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    Powell Bets the Fed Can Slow Inflation Despite Recession Fears

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    Jerome H. Powell, the Federal Reserve chair, thinks his central bank can defy history to clinch slower inflation and a soft economic landing.The Federal Reserve’s push to slow the economy and bring inflation under control is often compared to an airplane descent, one that could end in a soft landing, a bumpy one or an outright crash.Jerome H. Powell, the Fed chair, is betting on something more akin to the Miracle on the Hudson: a touchdown that is gentle, all things considered, and unlike anything the nation has seen before.The Fed has raised rates sharply over the past year, pushing them just above 5 percent on Wednesday, in a bid to cool the economy to bring inflation under control. Staff economists at the central bank have begun to forecast that America is likely to tip into a recession later this year as the Fed’s substantial policy moves combine with turmoil in the banking sector to snuff out growth.But Mr. Powell made it clear during a news conference on Wednesday that he does not agree.“That’s not my own most likely case,” he said, explaining that he expects modest growth this year. That sunnier forecast has hinged, in part, on trends in the labor market.America’s job market is still very strong — with rapid job growth and unemployment hovering near a 50-year low — but it has shown signs of cooling. Job openings have dropped sharply in recent months, falling to 9.6 million in March from a peak of more than 12 million a year earlier. Historically, such a massive decline in the number of available positions would have come alongside layoffs and rising joblessness, and prominent economists had predicted a painful economic landing for exactly that reason.But so far, unemployment has not budged.Relationship Status: It’s ComplicatedJoblessness usually increases when job openings fall. But that relationship is in question now as job openings drop while unemployment remains low.

    Note: Data is seasonally adjustedSource: Bureau of Labor StatisticsBy The New York Times“It wasn’t supposed to be possible for job openings to decline by as much as they have declined without unemployment going up,” Mr. Powell said this week. While America will get the latest update on unemployment when a job market report is released Friday, unemployment has yet to rise meaningfully. Mr. Powell added that “there are no promises in this, but it just seems to me that it is possible that we can continue to have a cooling in the labor market without having the big increases in unemployment that have gone with many prior episodes.”America’s economic fate rests on whether Mr. Powell’s optimism is correct. If the Fed can pull it off — defying history to wrangle rapid inflation by sharply cooling the labor market without causing a big and painful jump in joblessness — the legacy of the post-pandemic economy could be a tumultuous but ultimately positive one. If it can’t, taming price increases could come at a painful cost to America’s employees.The Fed has raised rates sharply over the past year, pushing them just above 5 percent as of their meeting this week, in a bid to cool the economy in order to wrestle inflation under control.Hiroko Masuike/The New York TimesSome economists are skeptical that the good times can last.“We haven’t seen this trade-off, which is fantastic,” said Aysegul Sahin, an economist at the University of Texas at Austin. But she noted that productivity data appeared glum, which suggests that companies got burned by years of pandemic labor shortages and are now hanging onto workers even when they do not necessarily need them to produce goods and services.“This time was different, but now we are getting back to the state where it is a more normal labor market,” she said. “This is going to start playing out the way it always plays out.”The Fed is in charge of fostering both maximum employment and stable inflation. But those goals can come into conflict, as is the case now.Inflation has been running above the Fed’s 2 percent goal for two full years. While the strong labor market did not initially cause the price spikes, it could help to perpetuate them. Employers are paying higher wages to try to hang onto workers. As they do that, they are raising prices to cover their costs. Workers who are earning a bit more are able to afford rising rents, child care costs and restaurant checks without pulling back.In situations like this, the Fed raises interest rates to cool the economy and job market. Higher borrowing costs slow down the housing market, discourage big consumer purchases like cars and home improvement projects, and deter businesses from expanding. As people spend less, companies cannot keep raising prices without losing customers.But setting policy correctly is an economic tightrope act.Policymakers think that it is paramount to act decisively enough to quickly bring inflation under control — if it is allowed to persist too long, families and businesses could come to expect steadily rising prices. They might then adjust their behavior, asking for bigger raises and normalizing regular price increases. That would make inflation even harder to stamp out.On the other hand, officials do not want to cool the economy too much, causing a painful recession that proves more punishing than was necessary to return inflation to normal.Striking that balance is a dicey proposition. It is not clear exactly how much the economy needs to slow to fully control inflation. And the Fed’s interest rate policy is blunt, imprecise and takes time to work: It is hard to guess how much the increases so far will ultimately weigh on growth.That is why the Fed has slowed its policy changes in recent months — and why it appears poised to pause them altogether. After a string of three-quarter point rate moves last year, the Fed has recently adjusted borrowing costs a quarter point at a time. Officials signaled this week that they could stop raising rates altogether as soon as their mid-June meeting, depending on incoming economic data.Hitting pause would give central bankers a chance to see whether their rate adjustments so far might be sufficient.It would also give them time to assess the fallout from turmoil in the banking industry — upheaval that could make a soft economic landing even more difficult.Three large banks have collapsed and required government intervention since mid-March, and jitters continue to course through midsize lenders, with several regional bank stocks plummeting on Wednesday and Thursday. Banking troubles can quickly translate into economic problems as lenders pull back, leaving businesses less able to grow and families less able to finance their consumption.The labor market could be in for a more dramatic slowdown, given the bank tumult and the Fed’s rate moves so far, said Nick Bunker, the director of North American economic research at the job site Indeed.He said that while job openings have been coming down swiftly, some of that might reflect a shift back to normal conditions after a bout of pandemic-inspired weirdness, not necessarily as a result of Fed policy.For instance, job openings in leisure and hospitality industries had spiked as restaurants and hotels reopened from lockdowns. Those were now disappearing, but that might be more about a return to business as usual.“A soft landing is happening, but how much of that is gravity and how much of it is what the pilot is doing with the plane?” Mr. Bunker said. Going forward, it could be that the normal historical relationship between declining job openings and rising joblessness will kick in as policy begins to bite.Or this time truly could be unique — as Mr. Powell is hoping. But whether the Fed and the American economy get to test his thesis could depend on whether the banking system issues clear up, Mr. Bunker said.“We might not get the answer if the financial sector comes and tips the table over,” he said. More

