nuñez expected better from Mr. Biden when he voted blue in 2020, he said, but he wasn’t sure what specifically the president should have done better. And he is pretty sure another Trump term would be a disaster.“I’d prefer another option, but it seems like it will once again be my only option again,” Mr. Nuñez said of Mr. Biden. For him, immigrants’ rights and foreign policy concerns are more important. “That’s why I was picking him over Trump in the first place — because this guy’s going to do something that’s real dangerous at some point.”Mr. Nuñez isn’t alone in feeling dissatisfied with the economy but still bound to Mr. Biden by other priorities. Of those surveyed in the six battleground states who plan to vote for Mr. Biden in 2024, 47 percent say social issues are more important to them, while 42 percent say the economy is more important — but that’s a closer split than in the 2022 midterms, in which social issues decisively outweighed economic concerns among Democratic voters in several swing states. (Among likely Trump voters, 71 percent say they are most focused on the economy, while 15 percent favor social issues.)Kendra McDowell thinks President Biden is doing the best he can given the continuing challenges of the wars in Ukraine and Gaza. “People are shopping — you know why? Because they’ve got jobs,” she said.Hannah Yoon for The New York TimesDour sentiment about the economy also isn’t limited to people who’ve been frustrated in their financial ambitions.Mackenzie Kiser, 20, and Lawson Millwood, 21, students at the University of North Georgia, managed to buy a house this year. Mr. Millwood’s income as an information-technology systems administrator at the university was enough to qualify, and they worried that affordability would only worsen if they waited because of rising interest rates and prices. Still, the experience left a bitter taste.“The housing market is absolutely insane,” said Ms. Kiser, who wasn’t old enough to vote in 2020 but leans progressive. “We paid the same for our one-story, one-bedroom cinder-block 1950s house as my mom paid for her three-story, four-bedroom house less than a decade ago.”Ms. Kiser doesn’t think Mr. Biden has done much to help the economy, and she worries he’s too old to be effective. But Mr. Trump isn’t more appealing on that front.“It’s not that I think that anybody of a different party could do better, but more that someone with their mental faculties who’s not retirement age could do a better job,” Ms. Kiser said. “Our choices are retirement age or retirement age, so it’s rock and a hard place right now.”Generally, voters don’t think Republicans are fixing the economy, either. In a poll conducted this month by the progressive-leaning Navigator Research, 70 percent of voters in battleground House districts, including a majority of Republicans, said they thought Republicans were more focused on issues other than the economy.The health of the economy is still a major variable leading up to the election. A downturn could fray what the president cites as a signal accomplishment of Bidenomics: low unemployment. A study of the 2016 election found that higher localized unemployment made Black voters, an overwhelmingly Democratic constituency, less likely to vote at all.“I think the likelihood that they would choose Trump is not the threat,” Mr. Doss said. “The threat is that they would choose the couch and stay home, and enough of them would stay home for an electoral college win for Trump.”But in the absence of a competitive Democratic primary, the campaigning — and television spots — have yet to commence in earnest. When they do, Mr. Doss has some ideas.So far, Mr. Biden’s messaging has focused on macroeconomic indicators like the unemployment rate and tackling inflation. “The truth is, that’s not the economy to most people,” Mr. Doss said. “The economy to most people is gas prices and food and whether or not they can afford to throw a birthday party for their kid.”Mr. Millwood supports a higher federal minimum wage, and is impatient with the bickering and finger pointing he hears about in Washington.Audra Melton for The New York TimesIt’s difficult for presidents to directly control inflation in the short term. But the White House has addressed a few specific costs that matter for families, by releasing oil from the Strategic Petroleum Reserve to contain surging oil prices in late 2022, for example. The Inflation Reduction Act reduced prescription drug prices under Medicare and capped the cost of insulin for people with diabetes. The administration is also going after what it calls “junk fees,” which inflate the prices of things like concert tickets, airline tickets and even birthday parties.The more the administration talks about its concrete efforts to lower prices, the more Mr. Biden will benefit, Mr. Doss said. At the same time, Mr. Biden can lessen the blowback from persistent inflation by deflecting blame — an out-of-control pandemic was the original cause, he could plausibly argue, and most other wealthy countries are worse off.That’s how it seems to Kendra McDowell, 44, an accountant and single mother of four in Harrisburg, Pa. She feels the sting of inflation every time she goes to the grocery store — she spent $1,000 on groceries this past month and didn’t even fill her deep freezer — and in the health of her clients’ balance sheets. Despite her judgment that the economy is poor, however, she still has enough confidence to start a business in home-based care, a field in greater demand since Covid-19 ripped through nursing homes.“When I talk about the economy, it’s just inflation, and to me inflation is systemic and coming from the Trump administration,” Ms. McDowell said. If the pandemic had been contained quickly, she reasoned, supply chains and labor disruptions wouldn’t have sent prices soaring in the first place.Moreover, she sees the situation healing itself, and thinks Mr. Biden is doing the best he can given the challenges of the wars in Ukraine and now Gaza. “People are shopping — you know why? Because they’ve got jobs,” Ms. McDowell said. “God forbid, today or tomorrow, if I had to go find a job, it’s easier than it was before.”Ms. McDowell is what’s known in public opinion research as a high-information voter. Polls have shown that those less apt to stay up on the news tend to change their views when provided with more background on what the Biden administration has both accomplished and attempted.Ms. McDowell, a mother of four, said that she felt the sting of inflation every time she went to the grocery store, but that she didn’t blame Mr. Biden.Hannah Yoon for The New York TimesThe 15-month-old Inflation Reduction Act is still little known, for example. But this past March, the Yale Program on Climate Change Communication found that 68 percent of respondents supported it when filled in on its main components.A frequent theme of conversations with Democratic voters who see the economy as poor is that large corporations have too much power and that the middle class is being squeezed.Mr. Millwood, Ms. Kiser’s partner, said that he was concerned that society had grown more unequal in recent years, and that he didn’t see Mr. Biden doing much about it.“From what I see, it really doesn’t look like the working class is benefiting from many things recently,” said Mr. Millwood, who supports a higher federal minimum wage and is impatient with the bickering and finger pointing he hears about in Washington.After the phone conversation ended, Mr. Millwood texted to say that upon reflection, he would also like to see Mr. Biden push to lower taxes for low-income families and make it more difficult for the wealthiest to dodge them. After being sent news articles about Mr. Biden’s support for the extension of the now-expired Child Tax Credit and the appropriation of $80 billion for the Internal Revenue Service, in part to pursue tax evaders, he seemed surprised.“That is absolutely what I had in mind,” Mr. Millwood texted. “It’s been so noisy in the media lately I haven’t seen much that is covering things like that,” adding, “Biden doesn’t seem so bad after all haha.”Ruth Igielnik More

