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    Federal Reserve Chair Pledges to Bring Inflation Under Control

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    Jerome H. Powell, the Federal Reserve chair, told senators on Thursday that policymakers were prepared to rein in inflation as they tried to fulfill their price stability goal — even if that came at an economic cost.“We’re going to use our tools, and we’re going to get this done,” Mr. Powell told the Senate Banking Committee.Mr. Powell has signaled that the Fed is poised to raise interest rates by a quarter percentage point at its meeting that ends March 16, and follow up with additional rate increases over the next several months. Fed officials are also planning to come up with a strategy for shrinking their vast holdings of government-backed debt, which will increase longer-term interest rates.The suite of policy changes will be an effort to weigh on demand, tamping down price increases that are running at their fastest pace in 40 years. The Fed aims for 2 percent price gains on average over time, but inflation came in at 6.1 percent in the year through January.Asked if the Fed was prepared to do whatever it took to control inflation — even if that meant temporarily harming the economy, as Paul Volcker did while Fed chair in the early 1980s — Mr. Powell said it was.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: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.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.“I knew Paul Volcker,” he said during his testimony. “I think he was one of the great public servants of the era — the greatest economic public servant of the era. I hope that history will record that the answer to your question is yes.”Mr. Volcker’s campaign against double-digit price increases pushed unemployment above 10 percent in the early 1980s, hurting the economy so severely that wages and prices began to slow down.But central bankers are hoping they can engineer a smoother economic cool-down this time.They are reacting much faster to high inflation than officials did in the 1960s and 1970s, and data suggests that consumers and businesses, while cognizant of inflation, have not yet come to expect rapid increases year after year. By cooling off demand a little, the Fed’s policies may work together with easing supply chain problems to bring inflation down without tossing people out of jobs.“Mortgage rates will go up, the rates for car loans — all of those rates that affect consumers’ buying decisions,” Mr. Powell said of the way higher rates would work. “Housing prices won’t go up as much, and equity prices won’t go up as much, so people will spend less.”The goal is to allow factories and businesses to catch up so shoppers are no longer competing for a limited stock of goods and services, creating shortages that enable companies to raise prices without scaring voracious buyers away.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Powell Says Rates Are Headed Higher, Even as Ukraine Poses Uncertainty

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    Jerome H. Powell, the Federal Reserve chair, told lawmakers on Wednesday that the central bank is poised to lift interest rates at its meeting this month as it tries to cool down high inflation — saying that while Russia’s invasion of Ukraine is ramping up economic uncertainty, it isn’t yet shaking the Fed off its course.Mr. Powell, testifying before the House Financial Services Committee, said the economic path ahead remained unsettled as Russia invaded Ukraine and the world reacted. He outlined with more clarity than usual how the Fed is thinking about policy in the coming months, saying, “We are going to avoid adding uncertainty to what is already an extraordinarily challenging and uncertain moment.”With inflation running hot, the labor market showing strength and the economy growing rapidly, the Fed’s leader said he thought a quarter-point interest rate increase would be appropriate at the central bank’s meeting, which will conclude on March 16. He expects the Fed to make a “series” of increases this year. And he thinks officials will agree to a plan for shrinking their balance sheet bond holdings in coming months, as they had been planning to do.“The question now really is how the invasion of Ukraine, the ongoing war, the response from nations around the world — including sanctions — may have changed that expectation,” Mr. Powell said. “It’s too soon to say for sure, but for now I would say that we will proceed carefully along the lines of that plan.”Mr. Powell emphasized that flexibility was critical, because it was too soon to know what today’s geopolitical tumult would mean for the American economy.Economists have said the conflict is likely to push up gas and other commodity prices, further elevating inflation — already, oil prices have shot higher. But at the same time, a combination of higher fuel costs and wavering consumer sentiment could be a drag on economic growth. Given the unclear effects on the American economy, Mr. Powell said, the Fed will need to remain “nimble.”The Fed chair and his colleagues must balance the risks that Ukraine poses to both inflation and growth against another pressing reality: Price gains in America had already been coming in high for about a year. Fed policymakers, who are tasked with maintaining stable prices, want to make sure that those quick increases do not become a permanent feature of the economic backdrop.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: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.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.“The game plan is to prevent recent high inflation outcomes from persisting,” Michael Gapen and his colleagues at Barclays wrote in a research report, summing up the crux of Mr. Powell’s testimony.Prices are increasing at the fastest pace in four decades, picking up by 7.5 percent over the year through January in the closely watched Consumer Price Index and by 6.1 percent in the Fed’s preferred inflation gauge, the Personal Consumption Expenditures index. The central bank aims for 2 percent inflation on average over time. Mr. Powell attributed the stubbornly rapid increases to strong consumer demand, especially for goods, that has “collided” with limited supply.“Admitting that inflation — proclaiming that inflation — is far too high, and that we are committed to using our tools to get it back down, it’s really about very, very high demand,” Mr. Powell said. “It’s a very different kind of inflation story than we’ve had in the past, but it’s one we have to deal with, and we will deal with it.”Mr. Powell said the Fed expected inflation to cool off this year as it raised interest rates, government pandemic relief spending faded and supply constraints cleared up. But officials are also closely monitoring factors that could keep it high.If price gains do not begin to come down in 2022, he said the central bank would be prepared to “move more aggressively” and make a larger-than-usual rate increase. Markets have expected that the Fed could increase rates, which are near zero, by half a percentage points at some meetings.“We will use our policy tools as appropriate to prevent higher inflation from becoming entrenched while promoting a sustainable expansion and a strong labor market,” Mr. Powell said.Drivers fueled up last month in Brooklyn. Economists have said the war in Ukraine is likely to push gas and other commodity prices higher.Amir Hamja for The New York TimesHis testimony underscored the tense political and economic moment that confronts the Fed — and policymakers across Washington — as a war rages overseas and inflation dominates headlines and spooks consumers at home.Today’s economy does have many bright spots, which Mr. Powell emphasized: Growth has been stronger than in many other advanced economies, and jobs are plentiful, creating opportunities for workers.“The labor market is extremely tight,” Mr. Powell said. He added that “employers are having difficulties filling job openings, an unprecedented number of workers are quitting to take new jobs and wages are rising at their fastest pace in many years.”Inflation F.A.Q.Card 1 of 6What is inflation? More

