Interest Rates

More stories

  • 100 Shares179 Views

    in Economy

    What the Fed’s Rate Hike Means for Mortgages

    by

    What does the Fed’s decision to raise its key interest rate by three-quarters of a percentage point mean for mortgages? [Here’s what the Fed’s decision means for credit cards, car loans and student loans.]Rates on 30-year fixed mortgages don’t move in tandem with the Fed’s benchmark rate, but instead track the yield on 10-year Treasury bonds, which are influenced by a variety of factors, including expectations around inflation, the Fed’s actions and how investors react to all of it.“We are seeing rates move up pretty briskly and a lot of that has to do with forward-looking expectations with where things are headed,” said Len Kiefer, deputy chief economist at Freddie Mac. “Maybe inflation will be stickier than the market thought.”Mortgage rates have jumped by two percentage points since the start of 2022, though they’ve held somewhat steady in recent months. But with consumer prices still surging, mortgage rates are on the rise once again — by some estimates, reaching as high as 6 percent.The closely watched rate averages from Freddie Mac won’t be released until Thursday, but they already began to tick a bit higher last week: Rates on 30-year fixed rate mortgages were 5.23 percent as of June 9, according to Freddie Mac’s primary mortgage survey, up from 5.09 percent the week before and 2.96 percent the same week in 2021.Other home loans are more closely tethered to the Fed’s move. Home equity lines of credit and adjustable-rate mortgages — which each carry variable interest rates — generally rise within two billing cycles after a change in the federal funds rates. More

  • 150 Shares119 Views

    in Economy

    What the Fed’s Rate Hike Means for Credit Cards and Student Loans

    by

    The Fed’s decision to raise its key interest rate by three-quarters of a percentage point is good news for savers, but less so for borrowers: They can expect to pay more on credit card debt, car loans and certain student loans. [Here’s what the Fed’s decision means for mortgages.]Credit CardsCredit card rates are closely linked to the Fed’s actions, so consumers with revolving debt can expect to see those rates rise, usually within one or two billing cycles. The average credit card rate was recently 16.73 percent, according to Bankrate.com, up from 16.34 percent in March.“With the frequency of Federal Reserve rate hikes this year, it will be a drumbeat of higher rates for cardholders every couple of statement cycles,” said Greg McBride, chief financial analyst at Bankrate.com. “And the cumulative effect is growing. If the Fed raises rates by a total of three percentage points this year, your credit card rate will be three percentage points higher by the first of the year.”Car LoansCar loans are also expected to climb, but those increases continue to be overshadowed by the rising cost of buying a vehicle (and the pain of what you’ll pay at the gas pump). Car loans tend to track the five-year Treasury, which is influenced by the federal funds rate — but that’s not the only factor that determines how much you’ll pay.A borrower’s credit history, the type of vehicle, loan term and down payment are all baked into that rate calculation.The average interest rate on new-car loans was 5.08 percent in May, according to Dealertrack, which provides business software to dealerships. That’s almost a full percentage point higher than December 2021, when rates had reached their lowest point since 2015 and when the firm began tracking rates.The average rate for used vehicles was 8.46 percent in May, also nearly a full percentage point higher than December. But those rates vary widely; borrowers with the lowest credit scores received average rates of 20 percent in May, Dealertrack said, whereas individuals with the most pristine credit histories received rates of 3.92 percent.Student LoansWhether the rate increase will affect your student loan payments depends on the type of loan you have.Current federal student loan borrowers — whose payments are on pause through August — aren’t affected because those loans carry a fixed rate set by the government.But new batches of federal loans are priced each July, based on the 10-year Treasury bond auction in May. Rates on those loans have already jumped: Borrowers with federal undergraduate loans disbursed after July 1 (and before July 1, 2023) will pay 4.99 percent, up from 3.73 percent for loans disbursed the year-earlier period.Private student loan borrowers should also expect to pay more; both fixed and variable-rate loans are linked to benchmarks that track the federal funds rate. Those increases usually show up within a month.But the Fed is not finished and has penciled in rates hitting 3.4 percent by the end of 2022. Private lenders will probably bake those and other expectations into their interest rates as well — meaning borrowers could end up paying anywhere from 1.5 to 1.9 percentage points more, depending on the length of the loan term, explained Mark Kantrowitz, a student loan expert and author of “How to Appeal for More College Financial Aid.” More