  • 88 Shares129 Views

    in Economy

    As Holiday Shopping Season Begins, Retailers Worry

    by

    Consumer spending has been strong in 2023 despite higher prices and waning savings. But some retailers have jitters heading into Black Friday.Christina Beck is approaching this holiday season cautiously.Ms. Beck, a 58-year-old administrative director at a school, makes lists of gifts she plans to buy for her family and friends and sticks with it. But her spending this year will be kept in check by the high cost of food in grocery stores and restaurants, and the mortgage for a home in Minneapolis she bought last year with her best friend.That best friend, Kristin Aitchison, cannot wait for the holidays. Ms. Aitchison, 55, who works for a senior living home, advises her family each year that she plans to make the holidays smaller, spending less. And every year, she spends more than she did the year before.“I’m a huge gift giver,” Ms. Aitchison, who started her shopping in early November. “I have so much joy in giving gifts. I’m always running around the last week before Christmas because I have to find just a few more gifts.”There are many reasons for people to be more prudent in their holiday spending this year. While inflation is less rapid than it was a year ago, millions of shoppers still feel sticker shock when buying groceries. Payments on federal student loans, which were on pause during the pandemic, have resumed. And higher interest rates have meant larger credit card bills and, for home buyers, mortgage payments.Yet consumer spending has been surprisingly strong throughout 2023. For retailers, the question is whether people will continue to spend their way through the holiday season or decide this is the time to pull back.Predictions are murky. The National Retail Federation said it expected holiday sales to increase 3 to 4 percent from last year, without adjusting for inflation, on a par with the prepandemic 2019 season. But in a survey by the Conference Board, a nonprofit research group, consumers said they planned to spend an average of $985 on holiday-related items this year, down slightly from the $1,006 they anticipated spending last year.One closely watched early indicator, Amazon’s Prime Day in October, showed consumers were spending more, but only slightly. They spent an average of $144.53 on Prime Day, a 2 percent increase from the average the year before, according to Facteus, which analyzed credit and debit card transaction data.Last week, the Commerce Department reported that retail sales nationwide fell 0.1 percent in October from September, the first drop since March. Executives at Walmart also warned that consumer spending had weakened in the last two weeks in October, noting that people seemed to be waiting for sales.“It makes us more cautious on the consumer as we look into the fourth quarter,” John David Rainey, the chief financial officer of Walmart, said in an interview. “I think there’s likely more variability in the numbers.”Still, the retail sales pullback was smaller than the decline that many economists had expected after a very strong summer of spending, and some analysts saw it as a sign of continued consumer resilience.Holiday sales are likely to be decent by prepandemic standards, though not as strong as the gangbuster seasons in 2020 and 2021, said Tim Quinlan, a senior economist at Wells Fargo.Higher-income shoppers still have plenty of extra savings built up during and after the pandemic, but those with lower incomes have more fully used up their resources, Mr. Quinlan said. Higher interest rates may also deter shoppers from putting holiday shopping on credit cards. The combination of reduced savings and higher rates “makes it tougher to have a big pile of presents under the tree this year,” he said.For much of the year, consumer spending has been underpinned by continued strength in the job market and wage gains. Average hourly earnings in October were up 4.1 percent from a year earlier. That was faster than inflation. As measured by the Consumer Price Index, prices were up 3.2 percent.Those factors have helped to keep retail sales climbing on a yearly basis.It’s the Most Wonderful Time of the Year (for the Economy)Three decades of monthly retail spending show how important the holiday season is to our economy.Still, signs of slowing are beginning to show up. Wage growth is slowing, and the unemployment rate has risen over recent months. Like Mr. Quinlan, many economists think that consumers are getting closer to exhausting their savings, though some studies suggest that many have been drawing down their financial cushions only slowly.For many, the resumption of student-loan payments is putting a crimp in holiday spending plans. In a holiday survey by the consulting firm Deloitte, 17 percent of respondents said they had to resume student loan payments, and almost half of them said they planned to reduce their holiday spending as a result.In past years, Tara Cavanaugh, a 37-year-old marketing manager, spent as much as $1,500 on gifts for her family, friends and various office parties, she said. This year, after a move with her partner to Boulder, Colo., and the resumption of her $400-a-month student-loan payments — her partner also has student-loan debt — she said she was paring down her gift list and expected to spend closer to $200.Tara Cavanaugh outside her home in Boulder, Colo. She plans to pare down her gift list this year.Kevin Mohatt for The New York Times“We both make decent incomes and live simply, sharing an old car and our furniture is still from Ikea, but it still feels like we’re struggling,” Ms. Cavanaugh said of her and her partner. “I know a lot of us are feeling the pinch, so I’m not going to freak out about giving gifts to people who are older than me, are doing fine and don’t need anything.”As always, many people are looking for deals, whether on Black Friday or through other pre-Christmas sales. About 52 percent of consumers plan to watch for deals and special offers online and 39 percent plan to hunt for sales in stores this year, according to a survey by the research firm Forrester.When the Amazon toy catalog landed in Claire Kielich’s mailbox in Austin, Texas, her two daughters, ages 5 and 10, who also have birthdays in December, began circling what they wanted.“I’ll be watching to see if any of those things go on sale for Black Friday,” said Ms. Kielich, 40, who does product development and sourcing in the furniture industry. She said she expected to spend around $1,000 this holiday season and already had a stash of stocking stuffers hidden in one of her closets.Ms. Beck in Minneapolis started buying holiday gifts in July, making lists of what friends and family needed or liked, picking up unique items at local craft stores or from small local businesses and storing them in what she calls her “present drawer.” This approach, she said, helps her put more thought into her gifts and keeps her from spending beyond her budget.Her best friend, Ms. Aitchison, takes the opposite approach. While careful with her finances during the year, come the holidays she has no plan and, basically, no budget. Her oldest child has barred her from ever buying him another pair of corduroy pants. Last year, she bought four nine-foot-tall blow-up dinosaur costumes for her adult children.“Of course, nobody needs a blow-up dinosaur costume,” Ms. Aitchison conceded.This holiday season, she plans to shop until she drops.“I don’t think about what I’m going to spend,” she said. “In January and February, because I spent all my money, I’ll eat beans and rice while I pay the bills off.”Despite their different holiday shopping styles, Ms. Aitchison said she and Ms. Beck always had fun shopping together.“She doesn’t get nearly the amount of things that I do,” Ms. Aitchison said. “She’s always like: ‘Kristin stop. Put that down. You don’t need it.’” More

