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    Fed Minutes April 2021: Officials Hint They Might Soon Talk About Slowing Bond-Buying

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    Minutes from the Federal Reserve’s April meeting showed some officials wanted to soon talk about a plan to pull back some central bank support for the economy if “rapid progress” persisted.Federal Reserve officials were optimistic about the economy at their April policy meeting as government aid and business reopenings paved the way for a rebound — so much so that and “a number” of them began to tiptoe toward a conversation about dialing back some support for the economy.Fed policymakers have said they need to see “substantial” further progress toward their goals of inflation that averages 2 percent over time and full employment before slowing down their $120 billion in monthly bond purchases. The buying is meant to keep borrowing cheap and bolster demand, hastening the recovery from the pandemic recession.Officials said “it would likely be some time” before their desired standard was met, minutes from the central bank’s April 27-28 meeting released Wednesday showed. But the minutes also noted that a “number” of officials said that “if the economy continued to make rapid progress toward the committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.”The line was among the clearest signals yet that some Fed officials had considered beginning a serious conversation about pulling back monetary help. Jerome H. Powell, the Fed’s chair, has been repeatedly asked whether the central bank is “talking about talking about” slowing its so-called quantitative easing program — and he has consistently said “no.”In fact, when he faced the question at a news conference following the April meeting, Mr. Powell said, “No, it is not time yet. We have said we’ll let the public know when it is time to have that conversation, and we’ve said we’d do that well in advance of any actual decision to taper our asset purchases, and we will do so.”That could be because while a “number” of individual policymakers are beginning to think out loud about when to begin discussing the policy shift, the full committee has yet to decide to start the conversation.In any case, the April minutes may already be out of date. Surprising and at times confusing data released since the meeting could make the Fed’s assessment of when to dial back support — or even to start talking about doing so in earnest — more difficult. A report on the job market showed that employers added far fewer new hires than expected. At the same time, an inflation report showed that an expected increase in prices is materializing more rapidly than many economists had thought it would.“You just have to gather more information,” said Julia Coronado, founder of MacroPolicy Perspectives and a former Fed economist. “It’s going to be noisy for months, and months, and months.”The Fed has also set its policy interest rates at near-zero since March 2020, in addition to its bond purchases. Both policies are meant to help an economy damaged by pandemic shutdowns to recover more quickly.Officials have been clear that they plan to slow down bond-buying first, while leaving interest rates at rock bottom until the annual inflation rate has moved sustainably above 2 percent and the labor market has returned to full employment.Markets are extremely attuned to the Fed’s plans for bond purchases, which tend to keep asset prices high by getting money flowing around the financial system. Central bankers are, as a result, very cautious in talking about their plans to taper those purchases. They want to give plenty of forewarning before changing the policy to avoid inciting gyrations in stocks or bonds.Stocks whipsawed in the moments after the 2 p.m. release, tumbling as yields on government bonds spiked. The S&P 500 regained some of its losses by the end of the day, ending down 0.3 percent. The yield on 10-year Treasury notes jumped to 1.68 percent.Even before the recent labor market report showed job growth weakening, Fed officials thought it would take some time to reach full employment, the minutes showed.“Participants judged that the economy was far from achieving the committee’s broad-based and inclusive maximum employment goal,” the minutes stated. Many officials also noted that business leaders were reporting hiring challenges — which have since been blamed for the April slowdown in job gains — “likely reflecting factors such as early retirements, health concerns, child-care responsibilities, and expanded unemployment insurance benefits.”When it comes to inflation, Fed officials have repeatedly said they expect the ongoing pop in prices to be temporary. It makes sense that data are very volatile, they have said: The economy has never reopened from a pandemic before. That message echoed throughout the April minutes and has been reiterated by officials since.“We do expect to see inflationary pressures over the course, probably, of the next year — certainly over the coming months,” Randal K. Quarles, the Fed’s vice chair for supervision, said during congressional testimony on Wednesday. “Our best analysis is that those pressures will be temporary, even if significant.”“But if they turn out not to be, we do have the ability to respond to them,” Mr. Quarles added.Mr. Quarles pointed out that the central bank lifted interest rates to guard against inflationary pressures after the global financial crisis. The expected pickup never came, and in hindsight pre-emptive moves were “premature,” he said. He suggested that the central bank should avoid repeating that mistake.He said that the key was for the central bank to be prepared, but that if it tried to stay ahead of inflation now it could end up “significantly constraining the recovery.”Mr. Quarles’s comments came in response to repeated — and occasionally intense — questioning by Republican lawmakers during a House Financial Services Committee hearing, many of whom cited concerns about the recent price inflation report. The back-and-forth underlined how politically contentious the Fed’s patient approach could prove in the coming months. Inflation is expected to remain elevated amid reopening data quirks and as supply tries to catch up to consumer demand.Some lawmakers pressed Mr. Quarles on how long the Fed would be willing to tolerate faster price gains — a parameter the central bank as a whole has not clearly defined.When it comes to increases, “I don’t think that we can say that one month’s, or one quarter’s, or two quarters’ or more is necessarily too long,” Mr. Quarles said. More

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    A Fed vice chair says trying to choke off inflation could ‘constrain’ the recovery.