  • 150 Shares189 Views

    in Economy

    Fed Set to Lift Rates as ‘Soft-ish Landing’ Becomes a Harder Sell

    by

    The central bank has hoped to cool down the economy without pushing unemployment much higher. Stubborn inflation narrows that path.Federal Reserve officials are meeting this week with one major goal in mind: cooling the economy enough to slow rapid inflation.The odds of pulling that off without plunging the nation into a recession are growing slimmer.As the Fed prepares to take an aggressive stance to tamp down persistent inflation — likely discussing raising interest rates by three-quarters of a point on Wednesday — investors, consumers and economists increasingly expect that the economy could tip into a downturn next year. Even researchers who think the central bank can still pull off a “soft landing,” in which policymakers guide the economy onto a more sustainable path without causing a spike in unemployment and an outright contraction, acknowledge that the path toward that optimistic outcome has become narrower.“It was not obvious that a soft landing was feasible,” said Michael Feroli, chief U.S. economist at J.P. Morgan, who still thinks it could happen. “The degree of difficulty has probably increased.”The trouble stems from America’s inflation data, which have been growing more worrying. Consumer prices accelerated in May to an 8.6 percent pace, the fastest since 1981. Even after volatile food and fuel costs, which the central bank cannot do much to control, are stripped out, inflation was firmer than expected last month as rents, airfares and hotel room rates surged. Compounding the problem, two recent reports showed, inflation expectations are headed higher.The data suggest the Fed may need to act more decisively, slowing consumer and business spending and the job market even more, to bring prices under control.Before last week’s inflation report, central bankers had been expected to raise interest rates by half a percentage point this week and then again in July. But now the Fed is likely to discuss moving more rapidly to try to stamp out inflation pressures before they become a permanent feature of the economic backdrop. It could also continue to raise rates by more than the usual quarter-point increments into September or even beyond, many economists predict.The Fed has already raised rates twice this year, by a quarter point in March and half a point in May. If it takes more drastic action — making mortgages and business loans even more expensive, choking off corporate expansion plans and crimping the labor market — it would make higher unemployment and a shrinking economy more likely.Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Greedflation: Some experts contend that big corporations are supercharging inflation by jacking up prices. We take a closer look at the issue. Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.For Investors: At last, interest rates for money market funds have started to rise. But inflation means that in real terms, you’re still losing money.For months, the Fed has acknowledged that the path toward slower inflation was likely to be an unpleasant one. When the central bank raises the federal funds rate, it filters out through the economy to slow consumer and business demand, eventually weighing on wages and prices. The way to bring inflation under control is, essentially, to cause a little economic pain.Still, top policymakers have voiced consistent optimism that because America’s labor market was starting from a solid position, it might be possible to cool down inflation without erasing recent job market progress. With so many job openings per unemployed worker, the logic went, it might be possible to restrain conditions just enough to bring the supply of workers into better balance with employer demands.“I think we have a good chance to have a soft or soft-ish landing,” Jerome H. Powell, the Fed chair, said at his news conference after the central bank’s May meeting. He added that “the economy is strong and is well positioned to handle tighter monetary policy.”Food and fuel costs are very volatile, but the central bank cannot do much to control them. Alisha Jucevic for The New York TimesBut somebody has to feel the pressure and stop spending for the Fed’s policy to work — and with inflation higher and more stubborn, it will take a bigger squeeze on demand to bring it in line.In fact, Mr. Feroli at J.P. Morgan said, the Fed’s economic projections — which will be released for the first time since March after this meeting — could show a marked slowdown in growth and an increase in the jobless rate to illustrate that policymakers are serious about reining in the economy and controlling prices. Joblessness is now at 3.6 percent, which is below the 4 percent level that Fed officials believe a healthy economy can sustain over the longer run.If the Fed has to slow the economy drastically, it will be a challenge to do that without causing a recession. For one thing, when unemployment spikes, recession tends to follow. Downturns have happened when the unemployment rate rose 0.5 percentage points over its recent low on average over a three-month period — a relationship called the Sahm Rule, after economist Claudia Sahm.For another, interest rates are a blunt tool and work with a lag, and the Fed may simply overdo it.Investors fear a bad outcome. Stocks sank into a bear market on Monday — meaning they have quickly dropped in value by 20 percent — as investors become nervous that the central bank is about to spur a recession in its quest to tame inflation.“People think that the soft-ish landing is a dream,” said Priya Misra, head of global rates strategy at TD Securities. “That’s the big picture.”It’s not just Wall Street that is increasingly glum. Consumer confidence fell to its lowest level on record in preliminary data from the University of Michigan survey, and expectations of higher unemployment in a New York Fed survey have been picking up.Inflation F.A.Q.Card 1 of 5What is inflation? More

