Inflation (Economics)

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    Jerome Powell’s Prized Labor Market Is Back. Can He Keep It?

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    The Federal Reserve chair spent the early pandemic bemoaning the loss of a strong job market. It roared back — and now its fate is in his hands.Jerome H. Powell, the chair of the Federal Reserve, spent the early pandemic lamenting something America had lost: a job market so historically strong that it was boosting marginalized groups, extending opportunities to people and communities that had long lived without them.“We’re so eager to get back to the economy, get back to a tight labor market with low unemployment, high labor-force participation, rising wages — all of the virtuous factors that we had as recently as last winter,” Mr. Powell said in an NPR interview in September 2020.The Fed chair has gotten that wish. The labor market has recovered by nearly every major measure, and the employment rate for people in their most active working years has eclipsed its 2019 high, reaching a level last seen in April 2001.Yet one of the biggest risks to that strong rebound has been Mr. Powell’s Fed itself. Economists have spent months predicting that workers will not be able to hang on to all their recent labor market gains because the Fed has been aggressively attacking rapid inflation. The central bank has raised interest rates sharply to cool off the economy and the job market, a campaign that many economists have predicted could push unemployment higher and even plunge America into a recession.But now a tantalizing possibility is emerging: Can America both tame inflation and keep its labor market gains?Data last week showed that price increases are beginning to moderate in earnest, and that trend is expected to continue in the months ahead. The long-awaited cool-down has happened even as unemployment has remained at rock bottom and hiring has remained healthy. The combination is raising the prospect — still not guaranteed — that Mr. Powell’s central bank could pull off a soft landing, in which workers largely keep their jobs and growth chugs along slowly even as inflation returns to normal.“There are meaningful reasons for why inflation is coming down, and why we should expect to see it come down further,” said Julia Pollak, chief economist at ZipRecruiter. “Many economists argue that the last mile of inflation reduction will be the hardest, but that isn’t necessarily the case.”Inflation has plummeted to 3 percent, just a third of its 9.1 percent peak last summer. While an index that strips out volatile products to give a cleaner sense of the underlying trend in inflation remains more elevated at 4.8 percent, it, too, is showing notable signs of coming down — and the reasons for that moderation seem potentially sustainable.Housing costs are slowing in inflation measures, something that economists have expected for months and that they widely predict will continue. New and used car prices are cooling as demand wanes and inventories on dealer lots improve, allowing goods prices to moderate. And even services inflation has cooled somewhat, though some of that owed to a slowdown in airfares that may look less significant in coming months.All of those positive trends could make the road to a soft landing — one Mr. Powell has called “a narrow path” — a bit wider.For the Fed, the nascent cool-down could mean that it isn’t necessary to raise rates so much this year. Central bankers are poised to lift borrowing costs at their July meeting next week, and had forecast another rate increase before the end of the year. But if inflation continues to moderate for the next few months, it could allow them to delay or even nix that move, while indicating that further increases could be warranted if inflation picked back up — a signal economists sometimes call a “tightening bias.”Christopher Waller, one of the Fed’s most inflation-focused members, suggested last week that while he might favor raising interest rates again at the Fed meeting in September if inflation data came in hot, he could change his mind if two upcoming inflation reports demonstrated progress toward slower price increases.