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    Low Rates Were Meant to Last. Without Them, Finance Is In for a Rough Ride.

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    Economists expected inflation and rates to stay low for years. With Silicon Valley Bank’s implosion, Wall Street is starting to reckon with how wrong that prediction has proved.WASHINGTON — If a number defined the 2010s, it was 2 percent. Inflation, annual economic growth, and interest rates at their highest all hovered around that level — so persistently that economists, the Federal Reserve and Wall Street began to bet that the era of low-everything would last.That bet has gone bad. And with the implosion of Silicon Valley Bank, America is beginning to reckon with the consequences.Inflation surprised economists and policymakers by spiking after the onset of the coronavirus pandemic, and at 6 percent in February, it is proving difficult to stamp out. The Fed has lifted interest rates by 4.5 percentage points in just the past 12 months as it tries to slow the economy and wrestle price increases under control. The central bank’s decision next Wednesday could nudge rates even higher. And that jump in borrowing costs is catching some businesses, investors and households by surprise.Silicon Valley Bank is the most extreme example of an institution’s being caught off guard so far. The bank had amassed a big portfolio of long-term bonds, which pay more interest than shorter-term ones. But it wasn’t paying to sufficiently protect its assets against the possibility of an interest rate spike — and when rates jumped, it found the market value of its holdings seriously dented. The reason: Why would investors want those old bonds when they could buy new ones at more attractive rates?Those impending financial losses helped to spook investors, fueling a bank run that collapsed the institution and shot tremors across the American banking system.The bank’s mistake was a bad — and ultimately lethal — one. But it wasn’t wholly unique.Many banks are holding big portfolios of long-term bonds that are worth a lot less than their original value. U.S. banks were sitting on $620 billion in unrealized losses from securities that had dropped in price at the end of 2022, based on Federal Deposit Insurance Corporation data, with many regional banks facing big hits.Adding in other potential losses, including on mortgages that were extended when rates were low, economists at New York University have estimated that the total may be more like $1.75 trillion. Banks can offset that with higher earnings on deposits — but that doesn’t work if depositors pull their money out, as in Silicon Valley Bank’s case.“How worried should we be comes down to: How likely is it that the deposit franchise leaves?” said Alexi Savov, who wrote the analysis with his colleague Philipp Schnabl.Regulators are conscious of that potentially broad interest rate risk. The Fed unveiled an emergency loan program on Sunday night that will offer banks cash in exchange for their bonds, treating them as though they were still worth their original value in the process. The setup will allow banks to temporarily escape the squeeze they are feeling as interest rates rise.But even if the Fed succeeds at neutralizing the threat of bank runs tied to rising rates, it is likely that other vulnerabilities grew during decades of relatively low interest rates. That could trigger more problems at a time when borrowing costs are substantially higher.Impending financial losses helped to spook investors, fueling a bank run that collapsed Silicon Valley Bank and shot tremors across the U.S. banking system.Jason Henry for The New York Times“There’s an old saying: Whenever the Fed hits the brakes, someone goes through the windshield,” said Michael Feroli, chief economist at J.P. Morgan. “You just never know who it’s going to be.”America has gone through regular bouts of financial pain brought about by rising interest rates. A jump in rates has been blamed for helping to burst the bubble in technology stocks in the early 2000s, and for contributing to the decline in house prices that helped to set off the crash in 2008.Even more closely related to the current moment, a sharp rise in interest rates in the 1970s and 1980s caused acute problems in the savings and loan industry that ended only when the government intervened.There’s a simple logic behind the financial problems that arise from rising interest rates. When borrowing costs are very low, people and businesses need to take on more risk to earn money on their cash — and that typically means that they tie up their money for longer or they throw their cash behind risky ventures.When the Fed raises interest rates to cool the economy and control inflation, though, money moves toward the comparative safety of government bonds and other steady investments. They suddenly pay more, and they seem like a surer bet in a world where the central bank is trying to slow the economy.That helps to explain what is happening in the technology sector in 2023, for example. Investors have pulled back from tech company stocks, which tend to have values that are predicated on expectations for growth. Betting on prospective profits is suddenly less attractive in a higher-rate environment.A more challenging business and financial backdrop has quickly translated into a souring job market in technology. Companies have been making high-profile layoffs, with Meta announcing a fresh round just this week.That is more or less the way Fed rate moves are supposed to work: They diminish growth prospects and make access to financing tougher, curb business expansions, cost jobs and end up slowing demand throughout the economy. Slower demand makes for weaker inflation.But sometimes the pain does not play out in such an orderly and predictable way, as the trouble in the banking system makes clear.“This just teaches you that we really have these blind spots,” said Jeremy Stein, a former Fed governor who is now at Harvard. “You put more pressure on the pipes, and something is going to crack — but you never know where it is going to be.”The Fed was conscious that some banks could face trouble as rates rose meaningfully for the first time in years.“The industry’s lack of recent experience with rising and more volatile interest rates, coupled with material levels of market uncertainty, presents challenges for all banks,” Carl White, the senior vice president of the supervision, credit and learning division at the Federal Reserve Bank of St. Louis, wrote in a research note in November. That was true “regardless of size or complexity.”But it has been years since the central bank formally tested for a scenario of rising rates in big banks’ formal stress tests, which examine their expected health in the event of trouble. While smaller regional banks aren’t subject to those tests, the decision not to test for rate risk is evidence of a broader reality: Everyone, policymakers included, spent years assuming that rates would not go back up.When borrowing costs are very low, people and businesses need to take on more risk to earn money on their cash.John Taggart for The New York TimesIn their economic forecasts a year ago, even after months of accelerating inflation, Fed officials projected that interest rates would peak at 2.8 percent before falling back to 2.4 percent in the longer run.That owed to both recent experience and to the economy’s fundamentals: Inequality is high and the population is aging, two forces that mean there are lots of savings sloshing around the economy and looking for a safe place to park. Such forces tend to reduce interest rates.The pandemic’s downswing upended those forecasts, and it is not clear when rates will get back on the lower-for-longer track. While central bankers still anticipate that borrowing costs will hover around 2.5 percent in the long run, for now they have pledged to keep them high for a long time — until inflation is well on its way back down to 2 percent.Yet the fact that unexpectedly high interest rates are putting a squeeze on the financial system could complicate those plans. The Fed will release fresh economic forecasts alongside its rates decision next week, providing a snapshot of how its policymakers view the changing landscape.Central bankers had previously hinted that they might raise interest rates even higher than the roughly 5 percent that they had previously forecast this year as inflation shows staying power and the job market remains strong. Whether they will be able to stick with that plan in a world colored by financial upheaval is unclear. Officials may want to tread lightly at a time of uncertainty and the threat of financial chaos.“There’s sometimes this sense that the world works like engineering,” Skanda Amarnath, executive director of Employ America, said of the way central bankers think about monetary policy. “How the machine actually works is such a complex and fickle thing that you have to be paying attention.”And policymakers are likely to be attuned to other pockets of risk in the financial system as rates climb: Mr. Stein, for instance, had expected rate-related weakness to show up in bond funds and was surprised to see the pain surface in the banking system instead.“Whether it is stabler than we thought, or we just haven’t hit the air pocket yet, I don’t know,” he said.Joe Rennison More