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    Randal K. Quarles, the Federal Reserve’s vice chair for supervision and regulation, said that the central bank was monitoring inflation but that for now it expected the pickup underway to be temporary — and that reacting too soon would come at a cost.“For me, it’s a question of risk management,” Mr. Quarles said during testimony before the House Financial Services Committee. “History would tell us that the economy is unlikely to undergo these inflationary pressures for a long period of time.”Mr. Quarles pointed out that after the global financial crisis, the central bank lifted interest rates to guard against inflationary pressures. The expected pickup never came, and in hindsight the moves were “premature,” he said. He suggested that the central bank should avoid repeating that mistake.“We’re coming out of an unprecedented event,” Mr. Quarles said, noting that officials have the tools to tamp down inflation if it does surprise central bankers by remaining elevated. The Fed could dial back bond purchases or lift interest rates to slow growth and weigh down prices.He said that the key is for the central bank to be prepared, but that if it tried to stay ahead of inflation now it could end up “significantly constraining the recovery.”Mr. Quarles’s comments came in response to repeated — and occasionally intense — questioning by Republican lawmakers, many of whom cited concerns about a recent and rapid pickup in consumer prices. The back and forth underlined how politically contentious the Fed’s patient approach to its policy could prove in the coming months. Inflation is expected to remain elevated amid reopening data quirks and as supply tries to catch up to consumer demand.Some lawmakers pressed Mr. Quarles on how long the Fed would be willing to tolerate higher prices — a parameter the central bank as a whole has not clearly defined.When it comes to increases, “I don’t think that we can say that one month’s, or one quarter’s, or two quarters’ or more is necessarily too long,” Mr. Quarles said. He noted that it was possible that inflation expectations could climb amid a temporary real-world price increase. But if that happened and caused a “more durable inflationary environment, then the Fed has the tools to address it,” he said. More

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    Inflation Fears Rise as Prices Surge for Lumber, Cars and More

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    Federal Reserve officials believe low and stable price expectations give them room to heal the job market. But what if outlooks change?Turn on the news, scroll through Facebook, or listen to a White House briefing these days and there’s a good chance you’ll catch the Federal Reserve’s least-favorite word: Inflation. If that bubbling popular concern about prices gets too ingrained in America’s psyche, it could spell trouble for the nation’s central bank. More

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    Yellen Says Rates Might Need to Rise as Economy Recovers

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    Ms. Yellen, the Treasury secretary, said that some “modest” increases might be necessary. She later clarified to say that she was not making a recommendation or providing advice to the Federal Reserve, which sets monetary policy.WASHINGTON — Treasury Secretary Janet L. Yellen said higher interest rates might be needed to keep the economy from overheating given the large investments that the Biden administration is proposing to rebuild the nation’s infrastructure and remake its labor force.The comments, broadcast online on Tuesday at The Atlantic’s Future Economy Summit, come amid heightened concern from some economists and businesses that the United States is in for a period of higher inflation as stimulus money flows through the economy and consumers begin spending again.The Treasury secretary has no role in setting interest rate policies. That is the purview of the Federal Reserve, which is independent from the White House.But the words of Ms. Yellen, a former Fed chair, carry substantial weight, and her comments were seized on by investors and critics who said she was improperly exerting influence over her prior monetary policy portfolio. In separate remarks later on Tuesday, Ms. Yellen made clear that she respects the central bank’s independence and was not making a recommendation.The stock market, which had been down in early trading, declined further after Ms. Yellen’s initial comments. Shortly before noon, the S&P 500 touched its worst level of the day, down 1.5 percent. Shares of some high-growth technology companies — which are especially sensitive to the risk of higher interest rates — were hard hit and weighed on the market. But the blue chip index cut those losses in half in the afternoon, ending the trading day down just 0.7 percent.Jerome H. Powell, the Fed chair, said last month that the central bank is unlikely to raise interest rates this year and that officials want to see further healing in the American economy they will consider pulling back their support by slowing government-backed bond purchases and lifting borrowing costs.While the Fed is watching for signs of inflation, Mr. Powell and other Fed officials have said they believe any price spikes will be temporary. On Monday, John C. Williams, the president of the Federal Reserve Bank of New York, said that while the economy is recovering, “the data and conditions we are seeing now are not nearly enough” for the Fed’s policy-setting committee “to shift its monetary policy stance.”Ms. Yellen did not predict a huge spike in interest rates, which have been near zero since March 2020. But she said some “modest” increases might be necessary as the economy recovers from the pandemic downturn and the administration tries to push through infrastructure and other investments aimed at making the United States more competitive and productive.“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy,” Ms. Yellen said when asked if the economy could handle the kind of robust spending that the Biden administration is proposing.“I think that our economy will grow faster because of them,” Ms. Yellen said of the proposed investments, such as research and development spending.The Biden administration has proposed spending approximately $4 trillion over a decade and would pay for the plan with tax increases on companies and the rich.Ms. Yellen’s comments drew some criticism on Tuesday among those who believed she was overstepping her bounds by weighing in on monetary policy.“Treasury secretaries shouldn’t talk about the Fed’s policy rate, and Fed governors shouldn’t talk about U.S. dollar policy,” Tony Fratto, a former official at Treasury and the White House during the Bush administration, said on Twitter.Francesco Bianchi, a Duke University economist who co-authored a 2019 research paper about the impact of former President Donald J. Trump’s tweets on perceptions of the Fed’s independence, called Ms. Yellen’s comments “unfortunate to the extent that the Fed is trying very hard to convince markets that interest rates will remain low.” However, he did not believe Ms. Yellen’s remarks were actually inappropriate.“It is not clear that the comment qualifies as central bank interference because Secretary Yellen was describing what she thinks would happen as the economy recovers and the Biden administration implements its policies,” Mr. Bianchi said in an email. “In other words, she did not ‘recommend’ that the Federal Reserve follows a particular policy prescription, but she seemed to reflect on how generally interest rates behave as the economy improves.”Asked about Ms. Yellen’s comments, Jen Psaki, White House press secretary, said the Treasury secretary was not trying to tell the Fed what to do or impeding on the central bank’s independence with her comment on interest rates.“I would say, of all people, Secretary Yellen certainly understands the independence and the role of the Federal Reserve, and I think she was simply answering a question and conveying how we balance decision-making here,” Ms. Psaki said.Speaking at a Wall Street Journal C.E.O. Council event on Tuesday afternoon, Ms. Yellen echoed that sentiment. She said she was not prescribing a rate hike and dismissed the idea that she would ever attempt to infringe on the Fed’s independence.“Let me be clear, it’s not something I’m predicting or recommending,” Ms. Yellen said of raising interest rates. “If anybody appreciates the independence of the Fed, I think that person is me.”Matt Phillips More