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    How Sanctions on Russia Are Affecting the Global Economy

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    The price of energy has already shot higher, and the conflict imperils supply chains, factors that could exacerbate inflation and suppress growth.In the span of just a few days, the global economic outlook has darkened while troops battled in Ukraine and unexpectedly potent financial sanctions rocked Russia’s economy and threatened to further fuel worldwide inflation.The price of oil, natural gas and other staples spiked on Monday. At the same time, the groaning weight on supply chains, still laboring from the pandemic, rose as the United States, Europe and their allies tightened the screws on Russia’s financial transactions and froze hundreds of billions of dollars of the central bank’s assets that are held abroad.Russia has long been a relatively minor player in the global economy, accounting for just 1.7 percent of the world’s total output despite its enormous energy exports. President Vladimir V. Putin has moved to further insulate it in recent years, building up a storehouse of foreign exchange reserves, reducing national debt and even banning cheese and other food imports from Europe.But while Mr. Putin has ignored a slate of international norms, he cannot ignore a modern and mammoth financial system that is largely controlled by governments and bankers outside his country. He has mobilized tens of thousands of his troops, and, in response, allied governments have mobilized their vast financial power.Now, “it’s a gamble between a financial clock and a military clock, to vaporize the resources to conduct a war,” said Julia Friedlander, director of the economic statecraft initiative at the Atlantic Council.Together, the invasion and the sanctions inject a huge dose of uncertainty and volatility into economic decision-making, heightening the risk to the global outlook.A corn warehouse near Stavropol, Russia. Russia and Ukraine are large exporters of corn.Eduard Korniyenko/ReutersThe sanctions were designed to avoid disrupting essential energy exports, which Europe, in particular, relies on to heat homes, power factories and fill gas tanks. That helped dampen, but did not erase, a surge in energy prices caused by war and anxieties about disruptions in the flow of oil and gas.Worries about shortages also pushed up the price of some grains and metals, which would inflict higher costs on consumers and businesses. Russia and Ukraine are also large exporters of wheat and corn, as well as essential metals, like palladium, aluminum and nickel, that are used in everything from mobile phones to automobiles.Already eye-popping transport costs are also expected to soar.“We are going to see rates skyrocket for ocean and air,” said Glenn Koepke, general manager of network collaboration at FourKites, a supply chain consultancy in Chicago. He warned that ocean rates could double or triple to $30,000 a container from $10,000 a container, and that airfreight costs were expected to jump even higher.Russia closed its airspace to 36 countries, which means shipping planes will have to divert to roundabout routes, leading them to spend more on fuel and possibly encouraging them to reduce the size of their loads.Loading rolls of steel onto a ship at the port of Mykolaiv in Ukraine. One expert predicted that ocean transport costs could triple.Brendan Hoffman for The New York Times“We’re also going to see more product shortages,” Mr. Koepke said. While it’s a slower season now, he said, “companies are ramping up for summer volume, and that’s going to have a major impact on our supply chain.”In a flurry of updates on Monday, several Wall Street analysts and economists acknowledged that they had underestimated the extent of Russia’s invasion of Ukraine and the international response. With events rapidly piling up, assessments of the potential economic fallout ranged from the mild to the severe.Inflation was already a concern, running in the United States at the highest it has been since the 1980s. Now questions about how much more inflation might rise — and how the Federal Reserve and other central banks respond — hovered over every scenario.“The Fed is in a box, inflation is running at 7.5 percent, but they know if they raise interest rates, that will tank markets,” said Desmond Lachman, a senior fellow at the American Enterprise Institute. “The policy choices aren’t good, so I don’t see how this has a happy outcome.”Others were more cautious about the spillover effects given the isolation of Russia’s economy.Adam Posen, president of the Peterson Institute for International Economics, said there were vexing questions, particularly in Europe, about what the conflict would mean for inflation — and whether it posed the prospect of stagflation, in which economic growth slows and prices rise quickly.But overall, he said, “the damage is likely to be small.”That doesn’t mean there won’t be intense pain in spots. Mr. Posen noted that a handful of banks in Europe could suffer from their exposures to the Russian financial system, and that Eastern European companies might lose access to money in the country.Thousands of people fleeing Ukraine are also streaming into neighboring countries like Poland, Moldova and Romania, which could add to their costs.Thousands of Ukrainian refugees, including this family at the Polish border in Medyka, have fled Ukraine for Poland, Romania and Moldova.Maciek Nabrdalik for The New York TimesTurkey’s economy, which is already struggling, is likely to take a hit. Oxford Economics lowered its forecast for Turkey’s annual growth by 0.4 percentage points to 2.1 percent because of rises in energy prices, disruptions to financial markets and declines in tourism.Russia’s Attack on Ukraine and the Global EconomyCard 1 of 6A rising concern. More

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    Fed Officials Firm Up Plans for Swift Pullback of Economic Help

