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    Powell Says Fed Could Raise Rates More Quickly to Tame Inflation

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    Jerome H. Powell, the Federal Reserve chair, said on Monday that the central bank was prepared to more quickly withdraw support from the economy if doing so proved necessary to bring rapid inflation under control.Mr. Powell signaled that the Fed could make big interest rate increases and push rates to relatively high levels in its quest to cool off demand and temper inflation, which is running at its fastest pace in 40 years. His comments were the clearest statement yet that the central bank was ready to forcefully attack rapid price increases to make sure that they do not become a permanent feature of the American economy.“There is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level, and then to move to more restrictive levels if that is what is required to restore price stability,” Mr. Powell said during remarks to a conference of business economists.Policymakers raised interest rates by a quarter point last week and forecast six more similarly sized increases this year. On Monday, Mr. Powell foreshadowed a potentially more aggressive path. A restrictive rate setting would squeeze the economy, slowing consumer spending and the labor market — a move akin to the Fed’s hitting the brakes rather than just taking its foot off the accelerator.“If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so,” Mr. Powell said. “And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”Asked what would keep the Fed from raising interest rates by half a percentage point at its next meeting in May, Mr. Powell replied, “Nothing.” He said the Fed had not yet made a decision on its next rate increase but noted that officials would make a supersized move if they thought one was appropriate.“The expectation going into this year was that we would basically see inflation peaking in the first quarter, then maybe leveling out,” Mr. Powell said. “That story has already fallen apart. To the extent that it continues to fall apart, my colleagues and I may well reach the conclusion that we’ll need to move more quickly.”Stocks fell in response to Mr. Powell’s comments and were down 0.6 percent by the time he finished speaking in the early afternoon; the S&P 500 index closed the day down 0.4 percent. Higher interest rates can push down stock prices as they pull money away from riskier assets — like shares in companies — and toward safer havens, like bonds, and as they make money more expensive to borrow for businesses. The yield on the benchmark 10-year Treasury note rose as high as 2.3 percent as Mr. Powell was speaking, and the yield on two-year Treasurys rose above 2 percent for the first time since 2019.Rising rates can especially hurt share prices if they tank economic growth or cause the economy to contract.While the Fed has often caused recessions by raising interest rates in a bid to slow down demand and cool off price increases, Mr. Powell voiced optimism that the central bank could avoid such an outcome this time, in part because the economy is starting from a strong place. Even so, he acknowledged that guiding inflation down without severely hurting the economy would be a challenge.“No one expects that bringing about a soft landing will be straightforward in the current context,” Mr. Powell said.But getting price gains under control is the Fed’s priority, and while the central bank had been hoping for inflation to fade as pandemic disruptions abate, Mr. Powell was adamant that it could no longer watch and wait for that to happen.In addition to raising rates, the Fed plans to reduce its large bond holdings by allowing securities to expire, which would push up longer-term borrowing costs, including mortgage rates, helping to take steam out of the economy. Mr. Powell emphasized that the balance sheet shrinking could begin imminently.Action on the balance sheet “could come as soon as our next meeting in May, though that is not a decision that we have made,” Mr. Powell said.The Fed is preparing to pull back support even as Russia’s invasion of Ukraine stokes economic uncertainty. The conflict has pushed energy prices higher, something that the Fed would typically discount, since it is likely to fade eventually. But Mr. Powell said it could not ignore the increase when inflation was already high.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Mortgage Rates Hit 4 Percent for First Time in 3 Years

