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    Fed Minutes Show Officials Expecting to Raise Rates Three Times to Address Inflation

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    Federal Reserve officials agreed at their last meeting that the central bank needed to move “expeditiously” to bring down the most rapid pace of inflation in 40 years, with most participants expecting as many as three half-a-percentage-point interest rate increases in the months ahead, minutes of the Fed’s May meeting showed.They also discussed the prospect of raising interest rates beyond the so-called neutral rate, at which they are neither supporting nor dampening the economy, to further slow economic growth as policymakers try to combat inflation.The officials noted that inflationary pressures were evident in a broad array of goods and services, causing hardship for Americans by eroding their incomes and making it hard for businesses to plan for the future. They said further supply chain disruptions from the Russian invasion of Ukraine and pandemic lockdowns in China were also threatening to push inflation higher.Their discussion highlighted the urgency of the task ahead, with some officials emphasizing “that persistently high inflation heightened the risk that longer-term inflation expectations could become unanchored,” making it more difficult for the central bank to return inflation to the 2 percent annual average that the Fed aims for.Officials also debated whether price pressures might be beginning to abate. Several observed that recent economic data suggested inflation might no longer be worsening, though they said it was too soon to say whether it had peaked. While they said the job market and consumer and business spending remained strong, they also expressed concern about “downside” risks to the economy “and the likelihood of a prolonged rise in energy and commodity prices.”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.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.State Intervention: As inflation stays high, lawmakers across the country are turning to tax cuts to ease the pain, but the measures could make things worse. How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.The Fed raised rates half a percentage point in May, its biggest rate increase since 2000. Officials also detailed a plan to shrink the central bank’s $9 trillion in bond holdings and signaled that it would continue making money more expensive to borrow and spend until it got inflation under control. In the May meeting, officials reiterated plans to begin winding down on June 1 a stimulus program that has been in place since early in the pandemic.The Fed’s policy rate is now set in a range of 0.75 to 1 percent.Its decision to raise rates by half a percentage point in May initially buoyed Wall Street, which had been worried about a larger increase of 0.75, as some officials had been suggesting. The Fed chair, Jerome H. Powell, speaking at a news conference after the May meeting, appeared to rule out such a large move, saying it was “not something the committee is actively considering.” Investors took notice of that comment, and stocks rallied.But in the weeks since, Mr. Powell has made clear that economic conditions remain incredibly uncertain and that the Fed may need to go bigger — or smaller — depending on how things evolve.“If things come in better than we expect, then we’re prepared to do less,” Mr. Powell said during an interview with “Marketplace,” a radio program distributed by American Public Media. “If they come in worse than when we expect, then we’re prepared to do more.”Still, as of the May meeting, “most participants judged that 50-basis-point increases in the target range would likely be appropriate at the next couple of meetings,” according to the minutes, which were released on Wednesday.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    A Weak Euro Heads to an Uncomfortable Milestone: Parity With the Dollar

