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    Biden Will Release Dead-on-Arrival Budget, Picking Fight With GOP

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    The president’s plans have little in common with the budget Republicans are set to release this spring, as the nation hurtles toward a possible default on its debt.WASHINGTON — President Biden will propose a budget on Thursday that has no chance of driving tax or spending decisions in Congress this year, but instead will serve as a statement of political priorities as he clashes with Republicans over the size of the federal government.Mr. Biden’s budget proposal, the third of his presidency, is an attempt to advance a narrative that the president is committed to investing in American manufacturing, fighting corporate profiteering, reducing budget deficits and fending off conservative attacks on safety-net programs.It is expected to include what White House officials say will be nearly $3 trillion in new deficit reduction, largely from a familiar batch of tax increases on companies and high earners, along with robust spending on the military and policies to further Mr. Biden’s attempts to support high-tech factory jobs and fight climate change.Republicans are expected to offer a starkly different budget sometime this spring, one likely to be stocked with cuts to federal health programs and aid to the poor, in an effort to eliminate the budget deficit within a decade without raising taxes. Mr. Biden is certain to reject those proposals, and they may struggle to attract enough moderate Republican votes to pass the House.The competing documents will highlight the dearth of common ground for Mr. Biden and his opposition party on fiscal policy at a high-stakes moment for the government and the global economy. That is true even though both the president and congressional Republicans are embracing the politics of promising to reduce deficits and the growth of the national debt, which topped $31 trillion late last year.Republican leaders in the House have refused to raise a congressionally imposed cap on how much the federal government can borrow unless Mr. Biden agrees to steep cuts to federal spending in exchange. Given the United States borrows huge sums of money to pay its bills, that position risks plunging the economy into crisis if the government runs out of cash and defaults on its debt later this year.Mr. Biden has refused to tie any spending cuts to raising the borrowing cap, which does not authorize any new expenditures, but said he welcomes debate over how best to ease the nation’s debt burden.The parties’ entrenched positions set Washington up for several bruising months, at least, of debt-limit discussions. Economists warn the standoff will rattle investors and poses mounting threats to the global financial system.On Wednesday, Jerome H. Powell, the chair of the Federal Reserve, urged lawmakers not to play games, saying there is no way to prevent a financial meltdown without raising the borrowing cap.“Congress raising the debt ceiling is really the only alternative,” Mr. Powell told a House committee. “There are no rabbits in hats to be pulled out on this.”Jerome H. Powell, the chair of the Federal Reserve, told a House committee: “Congress raising the debt ceiling is really the only alternative.”Haiyun Jiang/The New York TimesPresidential budgets always offer visions for the nation’s fiscal policy that compete with those of their opposition — and budgets submitted by presidents to an opposition-dominated chamber of Congress rarely serve as more than messaging documents. Often, including under Mr. Biden, much of the budget fails to pass muster with the president’s own party.Mr. Biden failed to persuade a sufficient number of Democrats to pass many of the policy priorities outlined in his previous budget requests, like free community college and federally guaranteed paid leave. More than $2 trillion in tax increases from last year’s budget were never enacted despite Democrats’ control of Congress..css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.Still, this year’s budget releases from Mr. Biden and House Republicans carry extra importance because of the stakes of the debt-limit fight — and the few paths to compromise on fiscal policy that the documents are expected to show.Mr. Biden’s budget will raise taxes on corporations and high earners, both to pay for his policy priorities and to reduce the growth in America’s reliance on borrowed money, including a 25 percent tax aimed at billionaires. Republicans will seek to cut taxes, including making permanent some temporary tax cuts approved under former President Donald J. Trump, and may seek to eliminate the budget deficit in 10 years by gutting huge swaths of federal spending. Mr. Biden will continue to push his vision of an expanded and empowered government hand in the economy, with new spending for child care, education and more. Republicans will seek to slash federal agencies and much of the health coverage provided by the Affordable Care Act, though it may be difficult for Speaker Kevin McCarthy of California to assemble a package of cuts that will satisfy hard-liners and centrists in his caucus alike.Leaders on both sides of the aisle are embracing the contrasts in their approach.Mr. Biden “is willing to do what Republicans are not: lower the deficit in a realistic, responsible way without cutting benefits that tens of millions of people rely on,” Senator Chuck Schumer of New York, the majority leader, said in a brief speech on Wednesday. “Unlike Republicans, the president is also asking the richest of the rich to pay a little more of their fair share in taxes,” he added.Senator Mitch McConnell of Kentucky, the Republican leader, told reporters this week that Mr. Biden’s budget was “replete with what they would do if they could.”