  • 125 Shares149 Views

    in Economy

    Inflation in the United States: What You Need to Know

    by

    Inflation is a tricky problem, but it has a few clear causes and consequences, and policymakers are working to bring it to heel.The government reported on Friday that consumer prices climbed 8.6 percent over the year through May, the fastest rate of increase in four decades.Americans are confronting more expensive food, fuel and housing, and some are grasping for answers about what is causing the price burst, how long it might last and what can be done to resolve it.There are few easy answers or painless solutions when it comes to inflation, which has jumped around the world as supply shortages collide with hot consumer demand. It is difficult to predict how long today’s price surge will drag on, and the main tool for fighting it is interest rate increases, which cool inflation by slowing the economy — potentially sharply.Here’s a guide to understanding what’s happening with inflation and how to think about price gains when navigating this complicated moment in the U.S. and world economy.What’s Driving InflationIt can be helpful to think of the causes of today’s inflation as falling into three related buckets.Strong demand. Consumers are spending big. Early in the pandemic, households amassed savings as they were stuck at home, and government support that continued into 2021 helped them put away even more money. Now people are taking jobs and winning wage increases. All of those factors have padded household bank accounts, enabling families to spend on everything from backyard grills and beach vacations to cars and kitchen tables.Too few goods. As families have taken pandemic savings and tried to buy pickup trucks and computer screens, they have run into a problem: There have been too few goods to go around. Factory shutdowns tied to the pandemic, global shipping backlogs and reduced production have snowballed into a parts-and-products shortage. Because demand has outstripped the supply of goods, companies have been able to charge more without losing customers.Now, China’s latest lockdowns are exacerbating supply chain snarls. At the same time, the war in Ukraine is cutting into the world’s supply of food and fuel, pushing overall inflation higher and feeding into the cost of other products and services. Gas prices are averaging around $5 a gallon nationally, up from just over $3 a year ago.Service-sector pressures. More recently, people have been shifting their spending away from things and back toward experiences as they adjust to life with the coronavirus — and inflation has been bubbling up in service industries. Rents are climbing swiftly as Americans compete for a limited supply of apartments, restaurant bills are heading higher as food and labor costs rise, and airline tickets and hotel rooms cost more because people are eager to travel and because fuel and labor are more expensive.You might be wondering: What role does corporate greed play in all this? It is true that companies have been raking in unusually big profits as they raise prices by more than is needed to cover rising costs. But they are able to do that partly because demand is so strong — consumers are spending right through price increases. It is unclear how long that pricing power will last. Some companies, like Target, have already signaled that they will begin to reduce prices on some products as they try to clear out inventory and keep customers coming.Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Greedflation: Some experts contend that big corporations are supercharging inflation by jacking up prices. We take a closer look at the issue. Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.Interest Rates: As it seeks to curb inflation, the Federal Reserve began raising interest rates for the first time since 2018. Here is what that means for inflation.How Is Inflation Measured?Economists and policymakers are closely watching America’s two primary inflation gauges: The Consumer Price Index, which was released on Friday, and the Personal Consumption Expenditures index.The C.P.I. captures how much consumers pay for things they buy, and it comes out earlier, making it the nation’s first clear glimpse at what inflation did the month before. Data from the index is also used to come up with the P.C.E. figures.The P.C.E. index, which will be released next on June 30, tracks how much things actually cost. For instance, it counts the price of health care procedures even when the government and insurance help pay for them. It tends to be less volatile, and it is the index the Federal Reserve looks to when it tries to achieve 2 percent inflation on average over time. As of April, the P.C.E. index was climbing 6.3 percent compared with the prior year — more than three times the central bank target.Fed officials are paying close attention to changes in month-to-month inflation to get a sense of its momentum.Policymakers are also particularly attuned to the so-called core inflation measure, which strips out food and fuel prices. While groceries and gas make up a big part of household budgets, they also jump around in price in response to changes in global supply. As a result, they don’t give as clear a read on the underlying inflationary pressures in the economy — the ones the Fed believes it can do something about.“I’m going to be looking to see a consistent string of decelerating monthly prints on core inflation before I’m going to feel more confident that we’re getting to the kind of inflation trajectory that’s going to get us back to our 2 percent goal,” Lael Brainard, the vice chair of the Fed and one of its key public messengers, said during a CNBC interview last week.What Can Slow the Rapid Price Gains?How long prices will continue to climb rapidly is anyone’s guess: Inflation has confounded experts repeatedly since the pandemic took hold in 2020. But based on the drivers behind today’s hot prices, a few outcomes appear likely.For one, quick inflation seems unlikely to go away entirely on its own. Wages are climbing much more rapidly than normal. That means unless companies suddenly get more efficient, they will probably try to continue to increase prices to cover their labor costs.Inflation F.A.Q.Card 1 of 5What is inflation? More