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    Fed Expected to Raise Interest Rates: What to Know

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    Federal Reserve officials will release a rate decision at 2 p.m. The key question is what will come next.Federal Reserve officials are set to release an interest rate decision on Wednesday afternoon, and while investors widely expect policymakers to lift borrowing costs by a quarter-point, they will be watching carefully for any hint at what might come next.This would be the central bank’s 10th consecutive interest rate increase — capping the fastest series of rate increases in four decades. But it could also be the central bank’s last one, for now.Fed officials signaled in their last set of economic projections that they might stop raising interest rates once they reached a range of 5 percent to 5.25 percent, the level they are expected to hit on Wednesday. Officials will not release fresh economic projections after this meeting, which will leave economists carefully parsing both the central bank’s 2 p.m. policy decision statement and a 2:30 p.m. news conference with Jerome H. Powell, the Fed chair, for hints at what comes next.Central bankers will be balancing conflicting signals. They have already done a lot to slow growth and wrestle rapid inflation under control, recent tumult in the banking industry could curb demand even more, and a looming fight over the debt ceiling poses a fresh source of risk to the economy. All of those are reasons for caution. But the economy has been fairly resilient and inflation is showing staying power, which could make some Fed officials feel that they still have work to do.Here’s what to know going into Fed day.Inflation has prompted the Fed to get aggressiveFed policymakers are raising interest rates for a simple reason: Inflation has been painfully high for two years, and making money more expensive to borrow is the main tool government officials have to get it down.When the Fed raises interest rates, it makes it more expensive and often more difficult for families to take out loans to buy houses or cars or for businesses to raise money for expansions. That slows both consumer spending and hiring. As wage growth sags and unemployment rises, people become more cautious and the economy slows further.If that chain reaction sounds unpleasant, it’s because it can be: When Paul Volcker’s Fed raised interest rates to nearly 20 percent in the early 1980s, it helped to push joblessness above 10 percent.But by cooling demand across the economy, a widespread slowdown can help to wrestle inflation under control. Companies find it harder to charge more without losing customers in a world where families are spending cautiously.And getting inflation under wraps is a big priority for the Fed: Price increases have been unusually rapid since early 2021, and while they have cooled off notably from a peak of about 9 percent last summer, they are increasingly driven by service industries like travel and child care. Such price increases could prove stubborn and difficult to fully stamp out.Higher Prices for Services Are Now Driving InflationBreakdown of the inflation rate, by category

    Note: The services category excludes energy services, and the goods category excludes food and energy goods.Sources: Bureau of Labor Statistics; New York Times analysisBy The New York TimesRates haven’t been this high in more than 15 yearsTo get price increases back in line, the Fed has raised rates to nearly 5 percent — and they are expected to cross that threshold on Wednesday. The last time rates eclipsed 5 percent was the summer of 2007, before the global financial crisis.What does it mean to have interest rates this high? More expensive mortgages have translated into a meaningful slowdown in the housing market, for one thing. There are also some signs that the labor market, while still very strong, is beginning to weaken — hiring is gradually slowing, and fewer jobs are going unfilled. But perhaps most visibly, the higher interest rates are starting to cause financial stress.Three big U.S. banks have failed — and required responses from the government — since early March, culminating in a government-enabled shotgun wedding between First Republic and JPMorgan Chase early Monday morning.Many of the banks under stress in recent weeks have suffered because they did not adequately protect themselves against rising interest rates, which have reduced the market value of their older mortgages and securities holdings.Fed officials will need to consider two issues related to the recent turmoil: Will there be further drama as other banks and financial companies struggle with higher rates, and will the bank trouble so far significantly slow the economy?Mr. Powell could give the world a sense of their thinking at his news conference.Economists are on pause patrolBetween the banking upheaval and how much the Fed has lifted interest rates already, investors expect policymakers to pause after this move. But don’t assume that means the slowdown is over.Higher Fed rates are like delayed reaction medicine: They start to kick in quickly, but their full effects take a while to play out. Last year’s moves are still trickling through the economy, and by leaving rates on hold at a high level, officials could continue to weigh down the economy for months to come.And it could be that central bankers will not actually pause: Some have suggested that if inflation remains rapid and growth keeps its momentum, they could raise interest rates more. But it seems possible — even likely — that the bar for future rate moves will be higher.America is on recession watchAs high rates and bank problems bite, many economists think the country could be in for an economic downturn. Economists on the Fed’s staff even said at the central bank’s March meeting that they thought a mild recession was likely later this year in the aftermath of the banking crisis, based on minutes from the Fed’s last meeting.Mr. Powell is sure to get asked about that at this news conference — and he may have to explain how the Fed hopes to keep a slight recession from turning into a big one.A gentle slowdown would probably feel a lot different for people on the ground than a major recession. One would involve slightly fewer job opportunities, milder wage growth and less boisterous business. The other could involve job loss and insecurity, slashed hours and earnings, and a pervading sense of glumness among American consumers.That’s why Wednesday’s Fed meeting matters: It’s not just technical policy tweaks Mr. Powell will be talking about, but decisions that will shape America’s economic future. More