“If they look like the last two, the data would suggest maybe stopping,” Mr. Waller said.Interest rates are already elevated — they’ll be in a range of 5.25 to 5.5 percent if raised as expected on July 26, the highest level in 16 years. Holding them steady will continue to weigh on the economy, discouraging home buyers, car shoppers or businesses hoping to expand on borrowed money.Since 2020, the labor market has rebounded by nearly every major measure.Jamie Kelter Davis for The New York TimesSo far, though, the economy has shown a surprising ability to absorb higher interest rates without cracking. Consumer spending has slowed, but it has not plummeted. The rate-sensitive housing market cooled sharply initially as mortgage rates shot up, but it has recently shown signs of bottoming out. And the labor market just keeps chugging.Some economists think that with so much momentum, fully stamping out inflation will prove difficult. Wage growth is hovering around 4.4 percent by one popular measure, well above the 2 to 3 percent that was normal in the years before the pandemic.With pay climbing so swiftly, the logic goes, companies will try to charge more to protect their profits. Consumers who are earning more will have the wherewithal to pay up, keeping inflation hotter than normal.“If the economy doesn’t cool down, companies will need to bake into their business plans bigger wage increases,” said Kokou Agbo-Bloua, a global research leader at Société Générale. “It’s not a question of if unemployment needs to go up — it’s a question of how high unemployment should go for inflation to return to 2 percent.”Yet economists within the Fed itself have raised the possibility that unemployment may not need to rise much at all to lower inflation. There are a lot of job openings across the economy at the moment, and wage and price growth may be able to slow as those decline, a Fed Board economist and Mr. Waller argued in a paper last summer.While unemployment could creep higher, the paper argued, it might not rise much: perhaps one percentage point or less.So far, that prediction is playing out. Job openings have dropped. Immigration and higher labor force participation have improved the supply of workers in the economy. As balance has come back, wage growth has cooled. Unemployment, in the meantime, is hovering at a similar level to where it was when the Fed began to raise interest rates 16 months ago.A big question is whether the Fed will feel the need to raise interest rates further in a world with pay gains that — while slowing — remain notably faster than before the pandemic. It could be that they do not.“Wage growth often follows inflation, so it’s really hard to say that wage growth is going to lead inflation down,” Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said during a CNBC interview last week.Risks to the outlook still loom, of course. The economy could still slow more sharply as the effects of higher interest rates add up, cutting into growth and hiring.Consumer spending has slowed, but it has not plummeted — a signal that the economy is absorbing higher interest rates without cracking.Amir Hamja/The New York TimesInflation could come roaring back because of an escalation of the war in Ukraine or some other unexpected development, prodding central bankers to do more to ensure that price increases come under control quickly. Or price increases could simply prove painfully stubborn.“One data point does not make a trend,” Mr. Waller said last week. “Inflation briefly slowed in the summer of 2021 before getting much worse.”But if price increases do keep slowing — maybe to below 3 percent, some economists speculated — officials might increasingly weigh the cost of getting price increases down against their other big goal: fostering a strong job market.The Fed’s tasks are both price stability and maximum employment, what is called its “dual mandate.” When one goal is really out of whack, it takes precedence, based on the way the Fed approaches policy. But once they are both close to target, pursuing the two is a balancing act.“I think we need to get a 2-handle on core inflation before they’re ready to put the dual mandates beside each other,” said Julia Coronado, an economist at MacroPolicy Perspectives. Forecasters in a Bloomberg survey expect that measure of inflation to fall below 3 percent — what economists call a “2-handle” — in the spring of 2024.The Fed may be able to walk that tightrope to a soft landing, retaining a labor market that has benefited a range of people — from those with disabilities to teenagers to Black and Hispanic adults.Mr. Powell has regularly said that “without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all,” explaining why the Fed might need to harm his prized job market.But at his June news conference, he sounded a bit more hopeful — and since then, there has been evidence to bolster that optimism.“The labor market, I think, has surprised many, if not all, analysts over the last couple of years with its extraordinary resilience,” Mr. Powell said. More