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    Fed Leaves Interest Rates Unchanged as Economy Begins to Heal

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    The Federal Reserve said the economy had “strengthened” but opted to continue providing support while playing down a rise in inflation.Jerome H. Powell, the Federal Reserve chair, said on Wednesday that the nation would need to show greater progress toward substantial recovery before policies designed to bolster the economy would be lifted.Stefani Reynolds for The New York TimesJerome H. Powell, the Federal Reserve chair, made it clear on Wednesday that his central bank wants to see further healing in the American economy before officials will consider pulling back their support by slowing government-backed bond purchases and lifting interest rates.Mr. Powell spoke at a news conference after the Fed announced that it would leave rates near zero and continue buying bonds at a steady clip, as expected. He painted a picture of an economy bouncing back — helped by vaccines, government spending and the central bank’s own efforts.The Fed’s post-meeting statement also portrayed a sunnier image of the American economy, which is climbing back from a sudden and severe recession caused by state and local lockdowns meant to contain the coronavirus.“Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,” the policy-setting Federal Open Market Committee said in its release. “The ongoing public health crisis continues to weigh on the economy, and risks to the economic outlook remain.”Yet Fed officials signaled that they were looking for more progress toward their goals of full employment and stable inflation before reconsidering their cheap-money stance. Officials made it clear that they see a recent increase in inflation, which is expected to intensify in the months to come, as likely to be short-lived rather than worrying.And Mr. Powell was careful to avoid sounding as though he and his colleagues knew precisely what the future held. He pointed out, repeatedly, that reopening America’s giant economy from pandemic-era shutdowns was an uncharted project.“It’s going to be a different economy,” Mr. Powell said at one point, noting that some jobs may have disappeared as employers automated. At another, he said that when it came to inflation, “we’re making our way through an unprecedented series of events.”For now, things are looking up. After reaching a low point a year ago, employment is rebounding, consumers are spending and the outlook is increasingly optimistic as vaccines become widespread. Data that will be released on Thursday is expected to show gradual healing in the first three months of the year, which economists think will give way to rapid gains in the second quarter.Mr. Powell pointed out that even the areas hardest hit by the virus have shown improvement, but also that risks remain.“While the level of new cases remains concerning,” he said, “continued vaccinations should allow for a return to more normal economic conditions later this year.”Fed officials have signaled that they will keep interest rates low and bond purchases going at the current $120 billion-per-month pace until the recovery is more complete. The Fed has said it would like to see “substantial” further progress before dialing back government-backed bond buying, a policy meant to make many kinds of borrowing cheap. The hurdle for raising rates is even higher: Officials want the economy to return to full employment and achieve 2 percent inflation, with expectations that inflation will remain higher for some time.“A transitory rise in inflation above 2 percent this year would not meet this standard,” Mr. Powell said of the Fed’s criteria for achieving its average inflation target before raising interest rates. When it comes to bond buying, “the economy is a long way from our goals, and it is likely to take some time for substantial further progress to be achieved.”He later said that “it is not time yet” to talk about scaling back, or “tapering,” bond purchases.Unemployment, which peaked at 14.8 percent last April, has since declined to 6 percent. Retail spending is strong, supported by repeated government stimulus checks. Consumers have amassed a big savings stockpile over months of stay-at-home orders, so there is reason to expect that things could pick up further as the economy fully reopens.Yet there is room for improvement. The jobless rate remains well above its 3.5 percent reading coming into the pandemic, with Black workers and those in lower-paying jobs disproportionately out of work. Some businesses have closed forever, and it remains to be seen how post-pandemic changes in daily patterns will affect others, like corporate offices and the companies that service them.“There’s no playbook here,” said Michelle Meyer, the head of U.S. economics at Bank of America, adding that the Fed needed time to let inflation play out and the labor market heal, and that while the signs were encouraging, central bankers would only “react when they have enough evidence.”The Fed has repeatedly said it wants to see realized improvement in economic data — not just expected healing — before it reduces its support. Based on their March economic projections, most Fed officials are penciling in interest rates near zero through at least 2023.Still, some economists have warned that the government’s enormous spending to heal the economy from coronavirus may overdo it, sending inflation higher. If that happens, it might force the Fed to lift interest rates earlier than expected, and prominent academics have fretted that officials might prove too slow to act, hemmed in by their commitment to patience.Markets have at times shown jitters on signs of potential inflation, concerned that it would cause the Fed to lift rates, which tends to dent stock prices.Inflation Is Starting to Jump More