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    Jobs Report Gives Fed a Mixed Signal Ahead of Its March Decision

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    The Federal Reserve is anxiously parsing incoming data as it decides between a small or a large rate move this month.Federal Reserve officials received a complicated signal from February’s employment report, which showed that job growth retained substantial momentum nearly a year into the central bank’s campaign to slow the economy and cool rapid inflation. But it also included details hinting that the softening the Fed has been trying to achieve may be coming.Policymakers have raised interest rates from near zero to above 4.5 percent over the past year, and Jerome H. Powell, the Fed chair, signaled this week that the size of the central bank’s March 22 rate move would hinge on the strength of incoming data — making Friday’s employment report a critical focal point for investors.But the figures painted a complicated picture. Employers added 311,000 workers last month, which were more than the 225,000 expected and a sign that the pace of hiring has cooled little, if at all, over the past year. At the same time, wage growth moderated to its slowest monthly pace since February 2022, and the unemployment rate ticked up slightly.“It’s exactly what I wasn’t hoping for, which is a mixed report,” said Michael Feroli, chief U.S. economist at J.P. Morgan.That makes determining the Fed’s next steps more challenging.Officials raised rates in large three-quarter-point increments four times in 2022, making borrowing sharply more expensive in hopes of restraining a hot economy. But they had been slowing the pace of adjustment for months, stepping down to half a point in December and a quarter point in February. Policymakers thought they had reached the point where interest rates were high enough to significantly cool the economy, so they expected to soon stop raising rates and simply hold them at a high level for a while.But data from early 2023 have surprised the central bank. The labor market, inflation and consumer spending all showed unexpected signs of strength, which made policymakers question whether they might need to raise rates by more — or even return to a faster pace of adjustment. That’s why central bankers have been looking to incoming data from February for a sense of whether the robust January figures were a one-off or a genuine sign of strength.Employers added 311,000 workers last month, which were more than expected and a sign that the pace of hiring has cooled little.Hiroko Masuike/The New York Times“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Mr. Powell told lawmakers this week, emphasizing that “no decision has been made on this.”Friday’s figures suggested that hiring is genuinely resilient: Employers added more than half a million workers in the first month of the year, even after revisions.But the slowdown in wage growth could be good news for the central bank. Officials have been nervously eyeing rapid wage gains, fretting that it will be difficult for inflation to cool when employers are paying more and trying to make up for those climbing labor bills by passing the costs along to consumers.That said, a closely watched measure of wages for production workers who are not managers — rank-and-file employees, basically — held up. Wage data bounce around, and economists often watch that measure for a clearer reading of underlying momentum in pay gains.Priya Misra, head of global rates strategy at TD Securities, said she thought the report made the size of the Fed’s next rate move a “tossup.” The pace of hiring is likely to suggest to officials that the labor market is still hot, but the other details could give them some room to watch and wait.“It’s not an obvious slam dunk for 50,” Ms. Misra said, referring to a half-point move.The upshot, she said, is that investors will need to closely watch the Consumer Price Index report that is scheduled for release on Tuesday. The fresh figures will show how hot inflation was running in February, giving central bankers a final critical reading on where the American economy stands heading into their decision.“It makes this the most important C.P.I. report — again,” Ms. Misra said.Economists in a Bloomberg survey expect monthly inflation readings — which give a clearer sense of iterative progress on cooling price increases — to slow on an overall basis, but to hold steady at 0.4 percent after volatile food and fuel prices are stripped out.The State of Jobs in the United StatesThe labor market continues to display strength, as the Federal Reserve tries to engineer a slowdown and tame inflation.Mislabeling Managers: New evidence shows that many employers are mislabeling rank-and-file workers as managers to avoid paying them overtime.Energy Sector: Solar, wind, geothermal, battery and other alternative-energy businesses are snapping up workers from fossil fuel companies, where employment has fallen.Elite Hedge Funds: As workers around the country negotiate severance packages, employees in a tiny and influential corner of Wall Street are being promised some of their biggest paydays ever.Immigration: The flow of immigrants and refugees into the United States has ramped up, helping to replenish the American labor force. But visa backlogs are still posing challenges.One challenge is that the numbers will come out during the Fed’s pre-meeting quiet period, which is in place all of next week, so central bankers will not be able to tell the world how they are interpreting the new data.Further complicating the picture: Glimmers of stress are surfacing in the banking system, ones that are tied to the Fed’s rapid rate moves over the past 12 months. Silicon Valley Bank, which lent to tech start-ups and failed on Friday, was squeezed partly by the jump in interest rates.That development — and the possibility that it might herald trouble at other regional banks — could also matter to how the Fed understands the rate outlook.“It shows us: No, we haven’t really digested all of the effects of what the Fed has done so far,” said Aneta Markowska, chief financial economist at Jefferies. “There’s still a lot of policy pain in the pipeline that hasn’t hit the economy yet.”William Dudley, a former president of the Federal Reserve Bank of New York, said there are probably other banks that loaded up on longer-term assets when rates were low and are now suffering from that as short-term borrowing costs rise. That makes those older assets less attractive — and less valuable — if a bank has to sell them to raise cash.But he said that Silicon Valley Bank was probably an extreme example, and that it’s possible the whole situation will have blown over by the time the Fed meets next.“By a week and a half from now, this whole thing could be over,” he said. He added, though, that he didn’t have much clarity on how big the Fed’s next rate move would be, in any case.“I am totally confused about the Fed at this point,” he said. More

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    Here’s What the Fed Chair Said This Week, and Why It Matters