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    Federal Reserve officials are coalescing around a plan to raise interest rates steadily starting in March and then move swiftly to shrink the central bank’s big bond holdings as policymakers look to cool the economy at a moment of rapid inflation.While policymakers are likely to keep an eye on the conflict in Ukraine as they proceed with those plans, for now geopolitical developments seem unlikely to be enough to derail the central bank’s campaign to beat back price increases.Policymakers have spent the past week broadcasting that the interest rate increase they plan to make at their March meeting — one that investors already fully expect — will be the first in a string of rate moves. Central bankers also appeared to be converging on a plan to promptly start shrinking the Fed’s holdings of government-backed debt, which were vastly expanded during the pandemic downturn as the Fed snapped up bonds in a bid to keep markets functioning and cushion the economy.The central bank bought $120 billion in Treasury and mortgage-backed securities for much of 2020 and 2021, but officials have been tapering those purchases and are on track to stop them entirely in March. By quickly pivoting to allow securities on its nearly $9 trillion balance sheet to expire without reinvestment — reducing its holdings over time — the Fed would take away an important source of demand for government-backed debt and push rates on those securities higher. That would work together with a higher Fed policy interest rate to make many types of borrowing more expensive.Higher borrowing costs should weigh on lending and spending, tempering demand and helping to slow price gains, which have been uncomfortably rapid. Data out this week is expected to show further acceleration in the central bank’s preferred inflation gauge, which was already running at its fastest pace in 40 years.Lael Brainard, a Fed governor who has been nominated by President Biden to serve as vice chair, said last week that she believed a “series” of rate increases were warranted.“I do anticipate that it will be appropriate, at our next meeting, which is in just a few weeks, to initiate a series of rate increases,” she said on Friday at a forum held by the University of Chicago’s Booth School of Business in New York. Ms. Brainard said the Fed would then turn to shrinking its balance sheet, a process that could be appropriate to start “in coming meetings.”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: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.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.Michelle Bowman, another Fed governor, echoed that balance sheet reduction could start imminently, saying in a speech on Monday that the Fed needs to begin to reduce its bond holdings “in the coming months.”The precise timing of shrinking the balance sheet is a topic of debate. John C. Williams, president of the Federal Reserve Bank of New York, suggested on Friday that the process could start “later this year,” which could suggest in coming months or slightly later. But officials have been uniformly clear that a pullback is coming, and likely more quickly than investors had expected until just recently.Although policymakers plan to shrink their holdings of Treasury bonds and mortgage-backed securities by allowing them to expire, rather than by selling the debt, the Fed’s latest meeting minutes suggested that officials could eventually move to outright sales of mortgage-tied securities. The minutes also suggested that officials thought “a significant reduction” in the balance sheet would be warranted.The pace of the moves would be rapid compared with the last time the Fed increased interest rates, from 2015 to the end of 2018. Then, officials shrank the balance sheet only gradually and pushed up interest rates glacially, once per quarter at fastest.Borrowing costs have already begun to rise as investors adjust to the Fed’s more rapid-fire plans. Markets expect six or seven quarter-point interest rate increases this year. The rate on a 30-year mortgage has climbed to 3.9 percent from about 2.9 percent last fall, when the Fed began its policy pivot.The Fed’s policy changes “will bring inflation down over time, while sustaining a recovery that includes everyone,” Ms. Brainard said, adding that as the Fed signals that it will raise rates, “the market is clearly aligned with that.”But tensions between Russia and Ukraine could create both additional inflationary pressures and risks to growth. So far, there has been little signal that the fallout will be enough to prompt the Fed to change course.“The Federal Reserve pays very close attention to geopolitical events, and this one of course in particular as it’s the most prominent at this point,” Ms. Bowman said on Monday, ahead of the escalation in tensions.“We do recognize that there are significant opportunities for potential impacts on the energy markets, as we’re moving forward, if things were to deteriorate,” she added.Oil and gas prices have already risen during the conflict and could continue to climb, leading to a higher peak in headline inflation, which includes prices at the pump. The Fed typically avoids reacting to fluctuations in energy prices when setting its policy, given their volatility, but the potential disruption could make inflation trends all the more painful for consumers.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Rising Mortgage Rates Add to the Challenge of Buying a House