“Thank goodness the House is Republican,” Mr. McConnell said. “Massive tax increases, more spending, all of which the American people can thank the Republican House for, will not see the light of day.”Speaker Kevin McCarthy faces a challenge in coming up with cuts that will satisfy both hard-liners and centrists in the Republican caucus.Julia Nikhinson for The New York TimesRepublicans largely ignored the growth in deficits under Mr. Trump, including approving his tax cuts, which cost the federal government $2 trillion, and when joining with Democrats to pass trillions of dollars in economic aid amid the pandemic recession. Republicans joined Democrats three times to raise or suspend the debt limit without any spending cuts when Mr. Trump was in office. But after winning control of the House in November, Republican leaders have returned to warning that America’s debt load is hurting the U.S. economy and refusing to raise the debt limit unless Mr. Biden agrees to pare back federal spending.The Congressional Budget Office projects the budget deficit will grow slightly this fiscal year, from $1.375 trillion to $1.41 trillion, then continue to rise for the course of the decade, topping $2 trillion in 2032.Those increases are being driven in part by the rising costs of Medicare and Social Security as members of the baby boom generation retire, and by the growing cost of servicing the nation’s $31.4 trillion debt following a series of rapid interest rate increases by the Fed in a bid to tame high inflation. Mr. Powell told lawmakers on Wednesday that “it isn’t that the debt today is unsustainable. It’s that the path is unsustainable.”The director of the budget office, Phillip L. Swagel, briefed lawmakers about deficit projections on Wednesday at the Capitol, warning they would eventually need to raise taxes, cut spending or both in order to mitigate rising debt. The office’s projections “suggest that, over the long term, changes in fiscal policy would need to be made to address the rising costs of interest and mitigate other adverse consequences of high and rising debt,” Mr. Swagel wrote in a slide deck presented to lawmakers.From 2024 to 2033, the budget office projects, deficits will total more than $20 trillion, driving gross federal debt to nearly $52 trillion.Mr. Biden’s proposals, if enacted in full, would reduce that growth by about 15 percent. They are not likely to be. Republicans have tried already this year to repeal tax increases and the Medicare prescription drug savings measures he signed last year.Through new laws he has signed and executive actions he has issued, Mr. Biden has approved policies that would add about $5 trillion to the national debt over a decade, according to estimates by the Committee for a Responsible Federal Budget in Washington. Those include his 2021 economic aid law and debt relief for certain student loan borrowers, which is under challenge at the Supreme Court.It is unclear how Mr. Biden settled on the ultimate figure of nearly $3 trillion for his budget’s deficit reduction, or to what extent he agrees with Republicans who claim that the nation’s current levels of debt and deficits pose a risk to the economy.Karine Jean-Pierre, the White House press secretary, did not directly answer a reporter’s questions this week on how Mr. Biden arrived at his preferred level of deficit reduction or whether the path of growth in the national debt is hurting the economy.“The president understands his fiscal responsibility. He understands how important it is to lower the deficit,” Ms. Jean-Pierre said.“He’s going to put forward a fiscal budget that is going to be responsible,” she added.Catie Edmondson More

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    Here’s What the Fed Chair Said This Week, and Why It Matters