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    Fed Will Decide Next Rate Move After Bank Jitters

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    The Federal Reserve will release a policy decision on Wednesday on the heels of another bank collapse.WASHINGTON — Federal Reserve officials are widely expected to lift borrowing costs by a quarter of a percentage point on Wednesday, the 10th consecutive rate increase since March 2022. But investors and economists think that this could be the central bank’s last move before it pauses.Fed officials face a complicated backdrop going into this week’s meeting: Risks to the financial system loom large, but inflation also remains stubborn.The banking system has been in turmoil since the collapse of Silicon Valley Bank on March 10. Government officials spent this past weekend racing to find a buyer for First Republic, which had been struggling for weeks and was sold to JPMorgan Chase in a deal announced early Monday morning.Some of the banking sector tumult stems from the Fed’s rapid interest rate increases over the past year. Central bankers are expected to lift rates to just above 5 percent this week, up from near-zero as recently as March 2022. After that quick series of adjustments, many lenders are facing losses on older securities and loans, which pay relatively low interest rates compared with newer securities issued in a higher-rate world.Despite the Fed’s moves — which were meant to rein in quick inflation by slowing the economy — the job market has maintained some momentum and price increases have shown concerning staying power. Companies continue to hire at a solid clip, and data released last week showed that wages continued to climb quickly at the start of the year. While inflation has been slowing, it is increasingly driven by service price increases that have shown little sign of cooling off — which could make it difficult to wrestle price increases the whole way back to the Fed’s slow and steady goal.Policymakers will give the public a sense of how they are thinking about the fraught economic moment on Wednesday in their post-meeting statement at 2 p.m. Because the Fed will not release fresh economic projections at this meeting — those come out just once a quarter — investors will look to a news conference with the Fed chair, Jerome H. Powell, at 2:30 p.m. for clues about what comes next.The Fed could hint at a pauseWhen Fed policymakers released their economic estimates in March, they expected to raise interest rates to a range of 5 to 5.25 percent in 2023.If officials adjust policy as expected this week, they will have lifted rates to that level. The question now is whether they deem that sufficient, or whether policymakers think that the economy and inflation are resilient enough that they will need to adjust borrowing costs more to cool things down and lower inflation fully.Mr. Powell could offer some signal during his news conference, or he could opt to leave the Fed’s options open — which is what some economists expect.“They don’t need to rule anything out,” said Blerina Uruci, chief U.S. economist at T. Rowe Price. “The worst scenario for them would be to signal that they’re done, then have the data force them to do a U-turn.”Investors expect Fed officials to stop after this week, hold rates steady for a few months and then begin to lower them — perhaps substantially, to a range of 4.5 to 4.75 percent by the end of the year.Fed policymakers, however, have been adamant that they do not expect to lower rates imminently. And some have hinted that more increases might be warranted if inflation and economic strength show staying power.“Monetary policy needs to be tightened further,” Christopher Waller, a Fed governor and one of the central bank’s more inflation-focused members, said in an April 14 speech. “How much further will depend on incoming data on inflation, the real economy and the extent of tightening credit conditions.”Bank turmoil will influence policyFed officials have been clear that the upheaval in the banking system could slow the economy — but policymakers do not know by how much.Banking trouble is different from other types of business distress, because banks are like the yeast in the sourdough starter of the economy: If they aren’t working, nothing else grows. They lend out money to would-be home buyers, people who want to buy new cars or garage additions, and businesses that want to expand and hire.It is pretty clear that banks are going to pull back their lending at least somewhat in response to the recent turmoil. Anecdotal signs are already surfacing around the country. The question is how acute that shift will be.“If the response to recent banking problems leads to financial tightening, monetary policy has to do less,” Austan Goolsbee, the president of the Federal Reserve Bank of Chicago, said in an April 11 speech. “It’s not clear by how much less.”He noted that private-sector estimates suggested that the hit to growth from the banking turmoil could be equivalent to one to three quarter-point rate increases. That estimate came well before First Republic’s demise, but after its troubles started.The economy’s resilience will be criticalOne big question for the Fed — and which will matter for everyone — is whether the U.S. economy will squeak through this episode without plunging into a painful recession.Fed staff members said at the central bank’s March meeting that they expected the economy to experience a “mild recession” in the wake of the recent banking turmoil. And Fed officials — including Mr. Powell — have suggested that a recession is possible as officials try to slow the economy enough to bring inflation under control.But if a recession hits, it is not obvious how painful it will be. Some economists warn that downturns usually build on themselves, as people respond to a little bit of economic weakness by pulling back on spending a lot: It may be hard to push the unemployment rate up just a little bit without pushing it significantly.Others point out that the post-pandemic economy is a weird one, characterized by unusually strong corporate profits and lots of job openings. Because there may be room to squeeze margins and cut unfilled positions, the economy may be able to cool down more gently than in the past — a so-called “soft landing.”Mr. Powell will get a chance to weigh in on which outcome he thinks is most likely on Wednesday. More

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    Late-Night Negotiating Frenzy Left First Republic in JPMorgan’s Control