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    Mortgage rates topped 4 percent this week for the first time in nearly three years — and are expected to keep climbing.The rate on 30-year fixed-rate mortgages averaged 4.16 percent for the week through Thursday, the first time it exceeded 4 percent since May 2019, according to Freddie Mac. That was up from 3.85 percent a week earlier and 3.09 percent a year ago.Rates have been ticking up thanks to a 40-year high in inflation, which the Federal Reserve is attempting to rein in by raising interest rates. On Wednesday, the Fed raised its benchmark rate by a quarter of a percentage point, the first increase since 2018, and it signaled that six more similarly sized increases were on the way.Mortgage rates don’t move in lock step with the Fed benchmark — they instead track the yield on 10-year Treasury bonds. That figure is influenced by a variety of factors, including the inflation rate, the Fed’s actions and how investors react to them.“The Federal Reserve raising short-term rates and signaling further increases means mortgage rates should continue to rise over the course of the year,” Sam Khater, Freddie Mac’s chief economist, said in a statement.“While home purchase demand has moderated, it remains competitive due to low existing inventory, suggesting high house price pressures will continue during the spring home-buying season,” he added.The average rate on 30-year fixed mortgages dropped as low as 2.65 percent in January 2021. More

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    The Bank of England raises rates again in a bid to corral inflation.

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    The Bank of England raised interest rates to their prepandemic level on Thursday in an effort to combat rapidly accelerating inflation that has been worsened by the war in Ukraine.The central bank raised rates by 25 basis points to 0.75 percent, the third consecutive increase at a policy meeting, as it lifted its forecasts for inflation. But the decision wasn’t unanimous as policymakers weighed the gloomier outlook for the British economy.While the war has led to higher energy and commodity prices, pushing up the expected peak in inflation, it is also predicted to cut economic growth in Europe, including Britain. This creates a challenge for the bank. Its goal is to bring inflation back down to its 2 percent target, but policymakers will want to avoid cooling the economy too aggressively and knocking the postpandemic recovery off course.“The global economy outlook had deteriorated significantly following Russia’s invasion of Ukraine in late February, and the associated material increase in the prices of energy and raw material,” the bank said in a statement.On Wednesday, the Federal Reserve raised U.S. interest rates for the first time since 2018 and projected six more increases this year as inflation soars. Last week, the European Central Bank moved closer to raising its benchmark interest rate when it proposed an end date for its bond-buying program.“The economy has recently been subject to a succession of very large shocks,” the Bank of England said on Thursday. “Russia’s invasion of Ukraine is another such shock.” If energy and commodity prices stay high it will weigh on Britain’s economy. “This is something monetary policy is unable to prevent,” the bank added.The bank’s remit is to target an inflation rate of 2 percent, and another interest rate increase was needed to stop higher trends in pay and consumer prices from becoming entrenched, it said. The annual rate of inflation rose to 5.5 percent in January and is projected to rise to about 8 percent in the second quarter, the bank said. The bank had previously expected inflation to peak in April when energy bills rise, but it now says inflation could be even higher later this year, possibly several percentage points higher. Even as inflation gets further away from target, the future pace of interest rate increases is less clear. The central bank reiterated that “some further modest tightening” in monetary policy might be appropriate but added a caveat on Thursday, saying there are risks to this judgment depending on path of inflation.Before the war, there were already concerns in Britain about a cost-of-living crisis. Inflation was outpacing wage growth, energy bills were set to jump higher and tax increases are scheduled for next month. The government is under increasing pressure to reconsider its plans to raise taxes when it announces an update to the budget next week.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Why Is the Fed Raising Interest Rates?

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    Prices for groceries, couches and rent are all climbing rapidly, and Federal Reserve officials have been warily eyeing that trend. On Wednesday, they are expected to take their biggest step yet toward counteracting it.Central bank officials — who have been signaling for months that they are preparing to pull back economic support — are expected to raise their policy interest rate by a quarter percentage point. That small change will carry with it a major signal. Policymakers are telling markets and the public that they have fully pivoted to inflation-fighting mode and will do what is necessary to make sure price gains do not remain hot for months and years to come.The Fed will release its decision at 2 p.m., and Jerome H. Powell, the central bank’s chair, will hold a news conference at 2:30 p.m.The Fed is acting at a tense moment for many consumers, when people are worrying about rising day-to-day expenses and trying to think through what higher interest rates could mean for their finances. Here’s a rundown of what is happening, why it is happening and what it is likely to mean for markets and the economy.The Fed is taking its foot off the accelerator. More