  • 138 Shares119 Views

    in Economy

    Fed Officials Thought Rates Could Rise More if Inflation Stayed Stubborn

    by

    Minutes from the Federal Reserve’s early November meeting suggested another rate increase remained possible, but officials were in no hurry.Federal Reserve officials are contemplating whether they will need to raise interest rates again to cool the economy and ensure that rapid inflation will fully fade, and minutes from their meeting earlier this month laid out the contours of that debate.“Participants noted that further tightening of monetary policy would be appropriate if incoming information indicated that progress toward the committee’s inflation objective was insufficient,” according to minutes from the central bank’s Oct. 31-Nov. 1 meeting, which were released Tuesday.Fed officials thought that the “data arriving in coming months would help clarify the extent to which the disinflation process was continuing.”Central bankers voted to leave interest rates unchanged in a range of 5.25 to 5.5 percent at their gathering early this month, allowing themselves more time to assess whether their substantial rate moves so far are weighing on demand.Wall Street is keenly focused on what officials will do next. Fed policymakers had predicted one more 2023 rate move as of their September economic projections, but investors think that there is little chance they will raise rates at their final meeting of the year on Dec. 12-13. Tuesday’s minutes may serve to bolster that expectation of an extended pause, because they suggested that officials planned to watch how the economy shaped up over the course of “months.”Fed watchers are now trying to figure out whether officials are conclusively done raising interest rates and, if so, when they are likely to begin cutting them. Policymakers will publish a fresh set of quarterly economic forecasts at the conclusion of their December meeting. Those, together with remarks from Fed Chair Jerome H. Powell, could provide important clues about the future.As of September, policymakers expected to lower rates before the end of 2024. If that forecast stands and Mr. Powell hints that policymakers are not eager to raise rates again, investors may turn their full attention to just how soon rate cuts are coming. As of now, market pricing suggests that Wall Street expects policymakers to begin lowering interest rates at some point in the first half of 2024.But if Fed officials use the December economic projections to predict that rates could remain higher for longer — or if Mr. Powell suggests that a rate increase next year remains firmly on the table — it could keep the possibility of more action at least dimly alive. Several central bankers have been clear in recent weeks that they aren’t sure they are done raising interest rates.“I wouldn’t take additional firming off the table,” Susan Collins, the president of the Federal Reserve Bank of Boston, said in an interview on CNBC last week.The minutes from the Fed’s November gathering fleshed out how policymakers are thinking about the outlook. While officials wanted to make sure that they were cooling the economy enough to ensure that inflation would come back to their 2 percent goal in a timely way, they also wanted to avoid overdoing it by raising rates too much and risking a painful recession.Fed officials thought that “with the stance of monetary policy in restrictive territory, risks to the achievement of the committee’s goals had become more two-sided,” the minutes said, though “most participants continued to see upside risks to inflation.”Consumer Price Index inflation fell to 3.2 percent in October, down from a peak above 9 percent in summer 2022. Even so, officials are worried that it could prove difficult to wrestle inflation the rest of the way back to normal.Fed officials define their inflation target using a separate but related measure, the Personal Consumption Expenditures index, which comes out at more of a delay. The October P.C.E. figures are set for release on Nov. 30.Fed officials have been carefully watching strength in the job market and the economy as they try to figure out whether inflation is likely to come fully under control. If the economy retains too much vim — with consumers spending freely and businesses snapping up workers — companies may continue to raise prices at a faster clip than usual.Since their last meeting, the Fed has gotten some positive news on that front. While employers continued to hire in October, they did so at a much slower pace: They hired just 150,000 workers, and earlier hiring figures were revised lower.The minutes suggested that policymakers are watching for signs that “labor markets were reaching a better balance between demand and supply.” More