  • 88 Shares159 Views

    in Economy

    Persistent Inflation Puts Yellen in the Spotlight

    by

    WASHINGTON — At her confirmation hearing in early 2021, Treasury Secretary Janet L. Yellen told lawmakers that it was time to “act big” on a pandemic relief package, playing down concerns about deficits at a time of perpetually low interest rates and warning that inaction could mean widespread economic “scarring.”A year and a half later, prices are soaring and interest rates are marching higher. As a result, Ms. Yellen’s role in crafting and selling the $1.9 trillion American Rescue Plan, which Congress passed in March of last year, is being parsed amid an intensifying blame game to determine who is responsible for the highest rates of inflation in 40 years. After months of pinning rising prices on temporary supply chain problems that would dissipate, Ms. Yellen acknowledged last week that she had gotten it “wrong,” putting the Biden administration on the defensive and thrusting herself into the middle of a political storm.“I think I was wrong then about the path that inflation would take,” Ms. Yellen said in an interview with CNN, adding that the economy had faced unanticipated “shocks” that boosted food and energy prices.Republican lawmakers, who have spent months blaming President Biden and Democrats for rising prices, gleefully seized upon the admission as evidence that the administration had mismanaged the economy and should not be trusted to remain in political control.The Treasury Department has scrambled to clarify Ms. Yellen’s remarks, saying her acknowledgment that she misread inflation simply meant that she could not have foreseen developments such as the war in Ukraine, new variants of the coronavirus or lockdowns in China. After a book excerpt suggested Ms. Yellen favored a stimulus package smaller than the $1.9 trillion that Congress approved last year, the Treasury released a statement denying that she had urged more spending restraint.At this tenuous moment in her tenure, Ms. Yellen is expected to face tough questions on inflation when she testifies before the Senate Finance Committee on Tuesday and the House Ways and Means Committee on Wednesday. The hearings are ostensibly about the president’s budget request for the 2023 fiscal year, but Republicans are blaming Mr. Biden’s policies, including the $1.9 trillion stimulus package, for high prices for consumer products, and Ms. Yellen’s comments have given them grist to cast his first term as a failure.“How can Americans trust the Biden administration when the same people that were so wrong are still in charge?” said Tommy Pigott, rapid response director for the Republican National Committee.Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Measuring Inflation: Over the years economists have tweaked one of the government’s standard measures of inflation, the Consumer Price Index. What is behind the changes?Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.Interest Rates: As it seeks to curb inflation, the Federal Reserve began raising interest rates for the first time since 2018. Here is what that means for inflation.The glare is particularly uncomfortable for Ms. Yellen, an economist and former chair of the Federal Reserve, who prides herself on giving straight answers and staying above the political fray.In recent weeks, Ms. Yellen has had to defend the Biden administration’s economic policies even as fault lines have emerged within the economic team. She has expressed reservations about the lack of progress in rolling back some of the Trump administration’s China tariffs, which she views as taxes on consumers that were “not strategic,” and she has been reluctant to support student debt forgiveness proposals, which could further fuel inflation if people have more money to spend.Over the weekend, Ms. Yellen came under fire again after an excerpt from a forthcoming biography of her indicated that she had sought unsuccessfully to pare down the pandemic aid bill because of inflation concerns. The Treasury Department released a rare Saturday statement from Ms. Yellen denying that she argued that the package was too big.“I never urged adoption of a smaller American Rescue Plan package,” she said, insisting that the funds have helped the United States economy weather the pandemic and the fallout from Russia’s war in Ukraine.Throughout the last year, Ms. Yellen has been an ardent public defender of the Biden administration’s economic agenda. She has clashed publicly at times with critics such as Lawrence H. Summers, a former Treasury secretary, who warned that too much stimulus could overheat the economy.For months, Ms. Yellen — and many other economists — talked about inflation as “transitory,” saying rising prices were the result of supply chain problems that would dissipate and “base effects,” which were making the monthly numbers look worse in comparison with prices that were depressed during the early days of the pandemic.By May of last year, Ms. Yellen appeared to acknowledge that the Biden administration’s spending proposals had the potential to overheat the economy. She noted at The Atlantic’s Future Economy Summit that the policies could spur growth and that the Fed might have to step in with “modest” interest rate increases if the economy revved up too much.“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy,” Ms. Yellen said.But economic indicators still suggested that inflation remained under control through much of that spring. In an interview with The New York Times last June, Ms. Yellen said she believed that inflation expectations were in line with the Federal Reserve’s 2 percent target and that while wages were increasing, she did not see a “wage price spiral” on the horizon that could cause inflation to become entrenched.“We don’t want a situation of prolonged excess demand in the economy that leads to wage and price pressures that build and become endemic,” she said, adding that she did not see that happening.Inflation F.A.Q.Card 1 of 5What is inflation? More