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    Fear of Inflation Finds a Foothold in the Bond Market

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    There is little evidence for a big jump in prices, but some economists and bond investors fear President Biden’s policies could lead to inflation.The so-called bond vigilantes may be back, 30 years after they led a sell-off in Treasury securities over the prospect of higher government spending by a new Democratic administration.The Federal Reserve has downplayed the risk of inflation, and many experts discount the danger of a sustained rise in prices. But there is an intense debate underway on Wall Street about the prospects for higher inflation and rising interest rates.Yields on 10-year Treasury notes have risen sharply in recent weeks, a sign that traders are taking the inflation threat more seriously. If the trend continues, it will put bond investors on a collision course with the Biden administration, which recently won passage of a $1.9 trillion stimulus bill and wants to spend trillions more on infrastructure, education and other programs.The potential confrontation made some market veterans recall the 1990s, when yields on Treasury securities lurched higher as the Clinton administration considered plans to increase spending. As a result, officials soon turned to deficit reduction as a priority.Ed Yardeni, an independent economist, coined the term bond vigilante in the 1980s to describe investors who sell bonds amid signs that fiscal deficits are getting out of hand, especially if central bankers and others don’t act as a counterweight.As bond prices fall and yields rise, borrowing becomes more expensive, which can force lawmakers to spend less.“They seem to mount up and form a posse every time inflation is making a comeback,” Mr. Yardeni said. “Clearly, they’re back in the U.S. So while it’s fine for the Fed to argue inflation will be transitory, the bond vigilantes won’t believe it till they see it.”Yields on the 10-year Treasury note hit 1.75 percent last week before falling back this week, a sharp rise from less than 1 percent at the start of the year.Not all the sellers necessarily oppose more government spending — some are simply acting on a belief that yields will move higher as economic activity picks up, or jumping on a popular trade. But the effect is the same, pushing yields higher as prices for bonds fall.Yields remain incredibly low by historical standards and even recent trading. Two years ago, the 10-year Treasury paid 2.5 percent — many bond investors would happily welcome a return to those yields given that a government note bought today pays a relative pittance in interest. And during the Clinton administration, yields on 10-year Treasurys rose to 8 percent, from 5.2 percent between October 1993 and November 1994.Still, Mr. Yardeni believes the bond market is saying something policymakers today ought to pay attention to.“The ultimate goal of the bond vigilante is to be heard, and they are blowing the whistle,” he said. “It could come back to bite Biden’s plans.”Yet evidence of inflation remains elusive. Consumer prices, excluding the volatile food and energy sectors, have been tame, as have wages. And even before the pandemic, unemployment plumbed lows not seen in decades without stoking inflation.Indeed, the bond vigilantes remain outliers. Even many economists at financial firms who expect faster growth as a result of the stimulus package are not ready to predict inflation’s return.“The inflation dynamic is not the same as it was in the past,” said Carl Tannenbaum, chief economist at Northern Trust in Chicago. “Globalization, technology and e-commerce all make it harder for firms to increase prices.”What’s more, with more than nine million jobs lost in the past year and an unemployment rate of 6.2 percent, it would seem there is plenty of slack in the economy.That’s how Alan S. Blinder, a Princeton economist who was an economic adviser to President Bill Clinton and is a former top Fed official, sees it. Even if inflation goes up slightly, Mr. Blinder believes the Fed’s target for inflation, set at 2 percent, is appropriate.