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    The resolution of First Republic Bank came after a frantic night of deal making by government officials and executives at the country’s biggest bank.Lawmakers and regulators have spent years erecting laws and rules meant to limit the power and size of the largest U.S. banks. But those efforts were cast aside in a frantic late-night effort by government officials to contain a banking crisis by seizing and selling First Republic Bank to the country’s biggest bank, JPMorgan Chase.At about 1 a.m. Monday, hours after the Federal Deposit Insurance Corporation had been expected to announce a buyer for the troubled regional lender, government officials informed JPMorgan executives that they had won the right to take over First Republic and the accounts of its well-heeled customers, most of them in wealthy coastal cities and suburbs.The F.D.I.C.’s decision appears, for now, to have quelled nearly two months of simmering turmoil in the banking sector that followed the sudden collapse of Silicon Valley Bank and Signature Bank in early March. “This part of the crisis is over,” Jamie Dimon, JPMorgan’s chief executive, told analysts on Monday in a conference call to discuss the acquisition.For Mr. Dimon, it was a reprise of his role in the 2008 financial crisis when JPMorgan acquired Bear Stearns and Washington Mutual at the behest of federal regulators.But the resolution of First Republic has also brought to the fore long-running debates about whether some banks have become too big too fail partly because regulators have allowed or even encouraged them to acquire smaller financial institutions, especially during crises.“Regulators view them as adults and business partners,” said Tyler Gellasch, president of Healthy Markets Association, a Washington-based group that advocates greater transparency in the financial system, referring to big banks like JPMorgan. “They are too big to fail and they are afforded the privilege of being so.”He added that JPMorgan was likely to make a lot of money from the acquisition. JPMorgan said on Monday that it expected the deal to raise its profits this year by $500 million.JPMorgan will pay the F.D.I.C. $10.6 billion to acquire First Republic. The government agency expects to cover a loss of about $13 billion on First Republic’s assets.`Normally a bank cannot acquire another bank if doing so would allow it to control more than 10 percent of the nation’s bank deposits — a threshold JPMorgan had already reached before buying First Republic. But the law includes an exception for the acquisition of a failing bank.The F.D.I.C. sounded out banks to see if they would be willing to take First Republic’s uninsured deposits and if their primary regulator would allow them to do so, according to two people familiar with the process. On Friday afternoon, the regulator invited the banks into a virtual data room to look at First Republic’s financials, the two people said. The government agency, which was working with the investment bank Guggenheim Securities, had plenty of time to prepare for the auction. First Republic had been struggling since the failure of Silicon Valley Bank, despite receiving a $30 billion lifeline in March from 11 of the country’s largest banks, an effort led by Mr. Dimon of JPMorgan.By the afternoon of April 24, it had became increasingly clear that First Republic couldn’t stand on its own. That day, the bank revealed in its quarterly earnings report that it had lost $102 billion in customer deposits in the last weeks of March, or more than half what it had at the end of December.Ahead of the earnings release, First Republic’s lawyers and other advisers told the bank’s senior executives not to answer any questions on the company’s conference call, according to a person briefed on the matter, because of the bank’s dire situation.The revelations in the report and the executives’ silence spooked investors, who dumped its already beaten-down stock.When the F.D.I.C. began the process to sell First Republic, several bidders including PNC Financial Services, Fifth Third Bancorp, Citizens Financial Group and JPMorgan expressed an interest. Analysts and executives at those banks began going through First Republic’s data to figure out how much they would be willing to bid and submitted bids by early afternoon Sunday.Regulators and Guggenheim then returned to the four bidders, asking them for their best and final offers by 7 p.m. E.T. Each bank, including JPMorgan Chase, improved its offer, two of the people said.Regulators had indicated that they planned to announce a winner by 8 p.m., before markets in Asia opened. PNC executives had spent much of the weekend at the bank’s Pittsburgh headquarters putting together its bid. Executives at Citizens, which is based in Providence, R.I., gathered in offices in Connecticut and Massachusetts. But 8 p.m. rolled by with no word from the F.D.I.C. Several hours of silence followed.For the three smaller banks, the deal would have been transformative, giving them a much bigger presence in wealthy places like the San Francisco Bay Area and New York City. PNC, which is the sixth-largest U.S. bank, would have bolstered its position to challenge the nation’s four large commercial lenders — JPMorgan, Bank of America, Citigroup and Wells Fargo.Ultimately, JPMorgan not only offered more money than others and agreed to buy the vast majority of the bank, two people familiar with the process said. Regulators also were more inclined to accept the bank’s offer because JPMorgan was likely to have an easier time integrating First Republic’s branches into its business and managing the smaller bank’s loans and mortgages either by holding onto them or selling them, the two people said.As the executives at the smaller banks waited for their phones to ring, the F.D.I.C. and its advisers continued to negotiate with Mr. Dimon and his team, who were seeking assurances that the government would safeguard JPMorgan against losses, according to one of the people.At around 3 a.m., the F.D.I.C. announced that JPMorgan would acquire First Republic.An F.D.I.C. spokesman declined to comment on other bidders. In its statement, the agency said, “The resolution of First Republic Bank involved a highly competitive bidding process and resulted in a transaction consistent with the least-cost requirements of the Federal Deposit Insurance Act.” The announcement was widely praised in the financial industry. Robin Vince, the president and chief executive of Bank of New York Mellon, said in an interview that it felt “like a cloud has been lifted.”Some financial analysts cautioned that the celebrations might be overdone.Many banks still have hundreds of billions of dollars in unrealized losses on Treasury bonds and mortgage-backed securities purchased when interest rates were very low. Some of those bond investments are now worth much less because the Federal Reserve has sharply raised rates to bring down inflation.Christopher Whalen of Whalen Global Advisors said the Fed fueled some of the problems at banks like First Republic with an easy money policy that led them to load up on bonds that are now performing poorly. “This problem will not go away until the Fed drops interest rates,” he said. “Otherwise, we’ll see more banks fail.”But Mr. Whalen’s view is a minority opinion. The growing consensus is that the failures of Silicon Valley, Signature and now First Republic will not lead to a repeat of the 2008 financial crisis that brought down Bear Stearns, Lehman Brothers and Washington Mutual.The assets of the three banks that failed this year are greater than of the 25 banks that failed in 2008 after adjusting for inflation. But 465 banks failed in total from 2008 to 2012.One unresolved issue is how to deal with banks that still have a high percentage of uninsured deposits — money from customers well in excess of the $250,000 federally insured cap on deposits. The F.D.I.C. on Monday recommended that Congress consider expanding its ability to protect deposits.Many investors and depositors are already assuming that the government will step in to protect all deposits at any failing institution by invoking a systemic risk exception — something they did with Silicon Valley Bank and Signature Bank. But that’s easy to do when it is just a few banks that run into trouble and more difficult if many banks have problems.Another looming concern is that midsize banks will pull back on lending to preserve capital if they are subject to the kind of bank runs that took place at Silicon Valley Bank and First Republic. Depositors might also move their savings to money market funds, which tend to offer higher returns than savings or checking accounts.Midsize banks also need to brace for more exacting oversight from the Fed and the F.D.I.C., which criticized themselves in reports released last week about the bank failures in March.Regional and community banks are the main source of financing for the commercial real estate industry, which encompasses office buildings, apartment complexes and shopping centers. An unwillingness by banks to lend to developers could stymie plans for new construction.Any pullback in lending could lead to a slowdown in economic growth or a recession.Some experts said that despite those challenges and concerns about big banks getting bigger, regulators have done an admirable job in restoring stability to the financial system.“It was an extremely difficult situation, and given how difficult it was, I think it was well done,” said Sheila Bair, who was chair of the F.D.I.C. during the 2008 financial crisis. “It means that big banks becoming bigger when smaller banks begin to fail is inevitable,” she added.Reporting was contributed by More