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    The average rate on a 30-year, fixed-rate mortgage is now the highest since May 2019. And home prices are expected to rise, though probably more slowly.Home prices remain high, and rising borrowing costs are adding to the challenge of buying a home heading into the traditional spring selling season.The pace of housing price increases may slow from double- to single-digit percentages this year, said Danielle Hale, the chief economist for Realtor.com. But prices are still expected to go up, and conditions will probably continue to favor sellers.“Prices will continue to grow, just at a slower pace,” she said, and one of the main reasons is that mortgage rates are expected to rise. “Higher mortgage rates decrease affordability for anyone taking out a mortgage,” which the majority of home buyers do, she said.The average rate on a 30-year, fixed-rate mortgage this week rose to 3.92 percent, the highest rate since May 2019, according to the mortgage finance giant Freddie Mac. A year ago, the average rate was 2.81 percent. Freddie Mac’s weekly survey looks at loans used to buy homes, rather than at borrowers refinancing loans they already have.Mortgage rates are rising quickly. The Mortgage Bankers Association forecasts average rates will be slightly above 4 percent by the end of the year — still low in historic terms, but higher than the 3 percent or lower that borrowers have been seeing. (The association includes rates for refinances as well as purchases in its forecast.)Why are rates rising? In response to higher inflation and a strong employment market, the Federal Reserve is expected in March to begin a series of increases in its benchmark interest rate, indirectly helping to push up mortgage rates. (In general, mortgage rates are tied to the 10-year Treasury bond, which is affected by various factors, including the outlook for inflation.) Consumer price increases recently have reached levels not seen in 40 years, mainly because of lingering supply constraints from the pandemic.The average borrower with a 20 percent down payment would pay about $100 more a month on a new mortgage than one taken out at the end of last year because of rising rates and higher home prices, said Andy Walden, vice president of enterprise research strategy at Black Knight, a mortgage data provider.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: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.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.Rates are rising as strong demand for homes, along with a tight supply of properties for sale, has pushed up home prices. The typical sale price of a previously owned home in 2021 was just under $347,000, according to the National Association of Realtors — an increase of nearly 17 percent from 2020.Shoppers should still expect a competitive spring housing market, Ms. Hale said. Some potential buyers who have been on the fence may move quickly to lock in mortgage rates before they rise further. “It gives shoppers some urgency to close sooner rather than later,” she said.But some shoppers — particularly first-time buyers — may decide to wait until even higher rates help cool off prices later in the year. The largest share of home buyers are millennials ages 21 to 40, many of whom are first-time buyers, according to the National Association of Realtors.“The spring season will be very interesting,” said Lawrence Yun, the chief economist with the Realtors association.Ultimately, the housing market needs an increase in inventory, Mr. Yun said. “We need a supply of empty homes.” Builders have faced challenges in keeping newly built homes affordable including high lumber prices and difficulty finding construction workers.Buyers may need to consider more affordable homes in less urban areas, Mr. Yun said. That may depend on whether homeowners expect to be able to continue working remotely.One variable in the number of homes for sale is the winding down of mortgage forbearances granted during the pandemic. Many homeowners have been able to resume payments after their payment pause expired. But some may be unable to, forcing them to sell their homes, said Michael Fratantoni, the chief economist with the Mortgage Bankers Association. The number of borrowers in forbearance has been declining, to an estimated 705,000 homeowners at the end of 2021.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    January Fed Minutes Show Concern About Inflation's Spread