“Bond traders are an excitable lot, and they go to extremes,” he said. “If they are true to form, they will overreact.”Indeed, there have been rumors of the bond vigilantes’ return before, like in 2009 as the economy began to creep out of the deep hole of the last recession and rates inched higher. But in the ensuing decade, both yields and inflation remained muted. If anything, deflation was a greater concern than rising prices.It is not just bond traders who are concerned. Some of Mr. Blinder’s colleagues from the Clinton administration are warning that the conventional economic wisdom hasn’t fully accepted the possibility of higher rates or an uptick in prices..css-yoay6m{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}@media (min-width:740px){.css-yoay6m{font-size:1.25rem;line-height:1.4375rem;}}.css-1dg6kl4{margin-top:5px;margin-bottom:15px;}.css-k59gj9{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;width:100%;}.css-1e2usoh{font-family:inherit;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;border-top:1px solid #ccc;padding:10px 0px 10px 0px;background-color:#fff;}.css-1jz6h6z{font-family:inherit;font-weight:bold;font-size:1rem;line-height:1.5rem;text-align:left;}.css-1t412wb{box-sizing:border-box;margin:8px 15px 0px 15px;cursor:pointer;}.css-hhzar2{-webkit-transition:-webkit-transform ease 0.5s;-webkit-transition:transform ease 0.5s;transition:transform ease 0.5s;}.css-t54hv4{-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-1r2j9qz{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-e1ipqs{font-size:1rem;line-height:1.5rem;padding:0px 30px 0px 0px;}.css-e1ipqs a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;}.css-e1ipqs a:hover{-webkit-text-decoration:none;text-decoration:none;}.css-1o76pdf{visibility:show;height:100%;padding-bottom:20px;}.css-1sw9s96{visibility:hidden;height:0px;}#masthead-bar-one{display:none;}#masthead-bar-one{display:none;}.css-1cz6wm{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;font-family:’nyt-franklin’,arial,helvetica,sans-serif;text-align:left;}@media (min-width:740px){.css-1cz6wm{padding:20px;width:100%;}}.css-1cz6wm:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1cz6wm{border:none;padding:20px 0 0;border-top:1px solid #121212;}Frequently Asked Questions About the New Stimulus PackageThe stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more. Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read moreThis credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.Robert E. Rubin, Mr. Clinton’s second Treasury secretary, echoed that concern but took pains to support the stimulus package.“There is a deep uncertainty,” Mr. Rubin said in an interview. “We needed this relief bill, and it served a lot of useful purposes. But we now have an enormous amount of stimulus, and the risks of inflation have increased materially.”Mr. Rubin acknowledged that predicting inflation was very difficult, but he said policymakers ought to be ready to fight it. “If inflationary pressures do take off, it’s important to get ahead of them quickly before they take on a life of their own.”The Federal Reserve has plenty of options. Not only is it buying up debt, which keeps yields down, but the Fed chair, Jerome H. Powell, has called for keeping monetary policy relatively loose for the foreseeable future. If higher prices do materialize, the Fed could halt asset purchases and raise rates sooner.“We’re committed to giving the economy the support that it needs to return as quickly as possible to a state of maximum employment and price stability,” Mr. Powell said at a news conference last week. That help will continue “for as long as it takes.”While most policymakers expect faster growth, falling unemployment and a rise in inflation to above 2 percent, they nonetheless expect short-term rates to stay near zero through 2023.But the Fed’s ability to control longer-term rates is more limited, said Steven Rattner, a veteran Wall Street banker and former New York Times reporter who served in the Obama administration.“At some point, if this economy takes off bigger than any one of us expect, the Fed will have to raise rates, but it’s not this year’s issue and probably not next year’s issue,” he said. “But we are in uncharted waters, and we are to some extent playing with fire.”The concerns about inflation expressed by Mr. Rattner, Mr. Rubin and others has at least a little to do with a generational angst, Mr. Rattner, 68, points out. They all vividly remember the soaring inflation of the 1970s and early 1980s that prompted the Fed to raise rates into the double digits under the leadership of Paul Volcker.The tightening brought inflation under control but caused a deep economic downturn.“People my age remember well the late 1970s and 1980s,” Mr. Rattner said. “I was there, I covered it for The Times, and lived through it. Younger people treat it like it was the Civil War.”Some younger economists, like Gregory Daco of Oxford Economics, who is 36, think these veterans of past inflation scares are indeed fighting old wars. Any rise in inflation above 2 percent is likely to be transitory, Mr. Daco said. Bond yields are up, but they are only returning to normal after the distortions caused by the pandemic.“If you have memories of high inflation and low growth in the 1970s, you may be more concerned with it popping up now,” he said. “But these are very different circumstances today.” More