  • 163 Shares199 Views

    in Economy

    Fed Vice Chair Says Another Big Interest Rate Increase Could Come in September

    by

    Lael Brainard, the Federal Reserve’s vice chair, suggested on Thursday that the central bank might make another large rate increase into September and threw cold water on the idea that policymakers might pause rate moves after the summer — signaling instead that they are intently focused on controlling too-high inflation.Ms. Brainard, in an interview on CNBC, said market expectations for half-percentage-point increases in June and July, increases that would be twice the size of the Fed’s typical ones, seemed “reasonable.” She does not know where the economy will be in September, she said, but explained that if inflation remained rapid, another big move “might well be appropriate.” If it slows, then a smaller pace of increase might make sense.She added, however, that it was “hard to see the case for a pause” at a time when the Fed had “a lot of work to do” to get inflation down to its goal, which is 2 percent on average over time. Prices picked up by 6.3 percent on a headline basis and 4.9 percent on a core basis over the year through April.Fed officials are fighting the fastest rate of inflation since the 1980s by lifting borrowing costs, which slows down consumer and business demand, helping to bring the economy back into balance. Central bankers began to shrink their balance sheet of bond holdings this week and have already lifted their main policy interest rate by 0.75 percentage points since March, efforts that are already making mortgages and other loans pricier.“We do expect to see some cooling of a very, very strong economy over time,” Ms. Brainard said, explaining that the Fed is looking for moderation and “better balance” in the labor market.Ms. Brainard said she was looking for “a string of decelerating inflation data” to feel more confident that inflation would get back no a more sustainable path.The Fed is operating against a fraught backdrop. Ms. Brainard said there was a “fair amount of uncertainty” about the economy, citing Russia’s war in Ukraine and lockdowns in China as factors clouding the outlook.Economists have warned that the Fed could struggle to slow down the economy without tipping it into an outright recession, especially as it withdraws support rapidly and in tandem with other central banks around the world. But Ms. Brainard said there was a path where demand could cool and inflation could come down while the labor market remained strong.“We are starting from a position of strength — the economy has a lot of momentum,” she said, also citing solid business and household balance sheets. More