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    Officials at the Federal Reserve expressed concern about inflation at their meeting in January, in particular that it had spread beyond pandemic-affected sectors into other areas, and agreed it would be warranted to begin scaling back their support for the economy faster than they previously had anticipated, minutes of the meeting released Wednesday showed.Fed officials noted that the labor market remained strong, though the Omicron wave of the coronavirus had worsened supply chain bottlenecks and labor shortages, and that inflation continued to significantly exceed the levels the central bank targets.Most officials still expect inflation to moderate over the year as pandemic-related supply bottlenecks ease and the Fed removes some of its support for the economy. But some participants warned that inflation could continue to accelerate, pointing to factors like rising wages and rents. If inflation does not move down as they expect, most Fed officials agreed that they might need to pare back their support for the economy even more quickly, though that could carry some risk.The outlook for inflation could be worsened by China’s zero-tolerance policy toward Covid, which has led to expansive lockdowns that have shuttered factories; a clash in Ukraine that could push up global energy prices; or the spread of another variant, they said.The central bank emphasized that the pace of interest rate increases would hinge on how the economy developed. But most officials agreed that the Fed should take a faster approach to cooling the economy than it did in 2015, when it began raising rates at a slow and plodding pace in the wake of the Great Recession.“Most participants suggested that a faster pace of increases in the target range for the federal funds rate than in the post-2015 period would likely be warranted, should the economy evolve generally in line with the committee’s expectation,” the minutes read.Fed officials also agreed that it was appropriate to proceed with plans to trim the nearly $9 trillion in securities that the central bank holds. Most officials preferred to keep to a schedule announced in December, which would end such purchases starting next month, though some viewed an earlier end to the program as warranted and a way to signal that they were taking a stronger stance to fight inflation.Policymakers said the labor market had made “remarkable progress in recovering from the recession associated with the pandemic and, by most measures, was now very strong.”The January meeting solidified what markets had been anticipating: that the Fed was on track to raise interest rates in March. The question now is how quickly, and by how much. Many investors have speculated that the Fed could raise its interest rate by half a percentage point in March, instead of its usual quarter-point increase.In a statement after their two-day policy meeting in January, Fed officials laid the groundwork for higher borrowing costs “soon.” Jerome H. Powell, the Fed chair, said at a news conference after the meeting that “I would say that the committee is of a mind to raise the federal funds rate at the March meeting, assuming that the conditions are appropriate for doing so.”Inflation has continued to run hot since the Fed’s last meeting, and wage growth remains elevated. A key inflation measure released last week showed that prices were climbing at the fastest pace in 40 years and broadening beyond pandemic-affected goods and services, a sign that rapid gains could prove longer lasting and harder to shake off.January’s Consumer Price Index showed prices jumping 7.5 percent over the year and 0.6 percent from the prior month, exceeding forecasts. A separate inflation gauge that the Fed prefers also showed that prices remained elevated at the end of 2021. Overall, prices have been climbing at the fastest pace since 1982.Wall Street is now anticipating that interest rates could rise to more than 1.75 percent by the end of the year, up from near zero now. Markets began to bet on a double-size rate increase after January’s inflation data came in surprisingly strong. But some Fed officials have been tempering those expectations, saying they need to take a steady approach.Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said on Sunday that the Fed needed to get moving but that its approach ought to be “measured.”“I see that it is obvious that we need to pull some of the accommodation out of the economy,” Ms. Daly said on “Face the Nation.” “But history tells us with Fed policy that abrupt and aggressive action can actually have a destabilizing effect on the very growth and price stability we’re trying to achieve.” More