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    America’s Foreign Vacations Tell Us Something About the U.S. Economy

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    Prices are high, but Americans are opening their wallets for international flights and hotels. It’s the latest evidence of consumer resilience.Forget Emily. These days, a whole flood of Americans are in Paris.People spent 2020 and 2021 either cooped up at home or traveling sparingly and mostly within the continental U.S. But after Covid travel restrictions were lifted for international trips last summer, Americans are again headed overseas.While domestic leisure travel shows signs of calming — people are still vacationing in big numbers, but prices for hotels and flights are moderating as demand proves strong but not insatiable — foreign trips are snapping back with a vengeance. Americans are boarding planes and cruise ships to flock to Europe in particular, based on early data.According to estimates from AAA, international travel bookings for 2023 were up 40 percent from 2022 through May. That is still down about 2 percent from 2019, but it’s a hefty surge at a time when some travelers are being held back by long passport processing delays amid record-high applications. Tour and cruise bookings are expected to eclipse prepandemic highs, with especially strong demand for vacations to major European cities.Paris, for example, experienced a huge jump in North American tourists last year compared with 2021, according to the city’s tourism bureau. Planned air arrivals for July and August of this year climbed by another 14.4 percent — to nearly 5 percent above the 2019 level.“This year is just completely crazy,” said Steeve Calvo, a Parisian tour guide and sommelier whose company — The Americans in Paris — has been churning out visits to Normandy and French wine regions. He attributes some of the jump to a rebound from the pandemic and some to television shows and social media.“‘Emily in Paris’: I never saw so many people in Paris with red berets,” he said, noting that the signature chapeau of the popular Netflix show’s heroine started to pop up on tourists last year. Other newcomers are eager to take coveted photos for their Instagram pages.“In Versailles, the Hall of Mirrors, I call it the Hall of Selfie,” Mr. Calvo said, referring to a famous room in the palace.Robust travel booking numbers and anecdotes from tour guides align with what companies say they are experiencing: From airlines to American Express, corporate executives are reporting a lasting demand for flights and vacations.“The constructive industry backdrop is unlike anything that any of us have ever seen,” Ed Bastian, the chief executive officer at Delta Air Lines, said during a June 27 investor day. “Travel is going gangbusters, but it’s going to continue to go gangbusters because we still have an enormous amount of demand waiting.”Transportation Security Administration data shows that the daily average number of passengers who passed through U.S. airport checkpoints in June 2023 was 2.6 million, 0.5 percent above the June 2019 level, based on an analysis by Omair Sharif at Inflation Insights.And in many foreign airports, the burst of American vacationers is palpable: Customs lines are packed with U.S. tourists, from Paris’s Charles de Gaulle to London’s Heathrow. The latter saw 8 percent more traffic from North America in June 2023 than in June 2019, based on airport data.“This year is just completely crazy,” said Steeve Calvo, a tour guide in Paris.Jessica Chou for The New York Times In a weird way, the rebound in foreign travel may be taking some pressure off U.S. inflation.International flight prices, while surging for some routes, are not a big part of the U.S. Consumer Price Index, which is dominated by domestic flight prices. In fact, airfares in the inflation measure dropped sharply in June from the previous month and are down nearly 19 percent from a year ago.That is partly because fuel is cheaper and partly because airlines are getting more planes into the sky. Many pilots and air traffic controllers had been laid off or had retired, so companies struggled to keep up when demand started to recover after the initial pandemic slump, pushing prices sharply higher in 2022.“We just didn’t have enough seats to go around last year,” Mr. Sharif said, explaining that while personnel issues persist, so far this year the supply situation has been better. “Planes are still totally packed, but there are more planes.”And as people flock abroad, it is sapping some demand from hotels and tourist attractions in the United States. International tourists have yet to return to the United States in full force, so they are not entirely offsetting the wave of Americans headed overseas.Domestic travel is hardly in a free fall — July 4 weekend travel probably set new records, per AAA — but tourists are no longer so insatiable that hotels can keep raising room rates indefinitely. Prices for lodging away from home in the U.S. climbed by 4.5 percent in the year through June, which is far slower than the 25 percent annual increases hotel rooms were posting last spring. There is even elbow room at Disney World.Even if it isn’t inflationary, the jump in foreign travel does highlight something about the U.S. economy: It’s hard to keep U.S. consumers down, especially affluent ones.The Fed has been raising interest rates to cool growth since early 2022. Officials have made it more expensive to borrow money in hopes of creating a ripple effect that would cut into demand and force companies to stop lifting prices so much.Consumption has slowed amid that onslaught, but it hasn’t tanked. Fed officials have taken note, remarking at their last meeting that consumption had been “stronger than expected,” minutes showed.The resilience comes as many households remain in solid financial shape. People who travel internationally skew wealthier, and many are benefiting from a rising stock market and still-high home prices that are beginning to prove surprisingly immune to interest rate moves.Those who do not have big stock or real estate holdings are experiencing a strong job market, and some are still holding onto extra savings built up during the pandemic. And it is not just vacation destinations feeling the momentum: Consumers are still spending on a range of other services.“There’s this last blowoff of spending,” said Kathy Bostjancic, chief economist for the insurance company Nationwide Mutual.It could be that consumer resilience will help the U.S. economy avoid a recession as the Fed fights inflation. As has been the case at American hotels, demand that stabilizes without plummeting could allow for a slow and steady moderation of price increases.But if consumers remain so ravenous that companies find they can still charge more, it could prolong inflation. That’s why the Fed is keeping a close eye on spending.Ms. Bostjancic thinks consumers will pull back starting this fall. They are drawing down their savings, the labor market is cooling, and it may simply take time for the Fed’s rate increases to have their full effect. But when it comes to many types of travel, there is no end in sight yet.“Despite economic headwinds, we’re seeing very strong demand for summer leisure travel,” said Mike Daher, who leads the U.S. Transportation, Hospitality & Services practice at the consulting firm Deloitte.Mr. Daher attributes that to three driving forces. People missed trips. Social media is luring many to new places. And the advent of remote work is allowing professionals — “what we call the laptop luggers,” per Mr. Daher — to stretch out vacations by working a few days from the beach or the mountains. Mr. Calvo, the tour guide, is riding the wave, taking Americans on tours that showcase Paris’s shared history with France and driving them in minivan tours to Champagne. “I have no clue if it’s going to last,” he said. More