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    Larry Summers Warned About Inflation. Fed Officials Push Back.

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    Mr. Summers, the former Treasury secretary, and other economists say $1.9 trillion more in pandemic relief might overdo it. The Federal Reserve’s vice chair and a regional president disagreed.Federal Reserve officials pushed back on Thursday against concerns raised by two prominent economists — Lawrence H. Summers, the former Treasury secretary, and Olivier J. Blanchard, a former chief economist at the International Monetary Fund — that big government spending could overheat the economy and send inflation rocketing higher.Those warnings have grabbed headlines and spurred debate over the past two months as details of the federal government’s $1.9 trillion pandemic relief bill came together. Mr. Summers in particular has kept them up since the legislation passed, saying it was too much on the heels of large spending packages last year. He recently called the approach the “least responsible” fiscal policy in 40 years while predicting that it had a one-in-three chance of precipitating higher inflation and maybe stagflation, or a one-in-three chance of causing the Fed to raise rates and pushing the economy toward recession.But two leaders at the Fed, which is tasked with using monetary policies to keep inflation steady and contained, gave little credence to those fears on Thursday. Richard H. Clarida, the central bank’s vice chairman, and Charles Evans, the president of the Federal Reserve Bank of Chicago, both responded to questions specifically about Mr. Summers’s and Mr. Blanchard’s warnings.“They have both correctly pointed out that the U.S. has a lot of fiscal support this year,” Mr. Clarida said on an Institute of International Finance webcast. “Where I would disagree is whether or not that is primarily going to represent a long-term, persistent upward risk to inflation, and I don’t think so.”Mr. Clarida said that there was a lot of room for the economy to recover — some 9.5 million jobs that were lost during the pandemic are still gone — and that the effect of the government’s relief spending would diminish over time. He also said that while spenders had pent-up demand, there was also pent-up supply because the service sector had been shut for a year.“At the Fed, we get paid to be attentive and attuned to inflation risks, and we will be,” Mr. Clarida said. But he noted that forecasters didn’t see “undesirable upward pressure” on inflation over time.Mr. Evans told reporters on a call that he wasn’t sure what “overheating” — the danger that top economists have warned about — actually meant.“First off, there’s a conversation of is this the best way to spend money,” he summarized, adding that he didn’t have anything to say about that. “But then there’s sort of like, ‘Oh, this is so much that it is going to overshoot potential output, and there’s a risk that we’re going to get overheating, and then inflation.’”He continued: “What is the definition of overheating? It’s a great word, it evokes all kinds of images, but it’s kind of like potential output is always a strange concept anyway. Can output be too high?”Mr. Evans has been concerned for years that inflation is too tepid, rather than that it might pick up too much. Superweak price pressures can cause problems by risking price declines — which encourage saving and harm debtors — and by robbing the Fed of room to cut interest rates during times of trouble.“I kind of remember the ’70s, too,” a decade when inflation spiraled up and out of control in America, Mr. Evans said. “This isn’t the ’70s. We’ve had trouble getting inflation up.”Inflation has been weak in the United States, and in advanced economies broadly, the past two decades. To try to keep that from turning into a bigger problem, the Fed has been working to “re-anchor” consumer and market expectations to prevent inflation slipping lower. The central bank announced last year that it would begin to aim for 2 percent annual price gains on average over time, allowing for periods of greater increases.Still, no Fed policymaker wants inflation to suddenly spike, eroding consumer purchasing power. If that happened, the Fed might have to lift interest rates rapidly to slow down the economy, throwing people out of work and possibly causing a recession. That’s what Mr. Summers and Mr. Blanchard are warning about..css-yoay6m{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}@media (min-width:740px){.css-yoay6m{font-size:1.25rem;line-height:1.4375rem;}}.css-1dg6kl4{margin-top:5px;margin-bottom:15px;}.css-k59gj9{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;width:100%;}.css-1e2usoh{font-family:inherit;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;border-top:1px solid #ccc;padding:10px 0px 10px 0px;background-color:#fff;}.css-1jz6h6z{font-family:inherit;font-weight:bold;font-size:1rem;line-height:1.5rem;text-align:left;}.css-1t412wb{box-sizing:border-box;margin:8px 15px 0px 15px;cursor:pointer;}.css-hhzar2{-webkit-transition:-webkit-transform ease 0.5s;-webkit-transition:transform ease 0.5s;transition:transform ease 0.5s;}.css-t54hv4{-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-1r2j9qz{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-e1ipqs{font-size:1rem;line-height:1.5rem;padding:0px 30px 0px 0px;}.css-e1ipqs a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;}.css-e1ipqs a:hover{-webkit-text-decoration:none;text-decoration:none;}.css-1o76pdf{visibility:show;height:100%;padding-bottom:20px;}.css-1sw9s96{visibility:hidden;height:0px;}#masthead-bar-one{display:none;}#masthead-bar-one{display:none;}.css-1cz6wm{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;font-family:’nyt-franklin’,arial,helvetica,sans-serif;text-align:left;}@media (min-width:740px){.css-1cz6wm{padding:20px;width:100%;}}.css-1cz6wm:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1cz6wm{border:none;padding:20px 0 0;border-top:1px solid #121212;}Frequently Asked Questions About the New Stimulus PackageThe stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more. Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read moreThis credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.The $1.9 trillion measure that the Biden administration ushered through Congress added to a $900 billion relief package enacted in December and a $2 trillion package last March.Mr. Blanchard, in a March 5 post on Twitter, compared the fresh government spending to a snake swallowing an elephant: “The snake was too ambitious. The elephant will pass, but maybe with some damage.”He more recently said that he had “no clue as to what happens to inflation and rates” but that there is a lot of uncertainty and that things “could go wrong.”Mr. Summers, who led the Treasury Department from 1999 to 2001, wrote in a Feb. 4 Washington Post column that, while it was hugely uncertain, “there is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation.”He said in a Bloomberg Television interview last week that “we are running enormous risks.”But Fed officials don’t think big government outlays will be enough to rewrite the world’s low-inflation story. And if it does stoke a slightly faster pickup, that might be a welcome development.Mr. Clarida acknowledged that price gains were likely to speed up over the next few months, but said he expected most of that “to be transitory” and for inflation to return to “or perhaps run somewhat above” 2 percent in 2022 and 2023.“This outcome would be entirely consistent with the new framework we adopted in August 2020,” he said. More

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    How 10 Economists Think About the Economy Potentially Overheating