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    CPI Inflation Climbed 7.5 Percent in January, the Fastest Rise Since 1982

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    Consumer Price Index data showed prices climbing faster than expected, picking up across a broad array of goods and services.

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    Year-over-year changes in the Consumer Price Index
    Seasonally adjustedSource: Bureau of Labor StatisticsBy The New York TimesA key inflation measure released on Thursday showed that prices are climbing at the fastest pace in 40 years and broadening to touch nearly every corner of the American economy, heightening the risk that they will stay elevated for longer and that policymakers may have to react more aggressively.Markets tumbled after the government released Consumer Price Index data for January, which showed prices jumping 7.5 percent over the year and 0.6 percent over the past month, exceeding forecasts. More worrying were the report’s details, which showed inflation moving beyond pandemic-affected goods and services, a sign that rapid gains could prove longer lasting and harder to shake off.Investors speculated that the hot inflation would spur a decisive reaction from the Federal Reserve — possibly a big interest rate increase at the central bank’s next gathering in March, though few Fed officials have signaled comfort with such a large move. Making money more expensive to borrow and spend could weigh on demand, slowing the economy and tamping down prices.Wall Street is now anticipating that interest rates could rise to more than 1.75 percent by the end of the year, up from near zero now, and the possibility of a more forceful Fed reaction sent a key bond yield above 2 percent for the first time since July 2019 and deflated stock prices.Most economists still believe inflation will cool by year’s end, as automobile prices climb at a more moderate pace and as supply chain problems hopefully ease. But high and widespread price increases portend trouble for a White House that is struggling to convince voters that the economy is strong, and for a Fed that looks increasingly at risk of falling behind the curve.“It was more than expected, and it was broad-based,” said Priya Misra, head of global rates strategy at TD Securities, adding that she now expects price gains to slow less drastically this year. “We’ve gotten used to these big headline numbers, but every aspect of ‘transitory’ you can push back against now.”Economists thought price gains would fade quickly in 2021 — making now-infamous predictions that inflation would prove “transitory” — only to have those projections proved wrong time and again as booming consumer demand for goods collided with roiled global supply chains that could not ramp up production fast enough.High inflation has been a political liability for the White House, as rising prices have eaten away at household paychecks, leaving consumers feeling pessimistic.Amir Hamja for The New York TimesLately, it is more than just shortages of goods at play. Price gains are increasingly hitting consumers in hard-to-avoid ways as they show up in necessities: January’s inflation reading was driven by food, electricity and shelter costs, the Bureau of Labor Statistics said.High and broadening inflation has become a political liability for President Biden, as rising prices eat away at household paychecks and detract from a strong labor market with solid wage growth. That has left consumers feeling pessimistic and has all but killed Mr. Biden’s chance to pass a sweeping climate and social policy bill given lawmaker concerns about rising prices.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: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.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.Ryan Sweet, an economist at Moody’s Analytics, estimated that inflation was costing the average household $276 a month, compared with a more normal rate of inflation, which had been hovering just around 2 percent before the pandemic.“While today is a reminder that Americans’ budgets are being stretched in ways that create real stress at the kitchen table, there are also signs that we will make it through this challenge,” Mr. Biden said in a statement. He emphasized that wages grew more quickly than prices last month — though in general they have not kept up with price gains over the past year.The White House has introduced policies that might help to ease inflation slightly — discussing plans to help place military veterans into the short-staffed trucking industry, for instance — but the Fed is primarily in charge of slowing down demand to keep prices under control. Fed officials have already shifted away from trying to foster a quick economic rebound and toward bringing inflation down. After Thursday’s report, investors expected the Fed to withdraw economic support even more quickly. Markets braced for a half-percentage-point increase in the federal funds rate at the central bank’s meeting next month — double the usual increment.The inflation reading sent stocks down and government bond yields up. The S&P 500 dropped 1.8 percent, while the Nasdaq composite fell 2.1 percent. The yield on 10-year U.S. Treasury notes rose 0.1 percentage points, to about 2.03 percent, the highest level since November 2019.James Bullard, the president of the Federal Reserve Bank of St. Louis, fretted about the January inflation report in an interview with Bloomberg News and suggested that policymakers should be open to both a bigger-than-normal rate increase and to increasing rates in between officially scheduled meetings.“You have got the highest inflation in 40 years, and I think we are going to have to be far more nimble and far more reactive to data,” said Mr. Bullard, who has at times espoused bold stances that are not followed by his policymaking colleagues.The Fed generally moves borrowing costs in between meetings only at stressed moments and in emergencies, as was the case when it cut rates to zero between planned gatherings in March 2020.Inflation is abnormally high relative to the central bank’s goal: The Fed aims for 2 percent inflation on average over time, defining that target using a different but related inflation index that is also sharply elevated.And it increasingly appears to be driven less by the pandemic and more by a strong economy. Price increases in 2021 came heavily from roiled supply chains that sent new and used car prices and furniture costs up sharply. Those continue to be a big factor elevating overall inflation, but other areas are also fueling the rapid rise.