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    The list of ailments troubling the eurozone economy was already stark: the highest inflation rate on record, energy insecurity and increasing whispers about a recession. This month, another threat emerged. The weakening euro has raised expectations that it could reach parity with the U.S. dollar.Europe is facing “a steady stream of bad news,” Valentin Marinov, a currency strategist at Crédit Agricole, said. “The euro is a pressure valve for all these concerns, all these fears.”The currency, which is shared by 19 countries, hasn’t fallen to or below a one-to-one exchange rate with the dollar in two decades. Back then, in the early 2000s, the low exchange rate undercut confidence in the new currency, which was introduced in 1999 to help bring unity, prosperity and stability to the region. In late 2000, the European Central Bank intervened in currency markets to prop up the fledgling euro.Today, there are fewer questions about the resilience of the euro, even as it sits near its lowest level in more than five years against the dollar. Instead, the currency’s weakness reflects the darkening outlook of the bloc’s economy.Since Russia invaded Ukraine in late February, the euro has fallen more than 6 percent against the dollar as governments seek to cut Russia from their energy supplies, trade channels are disrupted and inflation is imported into the continent via high energy, commodity and food prices.While a weak euro is a blessing for American holidaymakers heading to the continent this summer, it is only adding to the region’s inflationary woes by increasing the cost of imports and undercutting the value of European earnings for American companies.Many analysts have determined that parity is only a matter of time.One euro will be worth one dollar by the end of the year and fall even lower early next year, according to analysts at HSBC, one of Europe’s largest banks. “We find it hard to see a silver lining for the single currency at this stage,” they wrote in a note to clients in early May.Traders are watching to see if the euro will drop below $1.034 against the dollar, the low it reached in January 2017. On May 13 it came close, falling to $1.035.Diners in a restaurant in Milan, Italy. American vacationers in Europe can enjoy the benefits of a weak euro, but imported goods will cost more.Luca Bruno/Associated PressBelow that level, the prospects of the euro reaching parity become “quite material,” according to analysts at the Dutch bank ING. Analysts at the Japanese bank Nomura predict that parity will be reached in the next two months. For the euro, “the path of least resistance is lower,” analysts at JPMorgan wrote in a note to clients. They expect the currency to reach parity in the third quarter.Economists at Pantheon Macroeconomics said last month that an embargo on Russian gas would push the euro to parity with the dollar, joining other analysts linking the sinking euro to the efforts to cut oil and gas ties with Russia.“The outlook for the euro now is very, very tied to the energy security risk,” said Jane Foley, a currency strategist at Rabobank. For traders, the risks intensified after Russia cut off gas sales to Poland and Bulgaria late last month, she added. If Europe’s supplies of gas are shut off either by a self-imposed embargo or by Russia, the region is likely to tip into recession as replacing Russian energy supplies is challenging.

    The strength of the U.S. dollar has also dragged the euro close to parity. The dollar has become the haven of choice for investors, outperforming other currencies that have also been considered safe places for money as the risk of stagflation — an unhealthy mix of stagnant economic growth and rapid inflation — stalks the globe. Last week, the Swiss franc fell below parity with the dollar for the first time in two years, and the Japanese yen is at its lowest level since 2002, bringing an unwanted source of inflation to a country that is used to low or falling prices.There are plenty of reasons investors are looking for safe places to park their money. Economic growth is slow in China because of shutdowns prompted by the country’s zero-Covid policy. There are recession risks in Europe and growing predictions of a recession in the United States next year. And many so-called emerging markets are being battered by rising food prices, worsening crises in areas including East Africa and the Middle East.“It’s a pretty grim outlook for the global economy,” Ms. Foley said. It “screams safe haven and it screams the dollar.”Also in the dollar’s favor is the aggressive action of the Federal Reserve. With inflation in the United States hovering around its highest rate in four decades, the central bank has ramped up its tightening of monetary policy with successive interest rate increases, and many more are predicted. Traders are betting that U.S. interest rates will climb another 2 percentage points by early next year to 3 percent, the highest level since 2007.The Russia-Ukraine War and the Global EconomyCard 1 of 7A far-reaching conflict. More

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    Weakened Euro May Become Equal to the U.S. Dollar