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    Inflation Drops to 3% in June

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    The Consumer Price Index climbed far more slowly in June, a relief for shoppers and a hopeful — though inconclusive — sign that America might pull off a “soft landing.”Inflation cooled significantly in June, offering some of the most hopeful news since the Federal Reserve began trying to tame rapid price increases 16 months ago — and boosting the chances that the central bank might be able to stop raising interest rates after its meeting this month.The Consumer Price Index climbed 3 percent in the year through June, according to data released Wednesday, less than the 4 percent increase in the year through May and just a third of its roughly 9 percent peak last summer.That overall measure is being pulled down by big declines in gas prices that could prove ephemeral, which is why policymakers closely watch a more slimmed-down version: the change in prices after stripping out food and fuel costs. That metric, known as the core index, offered news that was even better than what economists had expected.The core index climbed 4.8 percent compared with the previous year, down from 5.3 percent in the year through May. Economists had forecast a 5 percent increase. And on a monthly basis, it climbed at the slowest pace since August 2021.Slower inflation is unquestionably good news, because it allows consumer paychecks to stretch further at the gas pump and in the grocery aisle. And if inflation can come down sustainably without a big increase in unemployment or a painful economic recession, it could allow workers to hang on to the major gains they have made over the past three years: progress toward better jobs and pay that has helped to chip away at income inequality.The White House, which has spent over a year on the defensive over rising prices, celebrated the fresh report, with President Biden calling the current economic moment “Bidenomics in action.” And stocks soared as investors bet that the Fed would be able to be less aggressive in its fight against inflation — even halting its interest rate increases after a final July move — in light of the new data.“This is very promising news,” said Laura Rosner-Warburton, senior economist and founding partner at MacroPolicy Perspectives. “The pieces of the puzzle are starting to come together. But it’s just one report, and the Fed has been burned by inflation before.”Fed officials are likely to avoid declaring victory just yet. Policymakers are still trying to assess whether the moderation is likely to be quick and complete. They do not want to allow price increases to linger at slightly elevated levels for too long, because if they do, consumers and businesses could adjust their behavior in ways that make more rapid inflation a permanent feature of the economy.That’s why officials have signaled in recent weeks that they are likely to raise interest rates at their meeting on July 25 and 26. Policymakers had also indicated that one or more additional rate moves could be warranted after that.“Inflation is too high,” Thomas Barkin, the president of the Federal Reserve Bank of Richmond, said Wednesday in a speech in Maryland, according to Bloomberg. “If you back off too soon, inflation comes back strong, which then requires the Fed to do even more.”But economists and investors saw less of a chance that the Fed would raise rates again later this year in light of the fresh data.Policymakers have already slowed down the pace of rate moves sharply, skipping an adjustment at the June meeting. Assuming they hold off again in September, that could mean it would be November before they have to seriously debate lifting borrowing costs again — and by then, success in tamping down inflation could be clear.