  • 113 Shares179 Views

    in Economy

    A 30-Year Trap: The Problem With America’s Weird Mortgages

    by

    Buying a home was hard before the pandemic. Somehow, it keeps getting harder.Prices, already sky-high, have gotten even higher, up nearly 40 percent over the past three years. Available homes have gotten scarcer: Listings are down nearly 20 percent over the same period. And now interest rates have soared to a 20-year high, eroding buying power without — in defiance of normal economic logic — doing much to dent prices.None of which, of course, is a problem for people who already own homes. They have been insulated from rising interest rates and, to a degree, from rising consumer prices. Their homes are worth more than ever. Their monthly housing costs are, for the most part, locked in place.The reason for that divide — a big part of it, anyway — is a unique, ubiquitous feature of the U.S. housing market: the 30-year fixed-rate mortgage.That mortgage has been so common for so long that it can be easy to forget how strange it is. Because the interest rate is fixed, homeowners get to freeze their monthly loan payments for as much as three decades, even if inflation picks up or interest rates rise. But because most U.S. mortgages can be paid off early with no penalty, homeowners can simply refinance if rates go down. Buyers get all of the benefits of a fixed rate, with none of the risks.“It’s a one-sided bet,” said John Y. Campbell, a Harvard economist who has argued that the 30-year mortgage contributes to inequality. “If inflation goes way up, the lenders lose and the borrowers win. Whereas if inflation goes down, the borrower just refinances.”This isn’t how things work elsewhere in the world. In Britain and Canada, among other places, interest rates are generally fixed for only a few years. That means the pain of higher rates is spread more evenly between buyers and existing owners.In other countries, such as Germany, fixed-rate mortgages are common but borrowers can’t easily refinance. That means new buyers are dealing with higher borrowing costs, but so are longtime owners who bought when rates were higher. (Denmark has a system comparable to the United States’, but down payments are generally larger and lending standards stricter.)Only the United States has such an extreme system of winners and losers, in which new buyers face borrowing costs of 7.5 percent or more while two-thirds of existing mortgage holders pay less than 4 percent. On a $400,000 home, that’s a difference of $1,000 in monthly housing costs.“It’s a bifurcated market,” said Selma Hepp, chief economist at the real estate site CoreLogic. “It’s a market of haves and have-nots.”It isn’t just that new buyers face higher interest rates than existing owners. It’s that the U.S. mortgage system is discouraging existing owners from putting their homes on the market — because if they move to another house, they’ll have to give up their low interest rates and get a much costlier mortgage. Many are choosing to stay put, deciding they can live without the extra bedroom or put up with the long commute a little while longer.The result is a housing market that is frozen in place. With few homes on the market — and fewer still at prices that buyers can afford — sales of existing homes have fallen more than 15 percent in the past year, to their lowest level in over a decade. Many in the millennial generation, who were already struggling to break into the housing market, are finding they have to wait yet longer to buy their first homes.“Affordability, no matter how you define it, is basically at its worst point since mortgage rates were in the teens” in the 1980s, said Richard K. Green, director of the Lusk Center for Real Estate at the University of Southern California. “We sort of implicitly give preference to incumbents over new people, and I don’t see any particular reason that should be the case.”A ‘Historical Accident’The story of the 30-year mortgage begins in the Great Depression. Many mortgages at the time had terms of 10 years or less and, unlike mortgages today, were not “self-amortizing” — meaning that rather than gradually paying down the loan’s principal along with the interest each month, borrowers owed the principal in full at the end of the term. In practice, that meant that borrowers would have to take out a new mortgage to pay off the old one.That system worked until it didn’t: When the financial system seized up and home values collapsed, borrowers couldn’t roll over their loans. At one point in the early 1930s, nearly 10 percent of U.S. homes were in foreclosure, according to research by Mr. Green and a co-author, Susan M. Wachter of the University of Pennsylvania.In response, the federal government created the Home Owners’ Loan Corporation, which used government-backed bonds to buy up defaulted mortgages and reissue them as fixed-rate, long-term loans. (The corporation was also instrumental in creating the system of redlining that prevented many Black Americans from buying homes.) The government then sold off those mortgages to private investors, with the newly created Federal Housing Administration providing mortgage insurance so those investors knew the loans they were buying would be paid off.The mortgage system evolved over the decades: The Home Owners’ Loan Corporation gave way to Fannie Mae and, later, Freddie Mac — nominally private companies whose implicit backing by the federal government became explicit after the housing bubble burst in the mid-2000s. The G.I. Bill led to a huge expansion and liberalization of the mortgage insurance system. The savings-and-loan crisis of the 1980s contributed to the rise of mortgage-backed securities as the primary funding source