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    The list of ailments troubling the eurozone economy was already stark: the highest inflation rate on record, energy insecurity and increasing whispers about a recession. This month, another threat emerged. The weakening euro has raised expectations that it could reach parity with the U.S. dollar.Europe is facing “a steady stream of bad news,” Valentin Marinov, a currency strategist at Crédit Agricole, said. “The euro is a pressure valve for all these concerns, all these fears.”The currency, which is shared by 19 countries, hasn’t fallen to or below a one-to-one exchange rate with the dollar in two decades. Back then, in the early 2000s, the low exchange rate undercut confidence in the new currency, which was introduced in 1999 to help bring unity, prosperity and stability to the region. In late 2000, the European Central Bank intervened in currency markets to prop up the fledgling euro.Today, there are fewer questions about the resilience of the euro, even as it sits near its lowest level in more than five years against the dollar. Instead, the currency’s weakness reflects the darkening outlook of the bloc’s economy.Since Russia invaded Ukraine in late February, the euro has fallen more than 6 percent against the dollar as governments seek to cut Russia from their energy supplies, trade channels are disrupted and inflation is imported into the continent via high energy, commodity and food prices.While a weak euro is a blessing for American holidaymakers heading to the continent this summer, it is only adding to the region’s inflationary woes by increasing the cost of imports and undercutting the value of European earnings for American companies.Many analysts have determined that parity is only a matter of time.One euro will be worth one dollar by the end of the year and fall even lower early next year, according to analysts at HSBC, one of Europe’s largest banks. “We find it hard to see a silver lining for the single currency at this stage,” they wrote in a note to clients in early May.Traders are watching to see if the euro will drop below $1.034 against the dollar, the low it reached in January 2017. On May 13 it came close, falling to $1.035.Diners in a restaurant in Milan, Italy. American vacationers in Europe can enjoy the benefits of a weak euro, but imported goods will cost more.Luca Bruno/Associated PressBelow that level, the prospects of the euro reaching parity become “quite material,” according to analysts at the Dutch bank ING. Analysts at the Japanese bank Nomura predict that parity will be reached in the next two months. For the euro, “the path of least resistance is lower,” analysts at JPMorgan wrote in a note to clients. They expect the currency to reach parity in the third quarter.Economists at Pantheon Macroeconomics said last month that an embargo on Russian gas would push the euro to parity with the dollar, joining other analysts linking the sinking euro to the efforts to cut oil and gas ties with Russia.“The outlook for the euro now is very, very tied to the energy security risk,” said Jane Foley, a currency strategist at Rabobank. For traders, the risks intensified after Russia cut off gas sales to Poland and Bulgaria late last month, she added. If Europe’s supplies of gas are shut off either by a self-imposed embargo or by Russia, the region is likely to tip into recession as replacing Russian energy supplies is challenging.

    The strength of the U.S. dollar has also dragged the euro close to parity. The dollar has become the haven of choice for investors, outperforming other currencies that have also been considered safe places for money as the risk of stagflation — an unhealthy mix of stagnant economic growth and rapid inflation — stalks the globe. Last week, the Swiss franc fell below parity with the dollar for the first time in two years, and the Japanese yen is at its lowest level since 2002, bringing an unwanted source of inflation to a country that is used to low or falling prices.There are plenty of reasons investors are looking for safe places to park their money. Economic growth is slow in China because of shutdowns prompted by the country’s zero-Covid policy. There are recession risks in Europe and growing predictions of a recession in the United States next year. And many so-called emerging markets are being battered by rising food prices, worsening crises in areas including East Africa and the Middle East.“It’s a pretty grim outlook for the global economy,” Ms. Foley said. It “screams safe haven and it screams the dollar.”The Russia-Ukraine War and the Global EconomyCard 1 of 7A far-reaching conflict. More

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    Economic Headwinds Mount as Leaders Weigh Costs of Confronting Russia