“They don’t want to unleash animal spirits too quickly here and have everyone go bananas,” said Julia Pollak, chief economist at ZipRecruiter. But by November, “it may be clear in the data that their job is done.”The details of the June report offered reasons for optimism. Inflation slowed down as a few key products and services posted steep price declines. Airfares fell 8.1 percent from the previous month, and used cars and trucks were down 0.5 percent. New vehicle prices were flat compared with May.Not all of those changes will necessarily last: Airline tickets, for instance, are not expected to continue to decline as sharply as they did in this report. But for the Fed, there were other encouraging signs that the cool-down is broad enough to prove sustainable.For one thing, the cost of housing as measured by the Consumer Price Index — which relies on rent prices — is coming down sharply. That is expected to continue in coming months. An index tracking the rent of primary residences slowed to a 0.46 percent change in June, the weakest increase since March 2022.Car prices are also stabilizing, and in some cases falling. After years in which semiconductor shortages and other parts problems limited supply, making it hard to meet booming demand, discounting is making a comeback on car dealer lots. Inventories are rebounding, and consumers have a less voracious appetite for new cars in particular.“It’s different from the past couple of years, and even different from the fall,” said Beth Weaver, who runs a Buick GMC car dealership in Erie, Pa. “Interest rates have certainly weighed on demand.”And more broadly, price increases for a basket of services excluding energy, food and housing costs — a metric that the Fed watches very closely — continued to slow in June. That progress comes even as unemployment is hovering near its lowest level in half a century and hiring remains stronger than before the pandemic.“This is very promising news,” the economist Laura Rosner-Warburton said. “But it’s just one report, and the Fed has been burned by inflation before.”Amir Hamja/The New York TimesFed interest rate increases work to slow inflation partly by slowing the job market and holding back wage increases, so the Fed’s fight against inflation and the strength of the labor market are closely tied.“The economy is defying predictions that inflation would not fall absent significant job destruction,” Lael Brainard, the director of the National Economic Council, said during a speech on Wednesday. “This economy is delivering strong results for America’s middle class.”Republicans highlighted that inflation is still higher than usual — a fact that has been biting into consumer confidence, though it may become less salient as consumers feel relief from cheaper fuel and find that they can replace their aging cars without facing eye-popping price tags.“Inflation that is almost double the Federal Reserve’s target is not a win for American wallets and budgets,” Representative Jason Smith, a Missouri Republican and chairman of the House Ways and Means Committee, said in an emailed statement, referring to the core inflation rate.Inflation does remain above the rate of increase that was normal before the 2020 pandemic, and it is still much faster than the Fed’s 2 percent goal. The Fed defines that target using a separate inflation measure, the Personal Consumption Expenditures index. That gauge is also slowing notably, and its June reading is scheduled for release on July 28.Even if central bankers are taking the slowdown cautiously — cognizant that price increases have slowed and then accelerated again before — many commentators welcomed the fresh data point as the latest sign that the economy might be able to slow gently.Officials at the Fed have been trying to engineer a “soft landing,” in which inflation slows gradually and without requiring a big jump in the unemployment rate. Jerome H. Powell, the Fed chair, has repeatedly said there was a “narrow path” to achieving one: There are few if any historical examples of the Fed wrestling significant inflation lower without a downturn.Challenges continue to loom. The economy has momentum, and the job market is strong, which could give companies the wherewithal to keep increasing prices. The war in Ukraine could always intensify, pushing up commodity prices.But there are also factors that could help out: China’s rebound has been weaker than expected, which means that fewer buyers are competing for goods in global markets. Consumers are buying fewer retail goods, and while spending on services is not plummeting, it has been gradually slowing.And as those trends combine with inflation that is easing more convincingly, the odds of a gentle deceleration may be improving.“Powell’s saying is that ‘it’s a narrow path to a soft landing,’” said Michael Feroli, chief U.S. economist at J.P. Morgan. “It’s looking maybe a little wider now.”Alan Rappeport More