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    Jerome H. Powell, the Fed chair, opened the door to a more aggressive policy path — but emphasized that it depended on incoming data.Jerome H. Powell, the chair of the Federal Reserve, used his testimony before lawmakers this week to lay out a more aggressive path ahead for American monetary policy as the central bank tries to combat stubbornly rapid inflation.Mr. Powell, who spoke before the House Financial Services Committee on Wednesday and the Senate Banking Committee on Tuesday, explained that the economy had been more resilient — and inflation had shown more staying power — than expected.He signaled that he and his colleagues were prepared to respond by raising rates, and doing so more quickly if needed, though he emphasized on Wednesday that no decision had been made ahead of the central bank’s meeting on March 22. Mr. Powell made clear the next move would hinge on a series of job market and inflation data points set for release over the next week.Stocks initially swooned and a common recession indicator flashed red on Tuesday as investors marked up their expectations for how high Fed rates would rise in 2023 and increasingly bet on a larger March move. But they recovered on Wednesday, with the S&P 500 ending the day slightly up.Here are the key points that emerged over the two-day testimony.Rates may climb faster.Mr. Powell surprised many investors when he suggested that the pace of rate increases could pick back up.“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Mr. Powell told lawmakers in both chambers. He was careful on Wednesday to underscore that “no decision has been made on this.”While Mr. Powell avoided promising anything, his comments suggested that the Fed could lift rates by a half-point in March if data reports over the coming days remained hot — which would signify a reversal.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Jerome Powell Says Interest Rate Raises Likely to Be Higher Than Expected

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    In light of recent strong data, Jerome H. Powell said the Federal Reserve was likely to raise rates higher than expected.Jerome H. Powell, the Federal Reserve chair, made clear on Tuesday that the central bank is prepared to react to recent signs of economic strength by raising interest rates higher than previously expected and, if incoming data remain hot, potentially returning to a quicker pace of rate increases.Mr. Powell, in remarks before the Senate Banking Committee, also noted that the Fed’s fight against inflation was “very likely” to come at some cost to the labor market.His comments were the clearest acknowledgment yet that recent reports showing inflation remains stubborn and the job market remains resilient are likely to shake up the policy trajectory for America’s central bank.The Fed raised interest rates last year at the fastest pace since the 1980s, pushing borrowing costs above 4.5 percent, from near zero. That initially seemed to be slowing consumer and business demand and helping inflation to moderate. But a number of recent economic reports have suggested that inflation did not weaken as much as expected last year and remained faster than expected in January, while other data showed hiring remains strong and consumer spending picked up at the start of the year.While some of that momentum could have owed to mild January weather — conditions allowed for shopping trips and construction — Mr. Powell said the unexpected strength would probably require a stronger policy response from the Fed.“The process of getting inflation back down to 2 percent has a long way to go and is likely to be bumpy,” he told the committee. “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”Senator Elizabeth Warren suggested that the Fed was trying to “throw people out of work” and that millions of people stood to lose their jobs if unemployment rose as much as central bankers expected.Michael A. McCoy for The New York TimesFed officials projected in December that rates would rise to a peak of 5 to 5.25 percent, with a few penciling in a slightly higher 5.25 to 5.5 percent. Mr. Powell suggested that the peak rate would need to be adjusted by more than that, without specifying how much more.He even opened the door to faster rate increases if incoming data — which include a jobs report on Friday and a fresh inflation report due next week — remain hot. The Fed repeatedly raised rates by three-quarters of a point in 2022, but slowed to half a point in December and a quarter point in early February.The State of Jobs in the United StatesEconomists have been surprised by recent strength in the labor market, as the Federal Reserve tries to engineer a slowdown and tame inflation.Mislabeling Managers: New evidence shows that many employers are mislabeling rank-and-file workers as managers to avoid paying them overtime.Energy Sector: Solar, wind, geothermal, battery and other alternative-energy businesses are snapping up workers from fossil fuel companies, where employment has fallen.Elite Hedge Funds: As workers around the country negotiate severance packages, employees in a tiny and influential corner of Wall Street are being promised some of their biggest paydays ever.Immigration: The flow of immigrants and refugees into the United States has ramped up, helping to replenish the American labor force. But visa backlogs are still posing challenges.