for home loans.By the 1960s, the 30-year mortgage had emerged as the dominant way to buy a house in the United States — and apart from a brief period in the 1980s, it has remained so ever since. Even during the height of the mid-2000s housing bubble, when millions of Americans were lured by adjustable-rate mortgages with low “teaser” rates, a large share of borrowers opted for mortgages with long terms and fixed rates.After the bubble burst, the adjustable-rate mortgage all but disappeared. Today, nearly 95 percent of existing U.S. mortgages have fixed interest rates; of those, more than three-quarters are for 30-year terms.No one set out to make the 30-year mortgage the standard. It is “a bit of a historical accident,” said Andra Ghent, an economist at the University of Utah who has studied the U.S. mortgage market. But intentionally or otherwise, the government played a central role: There is no way that most middle-class Americans could get a bank to lend them a multiple of their annual income at a fixed rate without some form of government guarantee.“In order to do 30-year lending, you need to have a government guarantee,” said Edward J. Pinto, a senior fellow at the American Enterprise Institute and a longtime conservative critic of the 30-year mortgage. “The private sector couldn’t have done that on their own.”For home buyers, the 30-year mortgage is an incredible deal. They get to borrow at what amounts to a subsidized rate — often while putting down relatively little of their own money.But Mr. Pinto and other critics on both the right and the left argue that while the 30-year mortgage may have been good for home buyers individually, it has not been nearly so good for American homeownership overall. By making it easier to buy, the government-subsidized mortgage system has stimulated demand, but without nearly as much attention on ensuring more supply. The result is an affordability crisis that long predates the recent spike in interest rates, and a homeownership rate that is unremarkable by international standards.“Over time, the 30-year fixed rate probably just erodes affordability,” said Skylar Olsen, chief economist for the real estate site Zillow.Research suggests that the U.S. mortgage system has also heightened racial and economic inequality. Wealthier borrowers tend to be more financially sophisticated and, therefore, likelier to refinance when doing so saves them money — meaning that even if borrowers start out with the same interest rate, gaps emerge over time.“Black and Hispanic borrowers in particular are less likely to refinance their loans,” said Vanessa Perry, a George Washington University professor who studies consumers in housing markets. “There’s an equity loss over time. They’re overpaying.”‘Who Feels the Pain?’Hillary Valdetero and Dan Frese are on opposite sides of the great mortgage divide.Ms. Valdetero, 37, bought her home in Boise, Idaho, in April 2022, just in time to lock in a 4.25 percent interest rate on her mortgage. By June, rates approached 6 percent.“If I had waited three weeks, because of the interest rate I would’ve been priced out,” she said. “I couldn’t touch a house with what it’s at now.”Mr. Frese, 28, moved back to Chicago, his hometown, in July 2022, as rates were continuing their upward march. A year and a half later, Mr. Frese is living with his parents, saving as much as he can in the hopes of buying his first home — and watching rising rates push that dream further away.“My timeline, I need to stretch at least another year,” Mr. Frese said. “I do think about it: Could I have done anything differently?”The diverging fortunes of Ms. Valdetero and Mr. Frese have implications beyond the housing market. Interest rates are the Federal Reserve’s primary tool for corralling inflation: When borrowing becomes more expensive, households are supposed to pull back their spending. But fixed-rate mortgages dampen the effect of those policies — meaning the Fed has to get even more aggressive.“When the Fed raises rates to control inflation, who feels the pain?” asked Mr. Campbell, the Harvard economist. “In a fixed-rate mortgage system, there’s this whole group of existing homeowners who don’t feel the pain and don’t take the hit, so it falls on new home buyers,” as well as renters and construction firms.Mr. Campbell argues that there are ways the system could be reformed, starting with encouraging more buyers to choose adjustable-rate mortgages. Higher interest rates are doing that, but very slowly: The share of buyers taking the adjustable option has edged up to about 10 percent, from 2.5 percent in late 2021.Other critics have suggested more extensive changes. Mr. Pinto has proposed a new type of mortgage with shorter durations, variable interest rates and minimal down payments — a structure that he argues would improve both affordability and financial stability.But in practice, hardly anyone expects the 30-year mortgage to disappear soon. Americans hold $12.5 trillion in mortgage debt, mostly in fixed-rate loans. The existing system has an enormous — and enormously wealthy — built-in constituency whose members are certain to fight any change that threatens the value of their biggest asset.What is more likely is that the frozen housing market will gradually thaw. Homeowners will decide they can’t put off selling any longer, even if it means a lower price. Buyers, too, will adjust. Many forecasters predict that even a small drop in rates could bring a big increase in activity — a 6 percent mortgage suddenly might not sound that bad.But that process could take years.“I feel very fortunate that I slid in at the right time,” Ms. Valdetero said. “I feel really bad for people that didn’t get in and now they can’t.” More