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    As Fed Prepares to Raise Rates, Global Economy Sinks Deeper Into Turmoil 

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    Federal Reserve officials are set to raise interest rates to control inflation, but the return to normal they had hoped to see remains painfully elusive.WASHINGTON — When Federal Reserve officials raise interest rates on Wednesday, they will do so amid an unfortunate economic reality: Many of the inflationary pressures they had long assumed would dissipate have instead lingered, and some are getting worse.Central bankers have consistently underestimated how high inflation would rise, and how long it would last, as the economy has surged back from pandemic shutdowns. They will release a fresh set of quarterly economic projections Wednesday, in which they are likely to raise their inflation forecasts for the fifth time in a row.Like many private sector forecasters, the Fed misjudged how strong American demand would be for goods and how long that demand would help to keep global supply chains running behind schedule, forces that have combined to push up consumer prices.Officials spent much of the past year expecting a relatively quick return to some pandemic-infused version of normality, but backlogged factories, crowded ports and overburdened trucking companies are still failing to catch up. Repeated waves of the virus have exacerbated the problems, which along with rising wages and services prices have sent inflation higher. Consumer price gains hit a new 40-year high in February, pushed up by rising prices for food, rent and gas.Now, as Fed officials prepare to begin a series of interest rate increases to try to bring inflation under control, they again appear to be aiming at a moving target. Supply chains that showed signs of improvement in January and February are being thrown further into disarray by the Russian invasion of Ukraine and sweeping lockdowns in China, developments that promise to lengthen delivery times and add to prices.The war, at the nexus of Europe and Asia, has scrambled flights and ocean shipments; threatened supplies of palladium, nickel and wheat; and sent energy prices soaring, further fueling inflation. Automakers have shuttered factories because of a shortage of parts, and Russia has answered back to sweeping sanctions imposed by the West by announcing its own plans for export controls.In recent days, Chinese cities and provinces have imposed extensive lockdowns to try to stop the spread of the Omicron variant. Shenzhen, a hub of electronics manufacturing and a vital port that is home to 17 million people, announced a lockdown on Sunday night for seven days. Foxconn, a Taiwanese electronics firm that supplies Apple from factories there, said it would suspend operations. Further restrictions in China, home to more than a quarter of global manufacturing, are likely to reverberate through already-tangled supply chains and exacerbate inflation.“The question is whether this is going to be bad or very bad,” Phil Levy, chief economist at the logistics company FlexPort, said of the Chinese shutdowns in particular. He noted that this disruption came when shipping delays were already extreme.“If things get gummed up there, it will reverberate through the whole system,” he said, adding that it matters how long and how sweeping the shutdown proves. “These problems just build.”Mary Lovely, a senior fellow at the Peterson Institute for International Economics, said it was “hard to overstate” the importance of Shenzhen and its surrounding area for electronics, as well as for other industries, like metals, furniture and paper products.“I think it’s definitely going to have effect on supply chains,” she said. She added that she expected those pressures to translate more readily into increased prices than they did earlier in the pandemic.