  • 125 Shares179 Views

    in Economy

    Economic Scorecard: Biggest Numbers May Not Be Best, for Now

    by

    As the Federal Reserve tries to rein in inflation without causing a recession, slower job creation and wage growth could be a plus.When it comes to the economy, more is usually better.Bigger job gains, faster wage growth and more consumer spending are all, in normal times, signs of a healthy economy. Growth might not be sufficient to ensure widespread prosperity, but it is necessary — making any loss of momentum a worrying sign that the economy could be losing steam or, worse, headed into a recession.But these are not normal times. With nearly twice as many open jobs as available workers and companies struggling to meet record demand, many economists and policymakers argue that what the economy needs right now is not more, but less — less hiring, less wage growth and above all less inflation, which is running at its fastest pace in four decades.Jerome H. Powell, the Federal Reserve chair, has called the labor market “unsustainably hot,” and the central bank is raising interest rates to try to cool it. President Biden, who met with Mr. Powell on Tuesday, wrote in an opinion article this week in The Wall Street Journal that a slowdown in job creation “won’t be a cause for concern” but would rather be “a sign that we are successfully moving into the next phase of recovery.”“We want a full and sustainable recovery,” said Claudia Sahm, a former Fed economist who has studied the government’s economic policy response to the pandemic. “The reason that we can’t take the victory lap right now on the recovery — the reason it is incomplete — is because inflation is too high.”But a cooling economy carries its own risks. Despite inflation, the recovery from the pandemic recession has been among the strongest on record, with unemployment falling rapidly and incomes rebounding fastest for those at the bottom. If the recovery slows too much, it could undo much of that progress.“That’s the needle we’re trying to thread right now,” said Harry J. Holzer, a Georgetown University economist. “We want to give up as few of the gains that we’ve made as possible.”Economists disagree about the best way to strike that balance. Mr. Powell, after playing down inflation last year, now says reining it in is his top priority — and argues that the central bank can do so without cutting the recovery short. Some economists, particularly on the right, want the Fed to be more aggressive, even at the risk of causing a recession. Others, especially on the left, argue that inflation, while a problem, is a lesser evil than unemployment, and that the Fed should therefore pursue a more cautious approach.But where progressives and conservatives largely agree is that evaluating the economy will be particularly difficult over the next several months. Distinguishing a healthy cool-down from a worrying stall will require looking beyond the indicators that typically make headlines.“It’s a very difficult time to interpret economic data and to even understand what’s happening with the economy,” said Michael R. Strain, an economist with the American Enterprise Institute. “We’re entering a period where there’s going to be tons of debate over whether we are in a recession right now.”Slower job growth could be good (or bad).The jobs report for May, which the Labor Department will release on Friday, will provide a case study in the difficulty of interpreting economic data right now.Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Measuring Inflation: Over the years economists have tweaked one of the government’s standard measures of inflation, the Consumer Price Index. What is behind the changes?Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.Interest Rates: As it seeks to curb inflation, the Federal Reserve began raising interest rates for the first time since 2018. Here is what that means for inflation.Ordinarily, one number from the monthly report — the overall jobs added or lost — is enough to signal the labor market’s health. That is because most of the time, the driving force in the labor market is demand. If business is strong, employers will want more workers, and job growth will accelerate. When demand lags, then hiring slows, layoffs mount and job growth stalls.Right now, though, the limiting factor in the labor market is not demand but supply. Employers are eager to hire: There were 11.4 million job openings at the end of April, close to a record. But there are roughly half a million fewer people either working or actively looking for work than when the pandemic began, leaving employers scrambling to fill available jobs.The labor force has grown significantly this year, and forecasters expect more workers to return as the pandemic and the disruptions it caused continue to recede. But the pandemic may also have driven longer-lasting shifts in Americans’ work habits, and economists aren’t sure when or under what circumstances the labor force will make a complete rebound. Even then, there might not be enough workers to meet the extraordinarily high level of employer demand.A coffee shop advertised open positions in New York. The limiting factor in the labor market is not demand but supply.Amir Hamja for The New York TimesMost forecasters expect the report on Friday to show that job growth slowed in May. But that number alone won’t reveal whether the mismatch between supply and demand is easing. Slowing job growth coupled with a growing labor force could be a sign that the labor market is coming back into balance as demand cools and supply improves. But the same level of job growth without an increase in the supply of workers could indicate the opposite: that employers are having an even more difficult time finding the help they need.Many economists say they will be watching the labor force participation rate — the share of the population either working or looking for work — just as closely as the headline job growth figures in coming months.“One can unambiguously root for higher labor force participation,” said Jason Furman, a Harvard economist who was an adviser to President Barack Obama. “Beyond that, nothing else is unambiguous.”Wage growth may need to slow.Another number will be getting a lot of attention from economists, policymakers and investors: wage growth.Employers have responded to the hot competition for workers exactly the way Econ 101 says they should, by raising pay. Average hourly earnings were up 5.5 percent in April from a year earlier, more than twice the rate they were rising before the pandemic.Normally, faster wage growth would be good news. Persistently weak pay increases were a bleak hallmark of the long, slow recovery that followed the last recession. But even some economists who bemoaned those sluggish gains at the time say the current rate of wage growth is unsustainable.“That’s something that we’re used to saying pretty unequivocally is good, but in this case it just raises the risk that the economy is overheating further,” said Adam Ozimek, chief economist of the Economic Innovation Group, a Washington research organization. As long as wages are rising 5 or 6 percent per year, he said, it will be all but impossible to bring inflation down to the Fed’s 2 percent target.Inflation F.A.Q.Card 1 of 5What is inflation? More