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    BRUSSELS — The world economy is heading into a potentially grim period as rising costs, shortages of food and other commodities and Russia’s continuing invasion of Ukraine threaten to slow economic growth and bring about a painful global slump.Two years after the coronavirus pandemic emerged and left much of the globe in a state of paralysis, policymakers are grappling with ongoing challenges, including clogged supply chains, lockdowns in China and the prospect of an energy crisis as nations wean themselves off Russian oil and gas. Those colliding forces have some economists starting to worry about a global recession as different corners of the world find their economies battered by events.Finding ways to avoid a global slowdown while continuing to exert pressure on Russia for its war in Ukraine will be the primary focus of finance ministers from the Group of 7 nations who are convening in Bonn, Germany, this week.The economic challenges that governments around the globe are facing could begin to chip away at the united front that Western nations have maintained in confronting Russia’s aggression, including sweeping sanctions aimed at crippling its economy and efforts to reduce reliance on Russian energy.Policymakers are balancing delicate trade-offs as they consider how to isolate Russia, support Ukraine and keep their own economies afloat at a moment when prices are rising rapidly and growth is slowing.Central banks around the world are beginning to raise interest rates to help tame rapid inflation, moves that will temper economic growth by raising borrowing costs and could lead to higher unemployment.Global growth is expected to slow to 3.6 percent this year, the International Monetary Fund projected in April, down from the 4.4 percent it forecast before both Russia’s invasion of Ukraine and China’s zero-Covid lockdowns.On Monday, the European Commission released its own revised economic forecast, showing a slowdown in growth to 2.7 percent this year from the 4 percent estimated in its winter report. At the same time, inflation is hitting record levels and is expected to average 6.8 percent for the year. Some Eastern European countries are in for much steeper increases, with Poland, Estonia, the Czech Republic, Bulgaria and Lithuania all facing inflation rates in excess of 11 percent.Last week, Christine Lagarde, president of the European Central Bank, signaled a possible increase in interest rates in July, the first such move in more than a decade. In a speech in Slovenia, Ms. Lagarde compared Europe to a man “who from fate receives blow on blow.”Eswar Prasad, the former head of the International Monetary Fund’s China division, summed up the challenges facing the G7 nations, saying that its “policymakers are caught in the bind that any tightening of screws on Russia by limiting energy purchases worsens inflation and hurts growth in their economies.”“Such sanctions, for all the moral justification underpinning them, are exacting an increasingly heavy economic toll that in turn could have domestic political consequences for G7 leaders,” he added.Still, the United States is expected to press its allies to continue isolating Russia and to deliver more economic aid to Ukraine despite their own economic troubles. Officials are also expected to discuss the merits of imposing tariffs on Russian energy exports ahead of a proposed European oil embargo that the United States fears could send prices skyrocketing by limiting supplies. Policymakers will also discuss whether to press countries such as India to roll back export restrictions on crucial food products that are worsening already high prices.Against this backdrop is the growing urgency to help sustain Ukraine’s economy, which the International Monetary Fund has said needs an estimated $5 billion a month in aid to keep government operations running. The U.S. Congress is close to passing a $40 