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    Jobs Report Not Expected to Affect Fed Interest Rates

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    Federal Reserve policymakers are keenly focused on the strength of the labor market as they debate how much further the economy needs to cool to ensure that quick inflation fades back to a normal pace. Fresh labor market data released on Friday probably offered little to dissuade them from raising interest rates at their meeting this month.The June data is the last payrolls report that officials will receive before the central bank’s July 25-26 meeting. It underscored many of the labor market themes that have been present for months: Although job growth is gradually slowing, wage growth remains abnormally quick and the unemployment rate is very low at 3.6 percent.Investors widely expected the Fed to raise rates at their July meeting even before the report, and the June data reinforced that prediction. Many paid especially close attention to the pay data: Average hourly earnings climbed 4.4 percent over the year through June, versus an expectation for 4.2 percent, and wage gains for May were revised higher. After months of slowing, those earnings figures have held roughly steady since March.“On balance, it’s strong enough for the Fed to think they still have some more work to do,” said Michael Gapen, chief U.S. economist at Bank of America, explaining that the report contained both signs of early weakness and signs of sustained strength. “Hiring is cooling, but the labor market is still hot.”Fed officials are closely watching wage data, because they worry that if pay growth remains unusually rapid, it could make it difficult to bring elevated inflation fully back to their 2 percent goal. The logic? When companies compensate their workers better, they might also raise their prices to cover their higher wage bills. At the same time, families earning more will be more capable of shouldering higher prices.Fed officials have been surprised by the economy’s staying power 16 months into their push to slow it down by raising interest rates, which makes borrowing money more expensive and is meant to cool consumer and business demand. Growth is slower, but the housing market has begun to stabilize and the job market has remained abnormally strong with plentiful opportunities and at least some bargaining power for many workers.That resilience — along with the stubbornness of quick inflation, particularly for services — is why policymakers expect to continue raising interest rates, which they have already lifted above 5 percent for the first time in about 15 years. Officials have ratcheted up rates in smaller increments this year than last year, and they skipped a rate move at their June meeting for the first time in 11 gatherings. But several policymakers have been clear that even as the pace moderates, they still expect to raise interest rates further.“It can make sense to skip a meeting and move more gradually,” Lorie K. Logan, the president of the Federal Reserve Bank of Dallas, said during a speech this week, while noting that it is important for officials to follow up by continuing to lift rates.She added that “inflation and the labor market evolving more or less as expected wouldn’t really change the outlook.”Fed officials predicted in June that they would raise interest rates twice more this year — assuming they move in quarter-point increments — and that the labor market would soften, but only slightly. They saw the unemployment rate rising to 4.1 percent by the end of the year.Policymakers will not release new economic projections until September, but Wall Street will monitor how policymakers are reacting to economic developments to gauge whether another move this year is likely.“Jobs growth has slowed but remains too strong to justify an extended Fed pause,” said Seema Shah, chief global strategist at Principal Asset Management, explaining that the fresh data gave the Fed “little reason” to hold off on a July increase. The question is what happens after that.For now, investors see another rate increase after July as possible but not guaranteed, and the June jobs report did little to change that. The yield on the two-year Treasury bond, which is sensitive to changes in investors’ expectations for interest rates going forward, eased to around 4.9 percent, from over 5 percent. The move reflected in part investors’ relief that the jobs numbers had not followed a series of other data points this week that exceeded expectations.Some on Wall Street expect the economy to soften more substantially in the coming months, which could prod the Fed to hold off on future rate moves. It often takes months or years for higher borrowing costs to have their full economic effect, so more slowing could be in the pipeline already.This month, one of Wall Street’s widely watched recession indicators, which compares yields on short- and long-dated government bonds, sent its strongest signal since the early 1980s that a downturn is coming.But Fed officials aren’t so sure. Austan Goolsbee, president of the Federal Reserve Bank of Chicago, said on Friday on CNBC that getting inflation down without a recession would be a “triumph.”“That’s the golden path — and I feel like we’re on that golden path,” Mr. Goolsbee said. More

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    Fed Rate Increases Hinge on Strength of Jobs and Economy

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    Federal Reserve policymakers are debating how much further they need to raise interest rates to ensure that inflation speedily returns to a normal pace, and that calculus is likely to depend heavily on the job market’s strength.Officials will closely watch the employment report on Friday, the last reading on job growth that they will receive before their July 25-26 meeting, for a hint at how much momentum remains in the American economy.Fed officials have been surprised by the economy’s staying power 16 months into their push to slow it down by raising interest rates, which makes borrowing money more expensive. While growth is slower, the housing market has begun to stabilize and the job market has remained abnormally strong with plentiful opportunities and solid pay growth. Fed officials worry that if wage growth remains unusually rapid, it could make it difficult to bring elevated inflation fully back to their 2 percent goal.That resilience — and the stubbornness of quick inflation, particularly for services — is why policymakers expect to continue raising interest rates, which they have already lifted above 5 percent for the first time in about 15 years. Officials have ratcheted up rates in smaller increments this year than last year, and they skipped a rate move at their June meeting for the first time in 11 gatherings. But several policymakers have been clear that even as the pace moderates, they still expect to raise interest rates further.“It can make sense to skip a meeting and move more gradually,” Lorie K. Logan, the president of the Federal Reserve Bank of Dallas, said during a speech this week, while noting that it is important for officials to now follow up by continuing to lift rates.She added that “inflation and the labor market evolving more or less as expected wouldn’t really change the outlook.”Fed officials predicted in June that they would raise interest rates twice more this year — assuming they move in quarter-point increments — and that the labor market would soften, but only slightly. They saw the unemployment rate rising to 4.1 percent from 3.7 percent currently.Investors widely expect Fed officials to raise interest rates at their July meeting, and the strength of the labor market could help to shape the outlook after that. While policymakers will not release new economic projections until September, Wall Street will monitor how policymakers are reacting to economic developments to gauge whether another move this year is likely. More