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    Jerome H. Powell, the Fed chair, opened the door to a more aggressive policy path — but emphasized that it depended on incoming data.Jerome H. Powell, the chair of the Federal Reserve, used his testimony before lawmakers this week to lay out a more aggressive path ahead for American monetary policy as the central bank tries to combat stubbornly rapid inflation.Mr. Powell, who spoke before the House Financial Services Committee on Wednesday and the Senate Banking Committee on Tuesday, explained that the economy had been more resilient — and inflation had shown more staying power — than expected.He signaled that he and his colleagues were prepared to respond by raising rates, and doing so more quickly if needed, though he emphasized on Wednesday that no decision had been made ahead of the central bank’s meeting on March 22. Mr. Powell made clear the next move would hinge on a series of job market and inflation data points set for release over the next week.Stocks initially swooned and a common recession indicator flashed red on Tuesday as investors marked up their expectations for how high Fed rates would rise in 2023 and increasingly bet on a larger March move. But they recovered on Wednesday, with the S&P 500 ending the day slightly up.Here are the key points that emerged over the two-day testimony.Rates may climb faster.Mr. Powell surprised many investors when he suggested that the pace of rate increases could pick back up.“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Mr. Powell told lawmakers in both chambers. He was careful on Wednesday to underscore that “no decision has been made on this.”While Mr. Powell avoided promising anything, his comments suggested that the Fed could lift rates by a half-point in March if data reports over the coming days remained hot — which would signify a reversal.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Jerome Powell Says Interest Rate Raises Likely to Be Higher Than Expected

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    In light of recent strong data, Jerome H. Powell said the Federal Reserve was likely to raise rates higher than expected.Jerome H. Powell, the Federal Reserve chair, made clear on Tuesday that the central bank is prepared to react to recent signs of economic strength by raising interest rates higher than previously expected and, if incoming data remain hot, potentially returning to a quicker pace of rate increases.Mr. Powell, in remarks before the Senate Banking Committee, also noted that the Fed’s fight against inflation was “very likely” to come at some cost to the labor market.His comments were the clearest acknowledgment yet that recent reports showing inflation remains stubborn and the job market remains resilient are likely to shake up the policy trajectory for America’s central bank.The Fed raised interest rates last year at the fastest pace since the 1980s, pushing borrowing costs above 4.5 percent, from near zero. That initially seemed to be slowing consumer and business demand and helping inflation to moderate. But a number of recent economic reports have suggested that inflation did not weaken as much as expected last year and remained faster than expected in January, while other data showed hiring remains strong and consumer spending picked up at the start of the year.While some of that momentum could have owed to mild January weather — conditions allowed for shopping trips and construction — Mr. Powell said the unexpected strength would probably require a stronger policy response from the Fed.“The process of getting inflation back down to 2 percent has a long way to go and is likely to be bumpy,” he told the committee. “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”Senator Elizabeth Warren suggested that the Fed was trying to “throw people out of work” and that millions of people stood to lose their jobs if unemployment rose as much as central bankers expected.Michael A. McCoy for The New York TimesFed officials projected in December that rates would rise to a peak of 5 to 5.25 percent, with a few penciling in a slightly higher 5.25 to 5.5 percent. Mr. Powell suggested that the peak rate would need to be adjusted by more than that, without specifying how much more.He even opened the door to faster rate increases if incoming data — which include a jobs report on Friday and a fresh inflation report due next week — remain hot. The Fed repeatedly raised rates by three-quarters of a point in 2022, but slowed to half a point in December and a quarter point in early February.The State of Jobs in the United StatesEconomists have been surprised by recent strength in the labor market, as the Federal Reserve tries to engineer a slowdown and tame inflation.Mislabeling Managers: New evidence shows that many employers are mislabeling rank-and-file workers as managers to avoid paying them overtime.Energy Sector: Solar, wind, geothermal, battery and other alternative-energy businesses are snapping up workers from fossil fuel companies, where employment has fallen.Elite Hedge Funds: As workers around the country negotiate severance packages, employees in a tiny and influential corner of Wall Street are being promised some of their biggest paydays ever.Immigration: The flow of immigrants and refugees into the United States has ramped up, helping to replenish the American labor force. But visa backlogs are still posing challenges.