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    Housing Market Gridlock: Buyers Are Eager, but Sellers Are Scarce

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    Homeowners with low-rate mortgages are delaying the decision to sell until market conditions change.The housing market typically comes to life in spring, when buyers emerge in the warmer weather. This year, the market appears stuck in a deep freeze, and the biggest culprit is a lack of sellers, housing experts say.There is interest among buyers — mortgage applications were up 10 percent in March from the month before — but the number of homes for sale is low. The mismatch is caused in part by homeowners who are inclined to sell but are sitting on the sidelines, scared off by the steep prices and mortgage rates that they would face as buyers.More than three-quarters of sellers in a recent survey by Realtor.com said they felt “locked in” to their home by their own low mortgage rate, according to a recent survey by Realtor.com. More than half said they planned to wait until rates fell before putting their homes on the market.Sandy Robinson, a 71-year-old retired teacher in Fairhaven, Mass., is daunted by the market. She would like to sell her two-bedroom townhouse but is worried about being able to afford a new home. “It’s a little scary now, and you have to be careful,” she said.A stalemate has mired the housing market, when it should be more robust. Sales of existing homes in March were down 22 percent from the year before, according to the National Association of Realtors. The inventory of unsold homes on the market at the end of March totaled 2.6 months’ supply, meaning it would take that long to sell them. Inventory is typically twice that amount to balance supply and demand.“We are in a real gridlock situation,” said Robert Frick, corporate economist at the Navy Federal Credit Union. “It’s going to be a tortuous process to unfreeze the market and take a long time to get back to a normal supply-and-demand situation.”Fewer homes for sale mean more competition among buyers, which leads to bidding wars and drives up prices. Although down from recent highs, the average price of a house remains about 40 percent higher than at the beginning of 2020, according to the S&P CoreLogic Case-Shiller index, which measures prices across the nation.“Everybody is a little surprised at the level of price resilience,” said Todd Teta, chief product and technology officer for Attom Data Solutions, a real estate analytics firm.Ellen Goldman and Sam Savage are looking to downsize from the Florida home they have lived in since 2004 but are in no rush to sell.Scott McIntyre for The New York TimesMatt Berger would like to sell his three-bedroom starter home in Lebanon, Ohio, where he lives with his wife and two young children, but is holding back. “It feels tight now, and will only get tighter as the kids grow,” he said.They are looking to move closer to Cincinnati, but homes they could afford a year ago are now out of their price range. Adding to the pressure is the low mortgage rate on their current home: “We are in the mid-threes” — roughly half the national average — “and I’d hate to have to say goodbye to that,” said Mr. Berger, 42.“It’s a doubly whammy of the higher interest rates and the home values being so high, and that is scaring us off,” he added. He and his wife are hoping that mortgage rates will fall and they find a cheaper home in a year or two, before their children are settled in school.The average rate on the most popular home loan, the 30-year fixed-rate mortgage, is 6.43 percent, Freddie Mac reported on Thursday, more than twice what it was two years ago. Mortgage rates peaked above 7 percent late last year, but the decline since then has been slow and uneven.To get sellers more motivated again, rates will have to fall to the “magic mortgage rate” of 5.5 percent, according to a survey by John Burns Research and Consulting. More than 70 percent of prospective home buyers told the researchers that they were not willing to accept a mortgage above that rate.“Homeowners seem to be pretty patient right now,” said Maegan Sherlock, a senior research analyst at John Burns. “Until things get a little better, those people are going to hold out,” she added.Most industry experts believe the tipping point is still a ways off. “This is going to be a transition year,” said Danielle Hale, the chief economist of Realtor.com. “As we move into 2024, we should see more people with an appetite to buy.”The market also may thaw as demand from frustrated buyers is met by home builders, which “historically created first-time home opportunities and move-up opportunities,” said Mr. Teta of Attom.A lack of inventory of existing homes appears to be pushing buyers to newly built homes, a smaller market where sales have held up better. Sales of new single-family homes jumped nearly 10 percent in March from the month before, according to the Census Bureau.The National Association of Realtors forecasts that sales of new homes will increase 4.5 percent this year and 12 percent in 2024. It expects existing-home sales to drop about 9 percent this year and then bounce back in 2024.And there are always reasons that reluctant homeowners could be compelled to sell, like job relocations, downsizing or divorce, said Iliana Abella, executive director of sales at the Abella Group, a real estate brokerage in Miami.“If you are planning to stay in your home for longer than five years, 6 percent is not going to kill you,” she said of current interest rates.Still, many homeowners are content to wait.Ellen Goldman, a 72-year-old retired lawyer in Naples, Fla., is looking to downsize. She and her husband, Sam Savage, have lived in their two-story home since 2004, but realize that the stairs will get more difficult as they age.“We both work out, and it’s not an issue,” Ms. Goldman said, adding that “we want to make the move now before it becomes too hard.”But they are in no rush. “We don’t have to do this,” she said, as they keep an eye on local prices. “We would be fine staying, too.” More