billion aid package for Ukraine that will cover some of these costs, but Treasury Secretary Janet L. Yellen has called on her European counterparts to provide more financial help.Finance ministers are expected to consider other measures for providing Ukraine with relief. There is increasing interest in the idea of seizing some of the approximately $300 billion in Russian central bank reserves that the United States and its allies have immobilized and using that money to help fund Ukraine’s reconstruction. Treasury Department officials are considering the idea, but they have trepidations about the legality of such a move and the possibility that it would raise doubts about the United States as a safe place to store assets.Ahead of the G7 meeting this week, American officials saw the economic challenges facing Europe firsthand. During a stop to meet with top officials in Warsaw on Monday, Ms. Yellen acknowledged the toll that the conflict in Ukraine is having on the economy of Poland, where officials have raised interest rates sharply to combat inflation. Poland has absorbed more than three million Ukrainian refugees and has faced a cutoff in gas exports from Russia.“They have to deal with a tighter monetary policy just as countries around the world and the United States are,” Ms. Yellen told reporters. “At a time when Poland is committed to large expenditures to shore up its security, it is a difficult balancing act.”A downturn may be unavoidable in some countries, and economists are weighing multiple factors as they gauge the likelihood of a recession, including a severe slowdown in China related to continuing Covid lockdowns.The European Commission, in its economic report, said the E.U. “is first in line among advanced economies to take a hit,” because of its proximity to Ukraine and its dependence on Russian energy. At the same time, it has absorbed more than five million refugees in less than three months.Deutsche Bank analysts said this week that they thought a recession in Europe was unlikely. By contrast, Carl B. Weinberg, chief economist at High Frequency Economics, warned in a note on Monday that with consumer demand and output falling, “Germany’s economy is headed for recession.” Analysts at Capital Economics predicted that Germany, Italy and Britain are likely to face recessions, meaning there is a “reasonable chance” that the broader eurozone will also face one, defined as two consecutive quarters of falling output.Vicky Redwood, senior economic adviser at Capital Economics, warned that more aggressive interest rate increases by central banks could lead to a global contraction.“If inflation expectations and inflation prove more stubborn than we expect, and interest rates need to rise further as a result, then a recession most probably will be on the cards,” Ms. Redwood wrote in a note to clients this week.A bakery in Al Hasakah, Syria. The interruption of wheat exports from Ukraine and Russia is causing food prices to spiral and increasing global hunger, particularly in Africa and the Middle East.Diego Ibarra Sanchez for The New York TimesThe major culprit is energy prices. In Germany, which has been most dependent on Russian fuel among the major economies in Europe, the squeeze is being acutely felt by its industrial-heavy business sector as well as consumers.Russian gas shipments “underpin the competitiveness of our industry,” Martin Brudermüller, the chief executive of the chemical giant BASF, said at the company’s annual general meeting last month.While calling to decrease its dependence, Mr. Brudermüller nevertheless warned that “if the natural gas supply from Russia were to suddenly stop, it would cause irreversible economic damage” and possibly force a stop in production.Russia-Ukraine War: Key DevelopmentsCard 1 of 4In Mariupol. More

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    Powell says the Fed is watching for ‘clear and convincing’ signs of inflation fading.