  • 188 Shares159 Views

    in Economy

    Inflation moderated in April but was still close to its highest level in 40 years.

    by

    An important measure of consumer prices showed that inflation slowed in April, but remained close to a four-decade high.The Personal Consumption Expenditures price index rose 0.2 percent last month from March and was up 6.3 percent from a year earlier, the Commerce Department said Friday. That is down from a 6.6 percent annual increase in March, which represented the fastest pace of inflation since 1982.Economists and investors closely watch the index, an alternative to the better-known Consumer Price Index, because the Federal Reserve prefers it as a measure of inflation. The central bank has been raising interest rates and announced that it will begin paring asset purchases in a bid to cool the economy and tame inflation.The slowdown in inflation in April was largely the result of a drop in the price of gasoline and other energy sources. Gas prices soared in February and March largely because of Russia’s invasion of Ukraine, then moderated somewhat in April. They have risen again in recent weeks, however, which could push measures of inflation back up in May. Food prices have also been rising quickly in recent months, a pattern that continued in April.Stripping out the volatile food and fuel categories, consumer prices were up 4.9 percent in April from a year earlier. That core measure, which some economists view as a more reliable guide to the underlying rate of inflation, was up 0.3 percent from a month earlier, little changed from the rate of increase in March.The comparatively tame increase in core prices in the data released Friday stood in contrast to the sharp acceleration in the equivalent measure in the Consumer Price Index report released by the Labor Department this month. The divergence was mostly the result of differences in the way the two measures count airline fares, however, and economists said the Fed was unlikely to take much comfort from the Commerce Department data.“My suspicion is they will probably look through the slowdown,” said Omair Sharif, the founder of the research firm Inflation Insights. He noted that the core index also slowed last fall, only to pick up again at the end of the year, catching the Fed off guard.Many forecasters believe that the headline inflation rate peaked in March and that April marked the beginning of a gradual cool-down. But the recent rebound in gas prices is threatening to complicate that picture. And even if inflation continues to ebb, prices are still rising far more quickly than the Fed’s target of 2 percent over time.“For the past year, inflation has been high and rising and we’re at a point now where it’s high and falling,” said Tim Quinlan, a senior economist at Wells Fargo.The public, Mr. Quinlan added, is unlikely to see the slight moderation in inflation as much to celebrate.“To them, the year over year growth in prices doesn’t matter,” he said. “It’s why does a crappy lunch cost $12 now?” More