“Now we’re in a period with higher inflation, I think that suppliers may find it easier to pass those costs along, or take this opportunity to raise prices,” Ms. Lovely said.Fed officials have held interest rates near zero since March 2020 and are expected to raise them for the first time since 2018 on Wednesday. By making money more expensive to borrow and spend, the Fed is hoping to cool down demand and beat back inflation — helping conditions to even out when a return to “normal” has been painfully, and consistently, elusive.Quarantine workers in Shanghai on Monday. Further restrictions in China, home to more than a quarter of global manufacturing, are likely to exacerbate inflation and tangled supply chains.Qilai Shen for The New York TimesFed policymakers and Wall Street researchers alike thought that prices would fade as consumers began shifting their spending from imported goods back to movies, vacations and restaurants. That shift would help factories and shipping routes catch up with surging demand, as used car prices — which spiked last year — moderated. Those trends either haven’t happened, or they have been canceled out by increases in the prices of other products and services.Jason Furman, an economist at Harvard University, said many forecasters had been doing what investors sometimes refer to as “pricing to perfection”: assuming that everything is going to go well, even if that is not the most likely outcome.“You can look at the individual items: There’s been a lot of: What if inflation in X, Y, Z goes down?” he said. “And not: What if inflation in A, B, C goes up?”Many of the factors prompting economists to mark up their inflation forecasts now are not even tied to supply chains.Matthew Luzzetti, chief U.S. economist at Deutsche Bank, recently revised up his inflation projections because rent costs are rising so rapidly in the Consumer Price Index. Between that and wage growth, he thinks, high inflation will last unless the Fed intervenes.“For a while, inflation forecasters had been anticipating that the goods side of things would return to more normal dynamics” just as service prices, like rent, began to increase, he said. Services prices have indeed picked up, but normalization in good prices keeps getting “pushed out.”Consumers continue to spend a bigger share of their budgets on goods instead of services — purchases like travel and manicures — compared with before the pandemic. That has meant global producers are still struggling to keep up with demand. Even potentially short-lived disruptions, like the ones taking place in China, can add to a snowball of delays and shortages.Data released this month showed that the U.S. trade deficit hit a record in January, the height of the Omicron wave, in part because of surging imports of cars and energy. The average time to ship a container from a Chinese factory to a U.S. warehouse had stretched to 82 days in February, according to Freightos, a logistics platform, up from 45 days two years before.In many ways, the events of the past few years have been so unusual that few if any forecasters correctly predicted all of them. And Fed officials have acknowledged that they misjudged inflation last year, partly because they expected supply chains to recover more quickly.They are now striking a more wary tone.Jerome H. Powell, the Fed chair, told Congress this month that the war in Ukraine was “not going to help at all with supply chains.”“We haven’t seen much relief on the supply side,” he noted, explaining that he and his colleagues had been waiting for the strains to ease.Mr. Powell predicted that as the Fed raised interest rates this year, it would help cool off demand for car loans and mortgages, weakening spending in the economy and giving companies some room to catch up with demand. Central bankers are hoping that at the same time, the economy is “going back to normal” in terms of supply chains and the breakdown between goods and services, he said.Even so, he acknowledged that the Fed stood ready to act more aggressively if that didn’t happen.“We hope we’re getting help on the inflation front from a bunch of things,” Mr. Powell said. “In any case, we do have the responsibility to generate price stability, and we will use our tools to do that, over time.” More