  • 113 Shares169 Views

    in Economy

    Biden Faces Economic Challenges as Cost-of-Living Despair Floods TikTok

    by

    Economic despair dominates social media as young people fret about the cost of living. It offers a snapshot of the challenges facing Democrats ahead of the 2024 election.Look at economic data, and you’d think that young voters would be riding high right now. Unemployment remains low. Job opportunities are plentiful. Inequality is down, wage growth is finally beating inflation, and the economy has expanded rapidly this year.Look at TikTok, and you get a very different impression — one that seems more in line with both consumer confidence data and President Biden’s performance in political polls.Several of the economy-related trends getting traction on TikTok are downright dire. The term “Silent Depression” recently spawned a spate of viral videos. Clips critical of capitalism are common. On Instagram, jokes about poor housing affordability are a genre unto themselves.Social media reflects — and is potentially fueling — a deep-seated angst about the economy that is showing up in surveys of younger consumers and political polls alike. It suggests that even as the job market booms, people are focusing on long-running issues like housing affordability as they assess the economy.The economic conversation taking place virtually may offer insight into the stark disconnect between optimistic economic data and pessimistic feelings, one that has puzzled political strategists and economists.Never before was consumer sentiment this consistently depressed when joblessness was so consistently low. And voters rate Mr. Biden badly on economic matters despite rapid growth and a strong job market. Young people are especially glum: A recent poll by The New York Times and Siena College found that 59 percent of voters under 30 rated the economy as “poor.”President Biden’s campaign is working with content creators on TikTok to “amplify a positive, affirmative message” on the economy, a deputy campaign manager said.Desiree Rios for The New York TimesThat’s where social media could offer insight. Popular interest drives what content plays well — especially on TikTok, where going viral is often the goal. The platforms are also an important disseminator of information and sentiment.“A lot of people get their information from TikTok, but even if you don’t, your friends do, so you still get looped into the echo chamber,” said Kyla Scanlon, a content creator focused on economic issues who posts carefully researched explainers across TikTok, Instagram and X.Ms. Scanlon rose to prominence in the traditional news media in part for coining and popularizing the term “vibecession” for how bad consumers felt in 2022 — but she thinks 2023 has seen further souring.“I think people have gotten angrier,” she said. “I think we’re actually in a worse vibecession now.”Surveys suggest that people in Generation Z, born after 1996, heavily get their news from social media and messaging apps. And the share of U.S. adults who turn to TikTok in particular for information has been steadily climbing. Facebook is still a bigger news source because it has more users, but about 43 percent of adults who use TikTok get news from it regularly, according to a new survey by the Pew Research Center.It is difficult to say for certain whether negative news on social media is driving bad feelings about the economy, or about the Biden administration. Data and surveys struggle to capture exactly what effect specific news delivery channels — particularly newer ones — have on people’s perceptions, said Katerina Eva Matsa, director of news and information research at the Pew Research Center.“Is the news — the way it has evolved — making people view things negatively?” she asked. It’s hard to tell, she explained, but “how you’re being bombarded, entangled in all of this information might have contributed.”More Americans on TikTok Are Going There for NewsShare of each social media site’s users who regularly get news there, 2020 vs. 2023

    Source: Pew Research Center surveys of U.S. adultsBy The New York TimesMr. Biden’s re-election campaign team is cognizant that TikTok has supplanted X, formerly known as Twitter, for many young voters as a crucial information source this election cycle — and conscious of how negative it tends to be. White House officials say that some of those messages accurately reflect the messengers’ economic experiences, but that others border on misinformation that social media platforms should be policing.Rob Flaherty, a deputy campaign manager for Mr. Biden, said the campaign was working with content creators on TikTok in an effort to “amplify a positive, affirmative message” about the economy.A few political campaign posts promoting Mr. Biden’s jobs record have managed to rack up thousands of likes. But the “Silent Depression” posts have garnered hundreds of thousands — a sign of how much negativity is winning out.In those videos, influencers compare how easy it was to get by economically in 1930 versus 2023. The videos are misleading, skimming over the crucial fact that roughly one in four adults was unemployed in 1933, compared with four in 100 today. And the data they cite are often pulled from unreliable sources.But the housing affordability trend that the videos spotlight is grounded in reality. It has gotten tougher for young people to afford a property over time. The cost of a typical house was 2.4 times the typical household income around 1940, when government data start. Today, it’s 5.8 times.Nor is it just housing that’s making young people feel they’re falling behind, if you ask Freddie Smith, a 35-year-old real estate agent in Orlando, Fla., who created one especially popular “Silent Depression” video. Recently, it is also the costs of gas, groceries, cars and rent.“I think it’s the perfect storm,” Mr. Smith said. “It’s this tug of war that millennials and Gen Z are facing right now.”Inflation has cooled notably since peaking in the summer of 2022, which the Biden administration has greeted as a victory. Still, that just means that prices are no longer climbing as rapidly. Key costs remain noticeably higher than they were just a few years ago. Groceries are far more expensive than in 2019. Gas was hovering around $2.60 a gallon at the start of 2020, for instance, but is around $3.40 now.Young Americans Are Spending More and Earning MoreIncome after taxes and expenditures for householders under 25

    Source: Bureau of Labor Statistics Consumer Expenditure Survey By The New York TimesThose higher prices do not necessarily mean people are worse off: Household incomes have also gone up, so people have more money to cover the higher costs. Consumer expenditure data suggests that people under 25 — and even 35 — have been spending a roughly equivalent or smaller share of their annual budgets on groceries and gas compared with before the pandemic, at least on average.“I think things just feel harder,” said Betsey Stevenson, a professor of public policy and economics at the University of Michigan, explaining that people have what economists call a “money illusion” and think of the value of a dollar in fixed terms.And housing has genuinely been taking up a bigger chunk of the young consumer’s budget than in the years before the pandemic, as rents, home prices and mortgage costs have all increased.Housing Is Eating Up Young People’s BudgetsShare of spending devoted to each category for people under 25