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    Inflation Cooled in March, but Stubborn Price Increases Remain

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    The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures index, slowed in March. But signs point to staying power.Inflation is slowing, a fresh reading of the Federal Reserve’s preferred index showed, but costs continue to climb rapidly after stripping out volatile food and fuel — which shows that price pressures retain staying power and it could be a long road back to normal.The Personal Consumption Expenditures index climbed by 4.2 percent in the year through March, down notably from 5.1 percent in the year through February.But after stripping out food and fuel prices, a closely watched “core” index held nearly steady last month. That measure rose by 4.6 percent over the year, compared with 4.7 percent in the previous reading — a figure that was revised up slightly.The data provide further evidence that inflation is moderating, but that the process remains bumpy and could take a long time to fully play out. Fed officials have raised interest rates sharply over the past year to make money more expensive to borrow and slow demand, and those moves are only slowly trickling through the economy and weighing down price increases.The central bank meets on May 3 to make its next policy decision, and officials are widely expected to raise rates by a quarter percentage point to just above 5 percent. Markets will be just as focused on what they signal for the future: Central bankers forecast in March that they might stop lifting interest rates after their next adjustment. Both incoming price and wage data and financial news could inform whether they feel comfortable hitting pause.The Fed will also need to weigh turmoil in the banking sector as it considers its next move. A series of prominent bank failures in March sent tremors through the system, and those persist. First Republic has continued to struggle, and its stock plummeted this week. Problems in the industry can slow lending to consumers and businesses, weighing on the economy.With growth slowing and the bank issues further weighing consumers down, companies may find in the coming months that they are less able to charge more for their goods and services without scaring away customers. So far, though, many have retained an ability to raise prices.“If we see inflation that warrants us needing to take additional pricing, we’ll take it,” Brian Niccol, chief executive at the burrito chain Chipotle, said during an earnings call this week. “I think we’ve now demonstrated we do have pricing power.” More

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    Stress Builds as Office Building Owners and Lenders Haggle Over Debt