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    Year-over-year changes in the Consumer Price Index
    Not seasonally adjustedSource: Bureau of Labor StatisticsBy The New York TimesRent of a primary residence, which counts for a big chunk of overall inflation and tends to respond more to economic conditions than to one-off trends, climbed 0.5 percent in January from the prior month, a slight acceleration. Other shelter costs rose at a steady but notable pace.“Low vacancies and the end of rent moratoriums are expected to continue to push rents higher in the year ahead,” Diane Swonk, chief economist at Grant Thornton, wrote in a note after the release.As costs for shelter and other services pick up, policymakers are hoping that supply chains will start to catch up. That could allow prices for goods to moderate or even fall — taking pressure off overall inflation.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Inflation probably climbed at fastest pace in four decades in January.

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    Consumer Price Index data released on Thursday could show the biggest annual price increase since early 1982.A key inflation measure set for release Thursday morning is expected to show that prices continued to climb at the fastest pace in 40 years.But the data could also show some moderation in how much costs are going up each month — a potential silver lining as consumers wait for price pressures to lessen after a bruising year.Economists expect the Consumer Price Index data for January to show that prices climbed by 7.2 percent over the past year, up from 7 percent in December. That would be the fastest clip since February 1982.But prices are expected to have climbed 0.4 percent in January from the prior month. That is unusually rapid, but it is a moderation from the biggest monthly increases last year, which came in as high as 0.9 percent.Forecasters anticipate that inflation will ease meaningfully in 2022: Many expect it to finish the year closer to 3 percent. But economists regularly predicted that price gains would fade quickly in 2021, only to have those projections foiled as booming consumer demand for goods collided with roiled global supply chains that could not ramp up production fast enough.The recent spike in prices for food, fuel, cars and other goods has become a problem for both the Federal Reserve, which is responsible for keeping prices stable, and the White House, which has found itself on the defensive as rising costs eat away at household paychecks and detract from a strong labor market with solid wage growth.On Wednesday, Jen Psaki, the White House press secretary, tried to put a positive spin on the numbers, acknowledging that the data to be released Thursday would most likely show a high reading for the year but that the trajectory is for prices to decrease.“We expect a high year inflation rate reading in tomorrow’s data, given what we know about the last year,” Ms. Psaki said, adding that “it’s not about the recent trends.”“Inflation is expected to decrease over the course — and moderate — over the course of this year,” she said.Even so, the new data could add to the urgency for the Fed to begin weaning the economy off the rock-bottom interest rates that have been in place since March 2020.Fed officials have signaled that they will begin raising rates at their meeting next month. Higher rates can slow down consumer and business spending by making it more expensive to finance a car, house or machine purchase. Policymakers have also suggested that they will soon begin to shrink their balance sheet of bond holdings, which should push up longer-term interest borrowing costs and further cool off the economy.Investors now expect that central bankers might lift interest rates six times this year as they try to slow down the economy and tamp down price gains. More