    Source: Bureau of Labor Statistics Consumer Expenditure SurveyBy The New York TimesIn addition to prices, content about student loans has taken off in TikTok conversations (#studentloans has 1.3 billion views), and many of the posts are unhappy.Mr. Biden’s student-loan initiatives have been a roller coaster for millions of young Americans. He proposed last year to cancel as much as $20,000 in debt for borrowers who earn less than $125,000 a year, a plan that was estimated to cost $400 billion over several decades, only to see the Supreme Court strike down the initiative this summer.Mr. Biden has continued to push more tailored efforts, including $127 billion in total loan forgiveness for 3.6 million borrowers. But last month, his administration also ended a pandemic freeze on loan payments that applied to all borrowers — some 40 million people.The administration has tried to inject more positive programming into the social media discussion. Mr. Biden met with about 60 TikTok creators to explain his initial student loan forgiveness plan shortly after announcing it. The campaign team also sent videos to key creators, for possible sharing, of young people crying when they learned their loans had been forgiven.The Biden campaign does not pay those creators or try to dictate what they are saying, though it does advertise on digital platforms aggressively, Mr. Flaherty said.“It needs to sound authentic,” he said. More

  • 88 Shares109 Views

    in Economy

    Sharp Drop in Airfares Cheers Inflation-Weary Travelers

    by

    Airfares to many popular destinations have recently fallen to their lowest levels in months, and even holiday travel is far cheaper than it was last year, providing some welcome relief to consumers who have been frustrated for months by high prices for all manner of goods and services.The glut of deals suggests that the airline industry’s supercharged pandemic recovery may finally be slowing as the supply of tickets catches up and, on some routes, overtakes demand, which appears relatively robust.Consider the fares that Denise Diorio, a retired teacher in Tampa, Fla., recently scored. She spent less than $40 on flights to and from Chicago and paid just $230 for a round-trip ticket from New York to Paris and back, a trip she plans to take this month.“I’ve been telling all my friends, ‘If you want to go somewhere, get your tickets now,’” she said.The bargains she found may be exceptional, but Ms. Diorio is right that deals abound.Early this month, the average price for a domestic flight around Thanksgiving was down about 9 percent from a year ago. And flights around Christmas were about 18 percent cheaper, according to Hopper, a booking and price-tracking app. Kayak, the travel search engine, looked at a wider range of dates around the holidays and found that domestic flight prices were down about 18 percent around Thanksgiving and 23 percent around Christmas.“In a lot of cases, we’re seeing some of the lowest fares that we’ve seen really since travel started coming back after the drop-off in 2020,” said Kyle Potter, executive editor of Thrifty Traveler, a travel blog and deal-watching service.Domestic ticket prices fell over the summer, Mr. Potter said, and deals on international travel, particularly to Europe, have become more common recently.Airlines lower their fares when they are trying to get more people to book tickets as demand is slowing or they are facing stiffer competition. There’s little question that competition has intensified on some routes, but travel experts say it’s not clear whether demand is waning.Thanksgiving this year is expected to set a record for air travel, with nearly 30 million passengers forecast, according to Airlines for America, an industry group. That would be about 9 percent more than last year and 6 percent more than in 2019, before the pandemic.But some airlines say demand is slowing outside of holiday and other peak travel periods. In addition, some airports have been so flooded with flights that carriers have been forced to cut fares to fill planes.That hadn’t been much of a problem for most of the recovery from the pandemic. Weather and other disruptions limited the supply of flights last year and in 2021, as did shortages of trained pilots, parts and planes, among other factors. That drove up ticket prices, kept planes full and helped airlines take in strong profits.Thanksgiving this year is expected to set a record for air travel, with nearly 30 million passengers anticipated.Stefani Reynolds for The New York Times“The airline industry has never delivered the types of profit margins and return on capital that it has done over the last 2.5 years,” said John Grant, chief analyst with OAG, an aviation advisory and data firm. “We’re getting back to a more normal industry.”For the largest U.S. airlines, the good times have continued, fueled in particular by thriving demand for international travel. But smaller and low-fare carriers have started to suffer. Several reported disappointing financial results for the three months that ended in September. Executives at those airlines have said demand is weakening, fares are falling and costs remain high. They also say bad weather and a shortage of air traffic controllers have made flying more difficult.JetBlue Airways, for example, lost $153 million in the third quarter, compared with a $57 million profit in the same period last year. The company said recently that it was moving flights away from crowded markets, such as New York, to those where it expected stronger performance, such as the Caribbean. The budget carriers Spirit Airlines and Frontier Airlines recently told investors that they were looking to cut costs by tens of millions of dollars.Competition has been fierce in some important markets, driving down fares and profits.In Denver, where Frontier is based, about 14 percent more seats were available on flights this summer than in the summer of 2019, according to Cirium, an aviation data provider. Miami and Orlando, Fla., two popular destinations served by many budget carriers, saw even larger increases in capacity.But while airlines added flights in popular markets as they chased passengers, airports in other cities, including Los Angeles, a hub for several major airlines, had large declines in capacity from the summer of 2019.“You’ll find that there’s a large correlation between the airlines that are doing well and the ones that are struggling, margin-wise, when you compare where their concentrations are,” Barry Biffle, Frontier’s chief executive, said last month on a conference call to discuss the airline’s third-quarter results.When it comes to international routes, analysts are less certain of why fares are falling and whether they will remain low. The kinds of deals that Ms. Diorio got for her Paris trip could mean that larger airlines soon find themselves facing a financial squeeze or merely that the industry is returning to a prepandemic normal.“Historically, demand to Europe softens in the winter,” said Steve Hafner, Kayak’s chief executive. “So I think that reflects normal trends.”But demand for international travel could face challenges, partly because of the wars in the Middle East and Ukraine. Analysts also warn that many consumers may be less willing or able to splurge on travel than they were in the last couple of years, when they had pandemic savings to draw from. Even if demand remains strong, airlines risk offering too many seats on popular overseas routes.Whatever the cause of the recent drop in fares, the deals are a welcome break to travelers from years of high prices, Mr. Potter said.“Either way the recipe is there for cheap flights,” he said. “If it’s just a little bit of overcapacity, that’s a win for consumers. If travel demand is dropping, in some ways that’s an even bigger win for people who are never going to give up on travel.” More