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    Job Openings Dipped in May, a Sign of Continued Cooling

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    The NewsJob openings fell in May while the number of workers quitting their jobs increased, the Labor Department reported Thursday.There were 9.8 million job openings in May, down from 10.3 million in April, according to the Job Openings and Labor Turnover Survey, known as JOLTS. The report shows that the labor market is maintaining ample opportunities for workers, but that it is losing momentum.“This is a labor market that is moderating, where things are cooling down, but is still hot,” said Nick Bunker, the director of North American economic research at the job search website Indeed.The quits rate, which is often used to gauge a worker’s confidence in the job market, increased in May, particularly in the health care, social assistance and construction industries. A rise in quitting often signals workers’ confidence that they will be able to find other work, often better paying. But fewer workers are quitting their jobs than were doing so last year at the height of what was called the “great resignation.”Layoffs were relatively steady after decreasing in previous months, a sign that employers are hesitant to let go of workers.College students waiting to speak with representatives of tech companies at a job fair in Atlanta.Alex Slitz/Associated PressWhy It Matters: The Fed’s next move on interest rates is unclear.Policymakers at the Federal Reserve have worried about the strength of the labor market as they continue to tackle stubbornly high inflation.The Fed chose to leave interest rates unchanged in its June meeting after 10 consecutive increases. The JOLTS report is one of several factors that will inform the Fed’s next decision on rates.Some economists worry that the Fed will push interest rates too high and set off a recession.But the JOLTS report as well as previous economic temperature checks have led others to believe that a “soft landing” — an outcome in which inflation eases to the Fed’s goal of 2 percent without a recession — is within reach. The biggest question is whether wage growth can continue to cool as workers switch jobs, said Aaron Terrazas, chief economist at the career site Glassdoor.“A tight labor market does not necessarily have to be inflationary,” he said.Background: A cooling labor market retains underlying strength.The labor market has remained resilient amid the Fed’s efforts to slow down the economy but has shown signs of cooling in recent months. Job openings were down for three consecutive months until April.Initial jobless claims during the week that ended Saturday, also released by the Labor Department on Thursday, nudged higher from the week before, though the four-week trend shows initial claims declining.Although job openings are cooling, the reading of 9.8 million in May is high compared with prepandemic levels. In 2019, for example, the monthly totals hovered around seven million.“To some degree, I worry we’ve become desensitized to numbers that were once upon a time eye-popping,” Mr. Terrazas said.What’s Next: The June jobs report comes Friday.The June employment report — another indicator closely watched by the Fed — will be released by the Labor Department on Friday. Economists surveyed by Bloomberg expect the report to show a gain of 225,000, down from the initial reading of 339,000 for May.The unemployment rate jumped to 3.7 percent in May, from 3.4 percent a month earlier. Although still historically low, the rate was the highest since October and exceeded analysts’ expectations.Fed policymakers will hold their next meeting July 25-26. More

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    Fed Officials Were Wary About Slow Inflation Progress at June Meeting