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    Jerome H. Powell, the chair of the Federal Reserve, said that the central bank is focused on getting rapid inflation under control and that it is ready to intensify its efforts to tamp down price pressures if they do not begin to ease as policymakers expect.“What we need to see is clear and convincing evidence that inflation pressures are abating and inflation is coming down — and if we don’t see that, then we’ll have to consider moving more aggressively,” Mr. Powell said, speaking Tuesday afternoon on livestream hosted by The Wall Street Journal. “If we do see that, then we can consider moving to a slower pace.”Consumer prices climbed 8.3 percent in April from the prior year, and while inflation eased somewhat on an annual basis, the details of the report suggested that price pressures continue to run hot.The central bank has begun raising interest rates to try and cool the economy, announcing a quarter-point increase in March and a half-point increase earlier this month, which was the Fed’s largest increase since 2000. Mr. Powell and his colleagues have signaled that they will continue to push borrowing costs higher as they attempt to restrain spending and hiring, hoping to bring demand and supply into balance.They could raise rates by half-percentage-point increments at each of the Fed’s next two meetings, Mr. Powell suggested after the central bank’s May meeting. He repeated that message on Tuesday.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.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.State Intervention: As inflation stays high, lawmakers across the country are turning to tax cuts to ease the pain, but the measures could make things worse. How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.“There was very broad support on the committee for having on the table the idea of doing additional rate increases of that magnitude at each of the next two meetings,” Mr. Powell said. “That’s short of a prediction.”While Mr. Powell emphasized the economic outlook is very uncertain, he and his colleagues have suggested that they want to push interest rates up to a neutral setting — a place where they are neither stoking nor slowing growth — “expeditiously.” But Mr. Powell suggested that officials are willing to raise rates beyond that if it is necessary to do so to control inflation.“We won’t hesitate at all to do that,” he said. “We will go until we feel like we’re at a place where we can say, ‘Yes, financial conditions are at an appropriate place, we see inflation coming down.’”The Fed chair said that the central bank can no longer simply hope that supply chain issues improve and help inflation to fade, and that it has to instead be proactive in trying to restrain prices by cooling down the economy.“We clearly have a job to do on demand — there is an imbalance in the economy broadly between demand and supply,” Mr. Powell said. He pointed in particular to the labor market, where workers are in short supply and wages are rising swiftly as employers compete to hire them.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Retail sales rise for the fourth straight month as prices keep climbing.

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    Retail sales rose 0.9 percent in April, increasing for the fourth consecutive month, as consumer prices continue to escalate at their fastest pace in four decades.The increase in spending in the United States last month follows a revised 1.4 percent month-over-month gain in March, when prices for gasoline soared amid Russia’s invasion of Ukraine. Gas prices cooled down slightly in April but were still at elevated levels, while oil prices remain volatile.Consumers pulled back on spending at gas stations, where sales fell 2.7 percent in April, the Commerce Department reported on Tuesday, and the report showed that shopping at grocery stores and building material stores dropped last month.Sales at restaurants and bars were up 2 percent in April, while spending at department stores was up 0.2 percent. Spending at car dealers, which has been hampered by supply chain disruptions and a global computer chip shortage, rose 2.2 percent last month.Economists are laser-focused on upcoming reports on spending because they serve as indicators of how consumers are grappling with inflation and higher interest rates.“Despite the surge in prices weighing on their purchasing power, the U.S. consumer now appears to be single-handedly keeping the global economy afloat,” Paul Ashworth, an economist at Capital Economics, wrote in a note.The Commerce Department’s new data, which isn’t adjusted for inflation, was an early estimate of spending during a month when prices rose 0.3 percent from the prior month. The rapid pace of inflation has led companies to raise prices for their goods to cover the higher costs of commodities, labor and transportation. Companies like PepsiCo and Coca-Cola have introduced higher prices for their products, and airfares are also climbing.To combat inflation, the Federal Reserve started lifting interest rates from near zero in March. Economists are worried that if interest rates are raised too fast, the move could lead the economy into a recession by slowing down consumer demand too much.“To the extent that markets are worried about a growth slowdown, this is good news,” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, wrote in a note, referring to Tuesday’s report. “But it is also a further catalyst for the Fed to raise rates even higher, in order to get inflation under control.” More