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    Some notable participants in the debate over the Biden stimulus tell us, in their words, what a too-hot economy would look like.What would it really mean for the economy to overheat? How would we know if the ominous warnings by several prominent economists were coming true?We asked 10 economists who have offered commentary from either side of the debate to lay out their arguments more precisely. The question we asked: What rate of inflation, using what measure, over what period of time — or other developments, such as swings in bond or currency markets — would indicate problematic overheating was underway?Their answers are below, lightly edited for clarity and length.To explain some terms that appear frequently in these responses: “P.C.E. inflation” is a measure of inflation based on personal consumption expenditures; it is the preferred inflation measure of the Federal Reserve. “Break-evens” refers to the level of future inflation priced into the Treasury bond market, based on the price of inflation-protected securities. The “five-year, five-year” forward rate is the annual inflation priced into bonds for the five-year period starting five years in the future — that is, the period between five and 10 years from now. “Core” inflation, whether using P.C.E. or other measures, excludes volatile food and energy prices.Ángel Franco/The New York TimesOlivier Blanchard, senior fellow at the Peterson Institute for International Economics and former chief economist of the International Monetary FundI shall plead Knightian uncertainty. I have no clue as to what happens to inflation and rates, because it is in a part of the space we have not been in for a very long time. Uncertainty about multipliers, uncertainty about the Phillips curve, uncertainty about the dovishness of the Fed, uncertainty about how much of the $1.9 trillion package will turn out to be permanent, uncertainty about the size and the financing of the infrastructure plan. All I know is that any of these pieces could go wrong.Julia Coronado, president of MacroPolicy Perspectives and former Fed economistWe would have to see the Fed’s preferred gauge of core P.C.E. inflation sustained at a rate above 3 percent for several years and importantly matched by wage growth with measures of inflation expectations rising before I worry about the Fed losing its grip on its stable price mandate. Bond yields would need to be sustained well north of 4 percent in this scenario. It is strange to me that for years economists pined for a better mix of monetary and fiscal policy and now we have it and there is a narrative among some that it has to end in disaster. I am more optimistic about the macro outlook than I have been in a long time and am far more focused on how quickly the labor market returns to health than any threat from inflation.Brad DeLong, economist, University of California, BerkeleyThe Federal Reserve’s inflation target has been that inflation should average — not ceiling, but average — 2 percent per year using the P.C.E., 2.5 percent per year using the core C.P.I. Had inflation in fact matched that average since the beginning of the Great Recession, the core C.P.I. would now be 296 on a 1982-84=100 basis. It is actually 270.If the Fed had hit its inflation target, the price level now would be 9.6 percent higher than it is. When the cumulative excess of C.P.I. core inflation over 2.5 percent per year reaches +9.6 percent, come and ask me again whether Federal Reserve policy is excessively inflationary. Until then, we certainly have other much more important economic problems to worry about than the risks of excessive and damaging inflation.Wendy Edelberg, director of the Hamilton Project at the Brookings Institution, former chief economist of the Congressional Budget OfficeI think there is a fair amount of consensus that the economy will grow strongly beginning in the fourth quarter of 2021 and that inflation will rise. I also believe, although there is less consensus here, that the level of economic activity will temporarily rise above its sustainable level for a time and inflation will rise above the Fed’s target. If you want to call that overheating, I think that isn’t in and of itself problematic. In fact, I think making up for some lost economic activity is beneficial. And, the Fed has said it welcomes a rebound in inflation.So where would I be concerned? Is this just a matter of degrees? In isolation, there isn’t a credible prediction of temporary overheating or inflationary pressure that worries me. For example, I think we can increase labor force participation well above its sustainable level for several quarters. Same with capacity utilization. I don’t think anyone will be too surprised to see massive airfare inflation. Instead, I worry if we start to see signs that people, businesses and financial markets are responding to the level of overheating as if it were permanent. On one dimension, that could suggest a harder landing. For example — I would worry about a significant jump in the quit rate.I would worry about a housing construction boom or a commercial real estate boom. I would worry about a significant increase in leverage across the economy. That all suggests pain for people when the economy cools. On another dimension, if financial markets start to view the overheating as being too permanent, we could see inflation expectation rise to worrying levels — well above the Fed’s target. For example, I think we need to keep a close eye on the five-year, five-year forward inflation expectation rate. The Cleveland Fed has a nice roundup of inflation expectation measures.I would worry about the Fed’s credibility if longer-term expectations remained stubbornly above where they were in 2019 by, say, one-half percentage point. Which is to say, the economy has benefited from the Fed being credible about its policy direction. If it’s lost, regaining that credibility would exact a toll. Still, everything I see in terms of underlying economic strength, households’ resources, and the fiscal support in train points to a several-quarter-long surge in the economy. We — policymakers, households, businesses — need to appreciate its temporary nature and adjust accordingly.Austan Goolsbee, economist, University of Chicago Booth School of Business and former chairman of the White House Council of Economic AdvisersThe most obvious indicator is that they predict sustained and rising inflation from an overheated economy. You should see prices rising rapidly, and it’s not called a NAIRU for nothing — it should start accelerating. It should be in wages and prices, and it shouldn’t be temporary. It should be 3, then 4, then 5 percent and so on. Basically they are predicting a 1970s repeat, so just go look at how inflation accelerated in the 1970s.So B, this means more than just what is the inflation rate one year from now. Up and then back down is perfectly consistent with the Yellen/Powell view. If you are impatient to get an idea before having to wait four years, you would expect this to show up in the TIPS implied inflation