“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Mr. Powell said.Before his remarks, markets were heavily prepared for a quarter-point move at the Fed’s March 21-22 meeting. After his opening testimony, investors increasingly bet that the central bank would make a half-point move in March, stock prices lurched lower, and a closely watched Wall Street recession indicator pointed to a greater chance of a downturn. The S&P 500 ended the day down about 1.5 percent.While Mr. Powell predicated any decision to pick up the pace of rate increases on incoming data, even opening the door to the possibility made it clear that “it’s definitely a policy option they’re considering pretty actively,” said Michael Feroli, chief U.S. economist at J.P. Morgan.Mr. Feroli said a decision to accelerate rate moves might stoke uncertainty about what would come next: Will the Fed stick with half-point moves in May, for instance?“It raises a lot of questions,” he said.Blerina Uruci, chief U.S. economist at T. Rowe Price, previously thought the Fed would stop lifting interest rates around 5.75 percent but now thinks there is a growing chance they will rise above 6 percent, she said. She thinks that if Fed officials speed up rate increases in March, they may feel the need to keep the moves quick in May.“Otherwise, the Fed runs the risk of looking like they’re flip-flopping around,” Ms. Uruci said.While the Fed typically avoids making too much of any single month’s data, Mr. Powell signaled that recent reports had caused concern both because signs of continued momentum were broad-based and because revisions made a slowdown late in 2022 look less pronounced.“The breadth of the reversal along with revisions to the previous quarter suggests that inflationary pressures are running higher than expected at the time of our previous” meeting, Mr. Powell said.He reiterated that there were some hopeful developments: Goods inflation has slowed, and rent inflation, while high, appears poised to cool down this year.And Mr. Powell noted on Tuesday that officials knew it took time for the full effects of monetary policy to be felt, and were taking that into account as they thought about future policy.Still, he underlined that “there is little sign of disinflation thus far” in services outside of housing, which include purchases ranging from restaurant meals and travel to manicures. The Fed has been turning to that measure more and more as a signal of how strong underlying price pressures remain in the economy.“Nothing about the data suggests to me that we’ve tightened too much,” Mr. Powell said in response to lawmaker questions. “Indeed, it suggests that we still have work to do.”When the Fed raises interest rates, it slows consumer spending on big credit-based purchases like houses and cars and can dissuade businesses from expanding on borrowed money. As demand for products and demand for workers cool, wage growth eases and unemployment may even rise, further slowing consumption and causing a broader moderation in the economy.But so far, the job market has been very resilient to the Fed’s moves, with the lowest unemployment rate since 1969, rapid hiring and robust pay gains.Mr. Powell said wage growth — while it had moderated somewhat — remained too strong to be consistent with a return to 2 percent inflation. When companies are paying more, they are likely to charge more to cover their labor bills.“Strong wage growth is good for workers, but only if it is not eroded by inflation,” Mr. Powell said.Despite such explanations, some lawmakers grilled the Fed chair on Tuesday over what the central bank expected to do to the labor market with its policy adjustments.Senator Elizabeth Warren, Democrat of Massachusetts, suggested that the Fed was trying to “throw people out of work” and that millions of people stood to lose their jobs if unemployment rose as much as central bankers expected.“I would explain to people, more broadly, that inflation is extremely high, and that it is hurting the working people of this nation badly,” Mr. Powell said. “We are taking the only measures that we have to bring inflation down.”When Ms. Warren continued to press him on the Fed’s plan, Mr. Powell responded that the central bank was doing what policymakers believed was necessary.“Will working people be better off if we just walk away from our jobs and inflation remains 5, 6 percent?” Mr. Powell asked.He also underlined that the Fed does “not seek, and we don’t believe that we need to have,” a “very significant” downturn in the labor market, because there are many job openings, so it is possible that the labor market could cool quite a bit without outright job losses.“Other business cycles had quite different back stories than this one,” he said. “We’re going to have to find out whether that matters or not.”Joe Rennison More