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    A real estate investment fund recently defaulted on $750 million of mortgages for two Los Angeles skyscrapers. A private equity firm slashed the value of its investment in the Willis Tower in Chicago by nearly a third. And a big New York landlord is trying to extend the deadline for paying down a loan for a Park Avenue office tower.Office districts in nearly every U.S. city have been under great stress since the pandemic emptied workplaces and made working from home common. But in recent months, the crisis has entered a tense phase that could damage local economies and cause financial hits to real estate investors and scores of banks.Lenders are increasingly reluctant to make new loans to owners of office buildings, especially after the collapse of two banks last month.“They don’t want to make new office building loans because they don’t want more exposure,” said Scott Rechler, a New York landlord who is a big player in the city’s office market and sits on the board of the Federal Reserve Bank of New York.The timing of the pullback in lending couldn’t be worse. Landlords need to refinance about $137 billion of office mortgages this year and nearly half a trillion dollars in the following four years, according to Trepp, a commercial real estate data firm. The Federal Reserve’s campaign to fight inflation by raising interest rates has also substantially raised the cost of loans still on offer.Banks’ unwillingness to lend and building owners’ desperation for credit have created a standoff. Lenders want to extend loans and make new ones only if they can get better terms. Many landlords are pushing back, and some are threatening to default, effectively betting that banks and investors stand to lose more in a foreclosure. Blackstone slashed the value of the Willis Tower in Chicago by 29 percent. Lyndon French for The New York TimesThe Willis Tower, formerly the Sears Tower, is the third tallest in the country.Lyndon French for The New York TimesHow private negotiations between lenders and building owners are resolved could have major ramifications. Defaults could heap pressure on regional banks and help push the economy into recession. Local property tax revenue, already under pressure, could plummet, forcing governments to cut services or lay off workers.“What we are seeing is this dance between lenders and owners,” said Joshua Zegen of Madison Realty Capital in New York, a firm that specializes in financing for commercial real estate projects. “No one knows what the right value is. No one wants to take a building back,” he said, adding that building owners don’t want to put in new capital, either.He added that the office sector was feeling far more stress than other kinds of commercial real estate like hotels and apartment buildings.Some industry experts are optimistic that given enough time, building owners and their lenders will hammer out compromises, avoiding foreclosures or a big loss in property tax revenue because everybody wants to minimize losses.“I don’t see it as something that is going to result in systematic risk,” said Manus Clancy, a senior managing director at Trepp. “It’s not going to bring down banks, but you could see some banks that have problems. Nothing gets resolved quickly in this market.”Loans on commercial buildings are typically easier than home mortgages to extend or modify. Negotiations are handled by bank executives or specialized finance firms called servicers, which act on behalf of investors that own securities backed by one or more commercial mortgages.But striking a deal can still be hard.Mr. Rechler’s company, RXR, recently stopped making payments on a loan it used to finance the purchase of 61 Broadway in downtown Manhattan. His company got its original investment in the building back after selling nearly half its stake to another investor several years ago, he said. He added that the lender, Aareal Bank, a German institution, was considering selling the loan and the building.“In this illiquid market, can they sell that loan? Can they sell the building?” Mr. Rechler said. Aareal Bank declined to comment.Blackstone bought Willis Tower for about $1.3 billion in 2015.Lyndon French for The New York TimesAnd it committed to spending $500 million on renovating the 50-year-old building.Lyndon French for The New York TimesEric Gural is a co-chief executive of GFP Real Estate, a family-owned firm that has stakes in several Manhattan office buildings, mostly older ones. He has been embroiled in nearly seven months of negotiations with a bank to extend a $30 million loan on a building in Union Square, and just two months are left on the mortgage.“I’m trying to get a one-year extension on an existing loan so I can see what interest rates look like next year, which is likely to be better than they are now,” Mr. Gural said. “Hybrid work has created fear in the banks.”Though many workers have returned to offices at least a few days a week, 18.6 percent of U.S. office space is available for rent, according to Cushman & Wakefield, a commercial real estate services firm, the most since it started measuring vacancies in 1995.Public pension funds, insurance companies and mutual fund firms that invest in bonds backed by commercial mortgages also have an interest in seeing problems resolved or put off. A wave of foreclosures would lower the value of their securities.Many of the mortgages that analysts are most worried about involve buildings in Chicago, Los Angeles, New York, San Francisco and Washington — cities where there is a glut of vacant space or where workers are reluctant to return to offices.One such property is the 108-story Willis Tower in Chicago — the third-tallest building in the country, after One World Trade Center and Central Park Tower, both in Manhattan. The giant private equity firm Blackstone bought it for about $1.3 billion in 2015 and committed to spending $500 million on renovating the 50-year-old building, formerly the Sears Tower, including adding retail space and a rooftop terrace.But in December, United Airlines, the building’s largest tenant, paid an early termination fee and vacated three floors; the company still occupies 16 floors. That month, about 83 percent of the building was occupied, according to KBRA Analytics, a credit data and research firm. Blackstone disputes those numbers; Jeffrey Kauth, a company spokesman, said that “approximately 90 percent of the office space is leased.”Blackstone recently notified some of its real estate fund investors that it had written down the value of its equity investment in Willis Tower by $119 million, or 29 percent, said a person briefed on the matter, who spoke on the condition of anonymity to discuss sensitive financial information. In March, Blackstone got a fourth extension on the $1.33 billion mortgage, pushing the due date to next year, according to Trepp. Under the terms of the loan, the firm can seek another one-year extension next year.The loan on the Gas Company Tower in downtown Los Angeles is in default.Tag Christof for The New York TimesA loan default sets up 777 Tower for potential foreclosure or sale.Tag Christof for The New York TimesBlackstone said only around 2 percent of the firm’s real estate funds were invested in office buildings — down a lot from a decade ago.Even streets with some of the priciest real estate in the country are not immune.In Manhattan, the owner of 300 Park Avenue, an office building across the street from the Waldorf Astoria, is seeking a two-year extension on a $485 million loan coming due in August, according to KBRA Analytics. The property is owned by a joint venture including Tishman Speyer and several unnamed investors.The 25-story building, built in 1955, is the headquarters for Colgate-Palmolive. But the consumer products conglomerate is shrinking its presence there.“We requested that our loan be transferred to the special servicer well in advance of its maturity so that we can work together on a mutually beneficial extension,” said Bud Perrone, a spokesman for Tishman Speyer.Portions of a bond deal that includes the 300 Park Avenue loan were downgraded last fall by Fitch Ratings because some tenants had left the building, and a lower-rated slice of the bond now trades at about 85 cents on the dollar.Across the country, an investment fund connected to the real estate giant Brookfield Properties defaulted on $750 million of loans for the Gas Company Tower and a nearby building, 777 Tower, in downtown Los Angeles, setting up a possible foreclosure or a sale of the properties, according to the fund.Andrew Brent, a spokesman for Brookfield, said in an emailed statement that office buildings suffering financial challenges were “a very small percentage of our portfolio.”Even as building owners struggle with vacancies and high interest rates, some have found a way to put their properties on a more solid footing.The owners of the Seagram Building in Manhattan have been working to refinance a portion of a loan that comes due in May.Haruka Sakaguchi for The New York TimesNew tenants are needed to fill several floors that Wells Fargo occupied in the Seagram Building.Haruka Sakaguchi for The New York TimesRFR Holding, an investment group that bought the Seagram Building in 2000, is trying to lure tenants back to the office.Haruka Sakaguchi for The New York TimesThe owners of the Seagram Building at 375 Park Avenue in Manhattan have been working to refinance a $200 million portion of a loan that comes due in May while finding new tenants to fill several floors previously occupied by Wells Fargo.RFR Holding, an investment group led by Aby J. Rosen and Michael Fuchs, bought the 38-story building in 2000 for $379 million. To entice employees back to the office, RFR last year built a $25 million “playground” in an underground garage that’s equipped with a climbing wall and pickleball and basketball courts. Four new tenants signed leases in the past few months, according to Trepp.Even with all the vacant space, some landlords like Mr. Rechler’s RXR still want to build new towers. RXR is moving ahead with plans to build what could be one of the tallest buildings in the country at 175 Park Avenue.“It’s one of a kind in what is and will always be one of the best office markets in the world,” he said, referring to the tower. More

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    Inflation Is Still High. What’s Driving It Has Changed.