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    What Higher Interest Rates Could Mean for Jobs

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    Layoffs are up only minimally, and employers may be averse to shedding workers after experiencing the challenges of rehiring.The past year has been a busy one for nearly every industry, as a reopening economy has ignited a war for talent. Unless, of course, your business is finding jobs for laid-off workers.“For outplacement, it’s been a very slow time,” said Andy Challenger, senior vice president of the career transition firm Challenger, Gray & Christmas. But lately, he has been getting more inquiries, in a sign that the market might be about to take a turn. “We’re starting to gear up for what we anticipate to be a normalization where companies start to let people go again.”Spurred by red-hot inflation fueled partly by competition for scarce labor, the Federal Reserve has begun raising interest rates in an effort to cool off the economy before it boils over. By design, that means slower job growth — ideally in the form of a steady moderation in the number of openings, but possibly in pink slips, too.It’s not yet clear what that adjustment will look like. But one thing does seem certain: Job losses would have to mount considerably before workers would have a hard time finding new positions, given the backlogged demand.So far, the labor market has revealed some clues about what might lie ahead.Challenger’s data, for example, shows that announced job cuts rose 6 percent in April over the same month in 2021. While still far below levels seen earlier in 2020, it was the first month in 2022 to have a year-over-year increase, and followed a 40 percent jump in March over the previous month. Some of those layoffs were idiosyncratic: More than half the layoffs in health care in the first third of this year resulted from workers’ refusal to obey vaccine mandates, with some of the rest stemming from the end of Covid-19-related programs.But other layoffs seem directly related to the Fed’s new direction. Nearly 8,700 people in the financial services sector lost jobs from January through April, Challenger found, mostly in mortgage banking. Rising rates for home loans have torpedoed demand for refinances, while prospective buyers are increasingly being priced out.Theoretically, a Fed-driven housing slowdown might in turn tamp down demand for construction workers. But builders bounced back strongly after a dip in 2020 and have only accelerated since. The National Association of Home Builders estimates that the industry needs to hire 740,000 people every year just to keep up with retirements and growth. Even if housing starts fell off, homeowners feeling flush as their equity has risen would snap up available workers to add third bedrooms or new cabinets.“A big national builder that’s concentrated in a high-cost market, and all they do is single-family exurban construction, yeah, they may have layoffs,” said the association’s chief economist, Robert Dietz. “But then remodelers would come along and say, ‘Oh, here’s some trained electricians and framers, let’s go get them.’”The National Association of Home Builders estimates that the industry needs to hire 740,000 people every year just to keep up with retirements and growth.Matt Rourke/Associated PressAnother sector that is typically sensitive to the cost of credit is commercial construction, which sustained deep losses as office development came to a screeching halt during the pandemic. Nevertheless, cash-rich clients have plowed ahead with industrial projects like power plants and factories, while federal investment in infrastructure has only begun to make its way into procurement processes.“I think that lending rates might be less important right now,” said Kenneth D. Simonson, chief economist for the Associated General Contractors of America. “An increase in either credit market or bank rates isn’t sufficient to choke off demand for many types of projects.”The tech sector, which feeds on venture capital that is more abundant in low-interest-rate environments, has drooped in recent months. Under pressure to burn less cash, some companies are looking to offshore jobs that before the pandemic they thought needed to be done on site, or at least in the country.“We’ve seen several of our clients in the high-growth technology space quickly shift their focus to reducing cost,” said Bryce Maddock, the chief executive of the outsourcing company TaskUs, discussing U.S. layoffs on an earnings call last week. “Across all verticals, the operating environment has led to an acceleration in our clients’ demand for growth in offshore work and a decrease in demand for onshore work.”In the broader economy, however, any near-term layoffs might occur on account of forces outside the Fed’s control: namely, the exhaustion of federal pandemic-relief spending, and a natural waning in demand for goods after a two-year national shopping spree. That could hit manufacturing and retail, as consumers contemplate their overfilled closets. Spending on long-lasting items has fallen for a couple months in a row, even before adjusting for inflation.If spending on durable goods declines sharply, “I could easily see that creating a recession, because suppliers would be stuck with a massive amount of inventory that they wish they didn’t have, and people employed that they wish they didn’t,” said Wendy Edelberg, director of the Hamilton Project, an economic policy arm of the Brookings Institution. “Even there, it’s going to be hard to know how much was that the Fed raised interest rates, and how much was the extraordinary surge in demand for goods unwinding.”In general, if the Fed’s path of tightening does prompt firms to downsize, that’s likely to be bad news for Black, Hispanic and female workers with less education. Research shows that while a hot labor market tends to bring in people who have less experience or barriers to employment, those workers are also the first to be let go as conditions worsen — across all industries, not just in sectors that might be hit harder by a recession.So far, initial claims for unemployment benefits remain near prepandemic lows, at around 200,000 per week. But some economists worry that they might not be as good a signal of impending trouble in the labor market as they used to be.The share of workers who claim unemployment, known as the “recipiency rate,” has declined in recent decades to only about a third of those who lose jobs. These days, any laid-off workers might be finding new jobs quickly enough that they don’t bother to file. And the pandemic may have further scrambled people’s understanding of whether they’re eligible.“One possibility is that people are going to think that because they haven’t worked long enough, because they switched employers or stopped working for a period of time, that this would make them ineligible, and they’re going to assume that they can’t get it again,” said Kathryn Anne Edwards, a labor economist at the RAND Corporation. (The other possibility is that the temporary supplements to unemployment insurance during the pandemic might have introduced more people to the system, leading to more claims rather than fewer.)One good sign: Employers may have learned from previous recessions that letting people go at the first sign of a downturn can wind up having a cost when they need to staff up again. For that reason, managers are trying harder to redeploy people within the company instead.John Morgan, president of the outplacement firm LHH, said that while he was getting more inquiries from companies preparing to downsize, he did not expect as large a surge as in past cycles.“Even if they’re driving down on profits, a lot of our customers are trying to avoid the ‘fire and rehire’ playbook of the past,” Mr. Morgan said. “How can they invest in upskilling and reskilling and move talent they have inside the organization? Because it’s just really hard to acquire new talent right now, and incredibly expensive.” More