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    Why the Federal Reserve Won’t Commit

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    Facing huge economic uncertainty, the Fed is keeping its options open. Jerome H. Powell, its chair, will most likely continue that approach on Tuesday.Mark Carney, the former Bank of England governor, was once labeled the United Kingdom’s “unreliable boyfriend” because his institution had left markets confused about its intentions. Jerome H. Powell’s Federal Reserve circa 2023 could be accused of a related rap: fear of commitment.Mr. Powell’s Fed is in the process of raising interest rates to slow the economy and bring rapid inflation under control, and investors and households alike are trying to guess what the central bank will do in the months ahead, during a confusing economic moment. Growth, which was moderating, has recently shown signs of strength.Mr. Powell and his colleagues have been fuzzy about how they will respond. They have shown little appetite for speeding up rate increases again but have not fully ruled out the possibility of doing so. They have avoided laying out clear criteria for when the Fed will know it has raised interest rates to a sufficiently high level. And while they say rates will need to stay elevated for some time, they have been ambiguous about what factors will tell them how long is long enough.As with anyone who’s reluctant to define the relationship, there is a method to the Fed’s wily ways. At a vastly uncertain moment in the American economy, central bankers want to keep their options open.Strong consumer spending and inflation data have surprised economists.Hiroko Masuike/The New York TimesFed officials got burned in 2021. They communicated firm plans to leave interest rates low to bolster the economy for a long time, only to have the world change with the onset of rapid and wholly unexpected inflation. Policymakers couldn’t rapidly reverse course without causing upheaval — breakups take time, in monetary policy as in life. Thanks to the delay, the Fed spent 2022 racing to catch up with its new reality.This year, policymakers are retaining room to maneuver. That has become especially important in recent weeks, as strong consumer spending and inflation data have surprised economists and created a big, unanswered question: Is the pickup a blip being caused by unusually mild winter weather that has encouraged activities like shopping and construction, or is the economy reaccelerating in a way that will force the Fed to react?Mr. Powell will have a chance to explain how the central bank is thinking about the latest data, and how it might respond, when he testifies on Tuesday before the Senate Banking Committee and on Wednesday before the House Financial Services Committee. But while he will most likely face questions on the speed and scope of the Fed’s future policy changes, economists think he is unlikely to clearly commit to any one path.“The Fed is very much in data-dependent mode,” said Subadra Rajappa, the head of U.S. rates strategy at Société Générale. “We really don’t have a lot of clarity on the inflation dynamics.”Data dependence is a common central bank practice at fraught economic moments: Officials move carefully on a meeting-by-meeting basis to avoid making a mistake, like raising rates by more than is necessary and precipitating a painful recession. It’s the approach the Bank of England was embracing in 2014 when a member of Parliament likened it to a fickle date, “one day hot, one day cold.”Inflation F.A.Q.Card 1 of 5What is inflation? More