expectations. Compare the five-year TIPS to the 10-year TIPS, and it will tell you whether they expect a heavy, sustained inflation. Right now the five-year is 2.5 percent, and the 10-year is 2.3 percent, so they don’t expect high inflation and they don’t expect rising, sustained inflation. It’s as simple as that.C, the implicit implication of their view is that the labor market in particular will overheat. For that to happen, we should see a big rise in the labor force participation rate back to recent normal levels, at the least, and the unemployment rate down below the 3.5 percent range it got to under Trump (without inflation).But D, it should count somewhat in their favor if the Fed had to jack up rates so quickly/stiffly that it created a tough recession without a soft landing. That might prevent actual inflation from happening and negate their hypothesis in the technical sense, but they would still be right in spirit even without the actual inflation. Caveat to D, if we have a bubble going on and the bubble pops and that causes a recession, that has nothing to do with their theory and they should not get credit for that. It’s basically just the 2001, 2008 style recession again.Jason Furman, Harvard economist and former chairman of the White House Council of Economic AdvisersUltimately we’re worried about an outcome in the real economy, which is rapid growth in 2021 followed by a significant reversal in 2022 or 2023 with anything like a recession, negative growth or a sizable increase in the unemployment rate. Much of what we call “overheating” is mostly a concern insofar as it triggers that outcome. But some more proximate measures:Inflation in the second half of 2021 or the four quarters of 2022 at an annual rate of 2 to 2.5 percent would be desirable; 2.5 to 3.5 percent would cause more worries than it objectively should, but those worries could create self-fulfilling problems; and above 3.5 percent would create a substantial risk of macroeconomic reactions that create genuine instability and problems in the economy.The 10-year nominal interest rate going above 3 percent in 2021 should give us some pause, and going above 4 percent should raise the possibility of a meaningful course correction for fiscal policy. Finally, not a proximate measure, but a fear (and this is not my central guess), is that overheating could happen without a large decline in the unemployment rate. If, for example, people don’t return quickly to the labor force and it takes a while for the unemployed to find jobs, then you could have overheating even with an unemployment rate of 4.5 or 5 percent. That would be the worst scenario because it would really discourage policy activism for some time to come. Not my main prediction and maybe a risk worth taking, but is the gnawing fear that keeps me up at night.N. Gregory Mankiw, Harvard economist and former chairman of the White House Council of Economic AdvisersI would say the economy is overheated if G.D.P. rises above potential G.D.P. (as estimated by, say, C.B.O.), and core inflation (P.C.E. price index excluding food and energy) rises above 3 percent over a 12-month period. (Inflation has not broken that threshold anytime during the past quarter century.)Such an overheating could be temporary. I would say we have an ongoing overheating problem if, in addition, five-year break-even inflation — a gauge of inflation expectations — rises above 3 percent.Claudia Sahm, senior fellow, Jain Family Institute and former Fed economistTo have overheating you need to start getting a spiral. There’s not a magical number. It’s not that if you’ve gone over 5 percent inflation you’re overheating. To me, overheating is inflation starts picking up, and it keeps going. Inflation is a slow-moving dynamic, especially in core. You see it’s up a couple of tenths of a percent, then another couple of tenths, then starting to move up half a percent if things really start to get out of control. When it keeps going and keeps getting worse, you’re overheating.It would speed up. It would have to be persistent. If by the end of next year we were looking at consistent prints of 3 percent, and it had started — we’re at 1.5 now — if it had climbed to 2.6 by the end of the year, then kept going up next year and was heading toward 3 by the end of 2022, with the unemployment rate completely recovered, OK, maybe we’re pushing the economy too hard. It’s time to ease up on the accelerator and tap the brakes.It’s the spiral that matters. It could happen, but it would take a while and not only do we know how to disrupt a wage-price spiral — we know what it looks like.Lawrence H. Summers, Harvard economist and former Treasury secretaryI think there’s a one-third chance that inflation expectations meaningfully above the Fed’s 2 percent target will become entrenched, a one-third chance that the Fed will bring about substantial financial instability or recession in order to contain inflation, and a one-third chance that this will work out as policymakers hope.In the first scenario, we have a Vietnam-like experience where inflation expectations ratchet upwards due to macroeconomic policies, and inflation expectations, broadly defined, become unanchored.In the second scenario, we have an experience like most of the recessions prior to 1990, when expansions were murdered by the Fed with inflation control as the motive. This was the case three times in the 1950s, at the beginning of the 1970s, in 1975, 1980 and 1982. In the past it has proven impossible to generate a soft landing. I can’t think of a time when we have experienced a big downshift without having a recession.In the successful scenario that is the aspiration of policymakers, we would enjoy a period of very rapid growth, followed by a downshift to moderate growth, with inflation expectations remaining anchored in the 2 percent range.Michael Strain, director of economic policy, the American Enterprise InstituteI have a separate view on what would be good for the economy and on what the Fed might be able to tolerate.Trend inflation (measured by some sort of a moving average, let’s say — but that does not include March and April due to base effects) of 2.5-3 percent would be a policy victory. By “inflation” I mean the year-over-year change in the monthly core P.C.E. Aberrant, transitory months spikes are nothing to worry about from an economic perspective. But if that average starts to creep above 3 percent, then I would start to worry, regardless of the behavior of market-based inflation expectations.If market-based inflation expectations on the five-year break-even go above 3 percent and expectations using five-year, five-year forward go above 2.5 percent, then I would start to worry, regardless of the behavior of actual price inflation, as measured in the previous paragraph.My big concern is that the Fed won’t be able to hold firm in the environment I characterize in my first paragraph, especially if you add evidence of financial market bubbles into the mix. So in that sense, I am more worried about a policy mistake than I am worried about a de-anchoring of expectations. More