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    Stocks Return to Earth, With the S&P 500 Nearing a Bear Market

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    Until very recently, the stock market seemed to defy gravity, producing double-digit returns that provided many Americans with financial comfort even as everything else crumbled around them.When the pandemic began upending society, the market sank for a few weeks and then recorded one of the greatest rallies in history. Stock prices rose the day rioters breached the U.S. Capitol, and they were up during the week that protests roiled many American cities after the murder of George Floyd. During this time of great upheaval, the market seemed to flash a contrarian signal that things were going to be OK — economically, at least.But real world problems have finally crashed the stock market’s party. Soaring inflation, fueled by rising food prices and the war in Ukraine, has prompted the Federal Reserve to raise interest rates significantly for the first time in many years, which has sent stock prices plummeting to earth.Stocks rose 2.4 percent on Friday, but not enough to make up for a week of declines. It was the sixth consecutive week of losses for the stock market, the first time that has happened since 2011. The S&P 500, which has been flirting with a bear market, or a drop of 20 percent, is down more than 16 percent since its peak in January. It may fall further as inflation persists and a recession looms.Even after the bleeding stops, stock market investors, who include more than 50 percent of Americans, could face years of relatively meager returns that will leave them with substantially less money to pay for their children’s college education and support themselves in retirement.This reckoning comes just months before the midterm elections, deepening problems for Democrats who are already struggling to convince voters that their party and President Joseph R. Biden are steering the economy on the right track.Former President Donald J. Trump often took credit for the stock market’s meteoric rise. Now, Mr. Biden and his party will almost certainly take some of the blame for its recent fall.In reality, the stock market is not a perfect measure of the real economy. Unemployment is low and consumer spending is still holding up, but more than a month of punishing losses can damage the country’s financial psyche.“People look at the stock market as a barometer of the economy and how they are faring financially,” said Mark Zandi, chief economist at Moody’s Analytics. “They feel good when they see green on the screen and crummy when they see red.”Years of low rates have been rocket fuel for stock prices, partly because other investments, like bonds, that are pegged to interest rates produce such minimal returns. The stock market became one of the few places where investors could make big money.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.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 the increases mean for consumers.State Intervention: As inflation stays high, lawmakers across the country are turning to tax cuts to ease the pain, but the measures could make things worse. How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.During the pandemic, rates went even lower, as policymakers sought to support businesses and consumers through the shutdowns — and it worked. Investors piled into companies’ stocks and kept them flush with capital, which allowed them to keep hiring, paying rent, ramping up production and, of course, rewarding shareholders with ample dividends and stock buybacks.But inflation, which puts a heavy burden on families trying to make ends meet, also helped kill the market’s mood. Steadily rising food costs and record high gasoline prices prompted the Fed to raise rates and try to slow the economy.The stock price of Alphabet, Google’s parent, is down about 20 percent since the start of the year.Laura Morton for The New York TimesWall Street has been expecting this moment to come for a long time. But the market’s reaction — which some refer to as a “reset” and others call a necessary “comeuppance” for stock investors — is painful nonetheless.“I don’t think people recognized how fragile of a foundation the stock market was resting on,” said Emily Bowersock Hill, founder of Bowersock Capital Partners and chairwoman of the investment committee of the Kansas Public Employees Retirement System, a pension fund with more than $20 billion.Ms. Hill said some of the declines were probably good for the market because it was clearing out the froth that created the conditions for “meme stocks”: companies with dubious business prospects like AMC Theatres, BlackBerry and Bed Bath & Beyond, whose share prices were driven up by speculators.But the downdraft has sunk the share prices of companies that represent innovation and the future, too; Amazon is down more than 30 percent since the start of the year and Alphabet, Google’s parent, is off about 20 percent, as investors rethink those companies’ real value.Virtually no stocks have been spared from losses. The market decline has “gone on and on, and it’s depressing,” Ms. Hill said.Perhaps no one understood that emotional symbolism of the market better than Mr. Trump.“The reason our stock market is so successful is because of me,” Mr. Trump said in November 2017 — one of many statements in which he boasted about rising stock prices or publicly pressured the Fed to further lower interest rates to juice the economy.Early in the pandemic, in April 2020 — with stores, offices and churches shut, children marooned at home attempting remote school, and morgues running out of space for virus victims — Mr. Trump tweeted that the United States had “the biggest Stock Market increase since 1974.”While a majority of Americans have some money invested in the stock market, it remains a rich person’s game. According to an analysis by the New York University economics Professor Edward Wolff, the top 5 percent of American wealth holders own 72 percent of all stocks.But the stock market’s symbolic value matters. “It’s the one story that makes the news every night,” said Richard Sylla, a professor emeritus of economics at New York University’s Stern School of Business.Is the market up or down? Are we winning or losing today, this week, this year, this presidency?On Friday, the University of Michigan’s consumer sentiment index fell lower than expected, a drop that some economists attribute partly to stock market losses. The index is now 13 points below the low when Covid first hit, noted Ian Shepherdson, chief U.S. economist at Pantheon Macroeconomics. Such deep pessimism “suggests that people have short memories,” Mr. Shepherdson wrote in a research note.It also suggests trouble for the Biden administration. Not only is the stock market party ending under President Biden’s watch, it could be a while before another one gets going.“Now nobody is going to be getting much richer from stocks,” one market historian predicts.Gili Benita for The New York TimesMr. Sylla, who co-wrote a book about the history of interest rates and tracked two centuries of stock market returns, correctly predicted in September 2011 that the coming decade would produce high returns.Inflation F.A.Q.Card 1 of 5What is inflation? More