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    What Layoffs? Many Employers Are Eager to Hang On to Workers.

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    During the height of the pandemic, hungry and housebound customers clamored for Home Run Inn Pizza’s frozen thin-crust pies. The company did everything to oblige.It kept its machines chugging during lunch breaks and brought on temporary workers to ensure it could produce pizzas at the suddenly breakneck pace.More recently, demand has eased, and Home Run Inn Pizza, based in suburban Chicago, has reversed some of those measures. But it does not plan to lay off any full-time manufacturing employees — even if that means having a few more workers than it needs during its second shift.“We have really good people,” said Nick Perrino, the chief operating officer and a great-grandson of the company’s founder. “And we don’t want to let any of our team members go.”Despite a year of aggressive interest rate increases by the Federal Reserve aimed at taming inflation, and signs that the red-hot labor market is cooling off, most companies have not taken the step of cutting jobs. Outside of some high-profile companies mostly in the tech sector, such as Google’s parent Alphabet, Meta and Microsoft, layoffs in the economy as a whole remain remarkably, even historically, rare.There were fewer layoffs in December than in any month during the two decades before the pandemic, government data show. Filings for unemployment insurance have barely increased. And the unemployment rate, at 3.4 percent, is the lowest since 1969.Layoffs Are Uncommonly Low More

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    The Fed’s Preferred Inflation Gauge Sped Back Up

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    Inflation is down from its peak last summer, but recent readings have shown substantial and surprising staying power.There was a moment, late last year, when everything seemed to be going according to the Federal Reserve’s plan: Inflation was slowing, consumers were pulling back and the overheated economy was gently cooling down.But a spate of fresh data, including worrying figures released Friday, make it clear that the road ahead is likely to be bumpier and more treacherous than expected.The Personal Consumption Expenditures price index — the Fed’s preferred measure of inflation — climbed 5.4 percent in January from a year earlier, the Commerce Department said Friday. That was an unexpected re-acceleration from December’s 5.3 percent pace after six months of relatively consistent cooling.Even after stripping out food and fuel prices, both of which jump around a lot, the price index climbed 4.7 percent over the year through last month — also a pickup, and more than expected in a Bloomberg survey of economists.Those readings are well above the Fed’s goal of 2 percent annual inflation. And the report’s details offered other reasons to worry. The previously reported slowdown in December, which had given economists hope, looked less pronounced after revisions. While price increases had also been consistently slowing on a month-to-month basis, they, too, are now showing signs of speeding back up.Stocks slumped to their worst week of the year, with the S&P 500 down by 1.1 percent at the close of trading on Friday as investors digested the report and what it portends for the Fed, which has been raising rates aggressively since last year. Financial markets have come under sustained pressure in recent weeks as investors have recalibrated their expectations for how long inflation could remain high, and how high interest rates could go as a result.The figures released Friday are just the latest evidence that neither price increases nor the broader economy is cooling as much as expected as 2023 begins. Employers added half a million jobs in January, wages continue to rise, and figures released Friday showed that Americans continue to spend freely on goods and, especially, on services like vacation travel and restaurant meals.Inflation F.A.Q.Card 1 of 5What is inflation? More