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    Could Inflation Prompt Powell to Act Like Volcker?

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    The Federal Reserve is facing the fastest inflation most Americans have ever seen. Its chair says policymakers will do what it takes to tame prices.To Jerome H. Powell, the chair of the Federal Reserve, Paul Volcker is more than a predecessor. He is one of his professional heroes.“I knew Paul Volcker,” Mr. Powell said during congressional testimony this month. “I think he was one of the great public servants of the era — the greatest economic public servant of the era.”Now, if rapid inflation proves more stubborn than policymakers expect, Mr. Powell could find himself in a situation in which he must follow Mr. Volcker’s lead. The towering former Fed chair is best remembered for waging an aggressive — and painful — assault on the swift price increases that plagued America in the early 1980s.Mr. Volcker’s Fed rolled out policies that pushed a key short-term interest rate to nearly 20 percent and sent unemployment soaring to nearly 11 percent in 1981. Car dealers mailed the Fed keys from unsold vehicles, builders sent two-by-fours from unbuilt houses and farmers drove tractors around the Fed building in Washington in protest. But the approach worked, killing off the rapid price inflation that had festered throughout the 1970s.Mr. Powell was asked this month if the Fed was prepared to do whatever it took to control inflation — even if it meant harming growth, as Mr. Volcker did.“I hope that history will record that the answer to your question is yes,” the Fed chair replied.Few, if any, economists think that the 2022 Fed will need to repeat Mr. Volcker’s policies to the same degree, in part because the central bank is taking action much more quickly. The Fed is expected to begin raising interest rates from near zero at its meeting this week, and is likely to signal that it expects to make a series of moves this year as it tries to cool down the economy and control inflation.Price increases had run high for more than a decade by the time Mr. Volcker became chair in 1979, making them a part of everyday lives. Shoppers expected prices to go up, businesses knew that, and both acted accordingly.This time, inflation has been anemic for years (until recently), and most consumers and investors still expect costs to return to lower levels before long, survey and market data show. While inflation has been rapid for the past year, that is a comparatively short period and one that may not fuel the same kind of expectations for higher prices that bedeviled Mr. Volcker’s era.And while today’s inflation is taking a bite out of household budgets, it is slower than in previous periods: While it rose to 7.9 percent in February, the fastest pace since 1982, it is still well below a peak of 14.6 percent in 1980. Economists expect price gains to begin moderating this year, rather than climbing to such high levels.But in other ways, the backdrop Mr. Powell faces is beginning to look eerily similar to the one Mr. Volcker confronted.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: Times readers sent us their questions about rising prices. Top experts and economists weighed in.How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.Wages are increasing rapidly, and employers report raising prices to cover their bigger labor bills, posing the possibility of a more muted version of the wage-price spiral that helped keep inflation high during Mr. Volcker’s years.President Ronald Reagan with Paul A. Volcker, the Fed chair, in 1981.Scott Applewhite/Associated PressOil prices are climbing as Russia wages war on Ukraine, mirroring oil price shocks that rocked the economy in the years before Mr. Volcker’s ascent to the chair. The Arab oil embargo of 1973-74 and the Iranian revolution of 1979 both curtailed supply and sharply pushed up pump prices.And geopolitical instability is fueling uncertainty about what will happen next, much as it did in the 1970s, when war raged in Vietnam.“That’s the proper historical reference for what we’re trying not to replicate,” Mr. Powell said of the 1970s during separate remarks to Congress this month. “One of the things that is different now is that central banks — including the Fed — very squarely take responsibility for inflation.”When inflation was taking off in the 1960s and 1970s, Fed officials bickered about how high to raise rates as they worried about hurting the labor market too much. Many economic historians now think that their reluctance to act more quickly allowed those price gains to become locked in until they required a more draconian response.“The one really big difference — huge difference, consequential difference — is that the Fed, and the country, lived through the 1970s,” Donald Kohn, a former Fed vice chair, said in an interview. “I think the Fed is determined not to let us get there.”The inflation challenge facing Mr. Powell, who was renominated by President Biden for a second term as chair and is awaiting Senate confirmation, is the latest economic test that he has had to contend with during his tenure.Mr. Powell, 69, began his first four years as Fed chair in early 2018. By that Christmas, the central bank’s campaign of steady rate increases intended to fend off inflation had collided with President Donald J. Trump’s trade war to send markets plummeting.In 2019, Mr. Trump publicly pushed for lower rates and accosted Mr. Powell — whom the president had chosen to lead the central bank — in interviews and on Twitter, calling him a “bonehead,” an “enemy” and a golfer who could not putt.Then came the onset of the pandemic in 2020, and Mr. Powell and his colleagues crossed red lines and upended norms to rescue markets and the economy. They averted a financial crisis, but 2021 brought with it a new challenge: rapid inflation.Now, critics are questioning whether the monetary help that Mr. Powell’s Fed unleashed to protect the pandemic-stricken economy — lowering rates to near zero and buying trillions of dollars in government bonds — combined with huge fiscal stimulus to supercharge demand and release an inflationary genie that could prove hard to trap.The Fed has already begun removing some of that support, stopping bond purchases and communicating plans to raise interest rates by a quarter-point this month and steadily throughout the rest of the year. Mortgage rates have already begun climbing in anticipation of those actions.But some are asking whether the Fed, which wanted to see full employment return before paring back its support, has been too slow to react to changing conditions.This moment “represents a decade of economic experience in the late 1960s and 1970s, compressed into a year,” said Lawrence H. Summers, a former Treasury secretary who spent last year warning that inflation was going to take off as the government overstimulated the economy.Inflation F.A.Q.Card 1 of 6What is inflation? More