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    Two years ago, high inflation was about supply shortages and pricier goods. Then it was about war in Ukraine and energy. These days, services are key.America is now two years into abnormally high inflation — and while the nation appears to be past the worst phase of the biggest spike in price increases in half a century, the road back to normal is a long and uncertain one.The pop in prices over the 24 months that ended in March eroded wage gains, burdened consumers and spurred a Federal Reserve response that has the potential to cause a recession.What generated the painful inflation, and what comes next? A look through the data reveals a situation that arose from pandemic disruptions and the government’s response, was worsened by the war in Ukraine and is now cooling as supply problems clear up and the economy slows. But it also illustrates that U.S. inflation today is drastically different from the price increases that first appeared in 2021, driven by stubborn price increases for services like airfare and child care instead of by the cost of goods.Fresh wage and price data set for release on Friday are expected to show continued evidence of slow and steady moderation in March. Now Fed officials must judge whether the cool-down is happening fast enough to assure them that inflation will promptly return to normal — a focus when the central bank releases its next interest rate decision on Wednesday.Inflation Is Slowly Coming DownYear-over-year percentage change in the Consumer Price Index

    Sources: Bureau of Labor Statistics; New York Fed’s Global Supply Chain Pressure IndexBy The New York TimesThe Fed aims for 2 percent inflation on average over time using the Personal Consumption Expenditures index, which will be released on Friday. That figure pulls some of its data from the Consumer Price Index report, which was released two weeks ago and offered a clear picture of the recent inflation trajectory.Before the pandemic, inflation hovered around 2 percent as measured by the overall Consumer Price Index and by a “core” measure that strips out food and fuel prices to get a clearer sense of the underlying trend. It dropped sharply at the pandemic’s start in early 2020 as people stayed home and stopped spending money, then rebounded starting in March 2021.Some of that initial pop was due to a “base effect.” Fresh inflation data were being measured against pandemic-depressed numbers from the year before, which made the new figures look elevated. But by the end of summer 2021, it was clear that something more fundamental was happening with prices.Demand for goods was unusually high: Families had more money than usual after months at home and repeated stimulus checks, and they were spending it on cars, couches and deck furniture. At the same time, the pandemic had shut down many factories, limiting how much supply the world’s companies could churn out. Shipping costs surged, goods shortages mounted, and the prices of physical purchases from appliances to cars jumped.Higher Prices for Services Are Now Driving InflationBreakdown of the inflation rate, by category

    Note: The services category excludes energy services, and the goods category excludes food and energy goods.Sources: Bureau of Labor Statistics; New York Times analysisBy The New York TimesBy late 2021, a second trend was also getting started. Services costs, which include nonphysical purchases like tutoring and tax preparation, had begun to climb quickly.As with goods prices, that tied back to the strong demand. Because households were in good spending shape, landlords, child care providers and restaurants could charge more without losing customers.Across the economy, firms seized the moment to pad their bottom lines; profit margins soared in late 2021 before moderating late last year.Businesses were also covering their growing costs. Wages had started to climb more quickly than usual, which meant that corporate labor bills were swelling.Pay Has Climbed Quickly, but Not as Fast as PricesYear-over-year percentage change in the Employment Cost Index, a measure of labor costs, and the Consumer Price Index, a measure of living costs

    Note: The Consumer Price Index is reported monthly. The Employment Cost Index is reported quarterly and is as of Q4 2022. Early 2023 data is a Goldman Sachs forecast.Source: Bureau of Labor StatisticsBy The New York TimesFed officials had expected goods shortages to fade, but the combination of faster inflation for services and accelerating wage growth captured their attention.Even if pay gains had not been the original cause of inflation, policymakers were concerned that it would be difficult for price increases to return to a normal pace with pay rates rising briskly. Companies, they thought, would keep raising prices to pass on those labor expenses.Worried central bankers started raising interest rates in March 2022 to hit the brakes on growth by making it more expensive to borrow to buy a car or house or expand a business. The goal was to slow the labor market and make it harder for firms to raise prices. In just over a year, they lifted rates to nearly 5 percent — the fastest adjustment since the 1980s.Yet in early 2022, Fed policy started fighting yet another force stoking inflation. Russia’s invasion of Ukraine that February caused food and fuel prices to surge. Between that and the cost increases in goods and services, overall inflation reached its highest peak since the 1980s: about 9 percent in July.In the months since, inflation has slowed as cost increases for energy and goods have cooled. But food prices are still climbing swiftly, and — crucially — cost increases in services remain rapid.In fact, services prices are now the very center of the inflation story.They could soon start to fade in one key area. Housing costs have been picking up quickly for months, but rent increases have recently slowed in real-time private sector data. That is expected to feed into official inflation numbers by later this year.That has left policymakers focused on other services, which span an array of purchases including medical care, car repairs and many vacation expenses. How quickly those prices — often called “core services ex-housing” — can retreat will determine whether and when inflation can return to normal.Excluding Housing Costs, Prices of Core Services Are RisingYear-over-year percentage change in the Consumer Price Index for services, stripping out housing and energy costs

    Sources: Bureau of Labor Statistics; New York Times analysisBy The New York TimesNow, Fed officials will have to assess whether the economy is poised to slow enough to bring down the cost of those critical services.Between the central bank’s rate moves and recent banking turmoil, some officials think that it may be. Policymakers projected in March that they would raise interest rates just once more in 2023, a move that is widely expected at their meeting next week.But market watchers will listen intently when Jerome H. Powell, the Fed chair, gives his postmeeting news conference. He could offer hints at whether officials think the inflation saga is heading for a speedy conclusion — or another chapter.Ben Casselman More