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    Federal Reserve officials are debating how high to raise interest rates to fully wrangle inflation. The debate was in focus at their meeting last month.Federal Reserve officials were concerned about sluggish progress toward lower inflation and wary about the surprising staying power of the American economy at their June meeting — so much so that some even wanted to raise rates last month, instead of holding them steady as the central bank ultimately did, minutes from the gathering showed.Fed officials decided to leave interest rates unchanged at their June 13-14 gathering to give themselves more time to see how the 10 straight increases they had previously made were affecting the economy. Higher interest rates slow the economy by making it more expensive to borrow and spend money, but it takes months or even years for their full effects to play out.At the same time, officials released economic forecasts that suggested they would make two more quarter-point rate increases this year. That forecast was meant to send a message: Fed policymakers were simply slowing the pace of rate increases by taking a meeting off. They were not stopping their assault against rapid inflation.The meeting minutes, released Wednesday, both reinforced the message that further interest rates increases were likely and offered more detail on the June debate — underscoring that Fed officials were divided about how the economy was shaping up and what to do about it.All 11 of the Fed’s voting officials supported the June rate hold, but that unanimity concealed tensions under the surface. Some of the central bank’s officials — 18 in total, including 7 who do not vote on policy this year — were leaning toward a rate increase.While “almost all” Fed officials thought it was “appropriate or acceptable” to leave rates unchanged in June, “some” either favored raising interest rates or “could have supported such a proposal” given continued strength in the labor market, persistent momentum in the economy, and “few clear signs” that inflation was getting back on track, the minutes showed.And officials remained worried that if they failed to wrestle inflation under control quickly, there was a risk it could become such a normal part of everyday life that it would prove harder to stamp out down the road.“Almost all participants stated that, with inflation still well above the Committee’s longer-run goal and the labor market remaining tight, upside risks to the inflation outlook or the possibility that persistently high inflation might cause inflation expectations to become unanchored remained key factors shaping the policy outlook,” the minutes said.The minutes underlined what a difficult moment this is for the Fed. Inflation has come down notably on an overall basis, but that is partly because food and fuel prices are cooling off. An inflation measure that strips out those volatile categories — known as core inflation — is making much more halting progress. That has caught the Fed’s attention, especially given signs that the broader economy is holding up.“Core inflation had not shown a sustained easing since the beginning of the year,” Fed officials noted at the meeting, according to the minutes, and they “generally” noted that consumer spending had been “stronger than expected.” Officials reported that they were hearing a range of reports from businesses, as some saw weaker economic conditions and others reported “greater-than-expected strength.”The details of recent inflation data were also disquieting for some at the Fed. Officials noted that price increases for goods — physical purchases like furniture or clothing — were moderating, but less quickly than expected in recent months.While rent inflation was expected to continue to cool down and help to lower overall inflation, “a few” officials were worried that it would come down less decisively than hoped amid low for-sale housing inventory and “less-than-expected deceleration” recently in rents for leases signed by new tenants. “Some” Fed officials noted that other service prices “had shown few signs of slowing in the past few months.”Since the Fed’s meeting, officials have continued to signal that further rate increases are expected. Jerome H. Powell, the Fed chair, said during an appearance last week in Madrid that he would expect to continue with a slower pace of interest rate increases — but he did not rule out that officials could return to back-to-back rate moves.“We did take one meeting where we didn’t move, so that’s in a way a moderation of the pace,” he explained. “So I would expect something like that to continue, assuming the economy evolves about as expected.”The question for investors is what would prod the Fed to return toward a more aggressive path for rate increases — or, on the other hand, what would cause officials to hold off on future rate moves.Policymakers have been clear that the path forward for interest rate increases could change depending on what happens with the economy. If inflation is showing signs of sticking around, the job market is unexpectedly strong and consumer spending continues to chug along, that might suggest that it will take even higher interest rates to cool down household and business spending to a point where companies are forced to stop raising prices so much.If, on the other hand, inflation is coming down quickly, the job market is cooling and consumers are pulling back sharply, the Fed could feel more comfort in holding off on future rate increases.For now, investors expect the Fed to raise interest rates at its July 25-26 meeting. And economists will closely watch fresh job market data set for release on Friday for the latest evidence of how the economy is evolving. More

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    How Inflation and Interest Rates Vary Around the World

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    Prices are still rising too fast for comfort in many major economies, and policymakers across the globe are trying to wrestle them under control.From Melbourne to Manchester to Miami, people are struggling under the weight of hefty price increases for the things they buy each day.The worst spike in inflation that many advanced economies have seen in decades underscores the global forces driving prices higher, namely the disruptions set in motion by the coronavirus pandemic.The stakes are high for policymakers around the world, who are facing similar problems. To try to get inflation under control, central bankers have rapidly lifted interest rates, trying to slow their economies in hopes of cooling prices. More