  • 163 Shares169 Views

    in Economy

    Fed Chair Recalls Inflation ‘Head Fakes’ and Pledges to Do More if Needed

    by

    Jerome H. Powell, the Federal Reserve chair, said officials would proceed carefully. But if more policy action is needed, he pledged to take it.Jerome H. Powell, the chair of the Federal Reserve, on Thursday expressed little urgency to make another interest rate increase imminently — but he reiterated that officials would adjust policy further if doing so proved necessary to cool the economy and fully restrain inflation.Mr. Powell and his Fed colleagues left interest rates unchanged in a range of 5.25 to 5.5 percent this month, up from near zero as recently as March 2022. The Fed has raised borrowing costs over the past year and a half to wrangle rapid inflation by slowing demand across the economy.Because inflation has faded notably from its peak in the summer of 2022, and because the Fed has already adjusted policy so much, officials are debating whether they might be done. Once they think rates are at a sufficiently elevated level, they plan to leave them there for a time, essentially putting steady pressure on the economy.Mr. Powell, speaking at a research conference in Washington hosted by the International Monetary Fund, reiterated on Thursday that policymakers wanted to make sure that rates were sufficiently restrictive. He said Fed officials were “not confident that we have achieved such a stance” yet.“We’re trying to make a judgment, at this point, about whether we need to do more,” Mr. Powell said in response to a question at the event. “We don’t want to go too far, but at the same time, we know that the biggest mistake we could make would be, really, to fail to get inflation under control.”He made clear that the Fed did not want to take a continued steady slowdown in inflation for granted. While the Fed’s preferred inflation measure has cooled to 3.4 percent from above 7 percent last year, squeezing price increases back to the central bank’s 2 percent goal could still prove to be a bumpy process. Much of the added inflation that remains is coming from stubborn service prices.“We know that ongoing progress toward our 2 percent goal is not assured: Inflation has given us a few head fakes,” Mr. Powell said. “If it becomes appropriate to tighten policy further, we will not hesitate to do so.”But the Fed does not want to raise interest rates blindly. It takes time for monetary policy changes to have their full effect on the economy, so the Fed could crimp the economy more painfully than it wants to if it raises rates quickly and without trying to calibrate the moves.While central bankers want to cool the economy to bring down inflation, they would like to avoid causing a recession in the process.“We will continue to move carefully,” Mr. Powell said. He said that would allow officials “to address both the risk of being misled by a few good months of data and the risk of over-tightening.”The risk of overdoing it is why central bankers are contemplating whether they need to make another move, or whether inflation is on a steady path back to normal.As of their September economic projections, officials thought that one final rate increase might be necessary, investors doubt that they will raise rates again in the coming months. In fact, market pricing suggests that the Fed could start cutting interest rates as soon as the middle of next year.Markets are betting there is only a sliver of a chance that the Fed will adjust policy at its final meeting of 2023, which will conclude on Dec. 13, and Mr. Powell did little to signal that a rate increase is imminent.Still, his remarks pushed back on the growing conviction among investors that the central bank is decisively finished.“We still believe the Fed is done hiking for this cycle, but today’s speech should serve as notice that their rhetoric must stay hawkish until they’ve seen further improvement in inflation,” Michael Feroli, chief U.S. economist at J.P. Morgan, wrote in a research note.Some economists have been anticipating that a recent jump in longer-term interest rates might persuade the Fed to hold off on raising borrowing costs again. While the Fed sets shorter-term interest rates, longer-term ones are based on market movements and can take time to adjust — but when they do, mortgages, business loans and other types of borrowing become more expensive.Fed officials are watching market moves, including whether they last and what is causing them, Mr. Powell acknowledged. He said officials would watch how the moves shaped up.“We’re moving carefully now, we’ve moved very fast, and rates are now restrictive,” Mr. Powell said. “It’s not something we’re trying to make a decision on right now.”He also used his speech to discuss some longer-term issues in monetary policy, including whether interest rates, which had lingered near rock-bottom levels for much of the decade preceding the pandemic, will eventually return to a much lower setting.Some economists have speculated that borrowing costs might remain permanently higher than they were in the years after the deep 2007-9 recession. But Mr. Powell said that it was too early to know, and that Fed researchers would ponder the question as part of their next long-run policy review.“We will begin our next five-year review in the latter half of 2024 and announce the results about a year later,” Mr. Powell explained.The last review concluded in 2020 and was focused on how to set policy in a low-interest rate world, a backdrop that quickly changed with the advent of rapid inflation in 2021. More