“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Mr. Powell said.Before his remarks, markets were heavily prepared for a quarter-point move at the Fed’s March 21-22 meeting. After his opening testimony, investors increasingly bet that the central bank would make a half-point move in March, stock prices lurched lower, and a closely watched Wall Street recession indicator pointed to a greater chance of a downturn. The S&P 500 ended the day down about 1.5 percent.While Mr. Powell predicated any decision to pick up the pace of rate increases on incoming data, even opening the door to the possibility made it clear that “it’s definitely a policy option they’re considering pretty actively,” said Michael Feroli, chief U.S. economist at J.P. Morgan.Mr. Feroli said a decision to accelerate rate moves might stoke uncertainty about what would come next: Will the Fed stick with half-point moves in May, for instance?“It raises a lot of questions,” he said.Blerina Uruci, chief U.S. economist at T. Rowe Price, previously thought the Fed would stop lifting interest rates around 5.75 percent but now thinks there is a growing chance they will rise above 6 percent, she said. She thinks that if Fed officials speed up rate increases in March, they may feel the need to keep the moves quick in May.“Otherwise, the Fed runs the risk of looking like they’re flip-flopping around,” Ms. Uruci said.While the Fed typically avoids making too much of any single month’s data, Mr. Powell signaled that recent reports had caused concern both because signs of continued momentum were broad-based and because revisions made a slowdown late in 2022 look less pronounced.“The breadth of the reversal along with revisions to the previous quarter suggests that inflationary pressures are running higher than expected at the time of our previous” meeting, Mr. Powell said.He reiterated that there were some hopeful developments: Goods inflation has slowed, and rent inflation, while high, appears poised to cool down this year.And Mr. Powell noted on Tuesday that officials knew it took time for the full effects of monetary policy to be felt, and were taking that into account as they thought about future policy.Still, he underlined that “there is little sign of disinflation thus far” in services outside of housing, which include purchases ranging from restaurant meals and travel to manicures. The Fed has been turning to that measure more and more as a signal of how strong underlying price pressures remain in the economy.“Nothing about the data suggests to me that we’ve tightened too much,” Mr. Powell said in response to lawmaker questions. “Indeed, it suggests that we still have work to do.”When the Fed raises interest rates, it slows consumer spending on big credit-based purchases like houses and cars and can dissuade businesses from expanding on borrowed money. As demand for products and demand for workers cool, wage growth eases and unemployment may even rise, further slowing consumption and causing a broader moderation in the economy.But so far, the job market has been very resilient to the Fed’s moves, with the lowest unemployment rate since 1969, rapid hiring and robust pay gains.Mr. Powell said wage growth — while it had moderated somewhat — remained too strong to be consistent with a return to 2 percent inflation. When companies are paying more, they are likely to charge more to cover their labor bills.“Strong wage growth is good for workers, but only if it is not eroded by inflation,” Mr. Powell said.Despite such explanations, some lawmakers grilled the Fed chair on Tuesday over what the central bank expected to do to the labor market with its policy adjustments.Senator Elizabeth Warren, Democrat of Massachusetts, suggested that the Fed was trying to “throw people out of work” and that millions of people stood to lose their jobs if unemployment rose as much as central bankers expected.“I would explain to people, more broadly, that inflation is extremely high, and that it is hurting the working people of this nation badly,” Mr. Powell said. “We are taking the only measures that we have to bring inflation down.”When Ms. Warren continued to press him on the Fed’s plan, Mr. Powell responded that the central bank was doing what policymakers believed was necessary.“Will working people be better off if we just walk away from our jobs and inflation remains 5, 6 percent?” Mr. Powell asked.He also underlined that the Fed does “not seek, and we don’t believe that we need to have,” a “very significant” downturn in the labor market, because there are many job openings, so it is possible that the labor market could cool quite a bit without outright job losses.“Other business cycles had quite different back stories than this one,” he said. “We’re going to have to find out whether that matters or not.”Joe Rennison More

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    How the Fed Opened Pandora’s Box

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    Jerome H. Powell’s no-holds-barred response to the pandemic was made possible by history. It raises questions about the future.It was July 2019 when Representative Rashida Tlaib, a Michigan Democrat, asked Jerome H. Powell, the chair of the Federal Reserve, whether he would use the central bank’s powers to help state and local governments during the next recession.“We don’t have authority, I don’t believe, to lend to state and local governments,” Mr. Powell replied. “I don’t think we want that authority.”Yet nine months later, at the start of April 2020, the central bank announced that it would do effectively what Ms. Tlaib had asked. Fed officials set up a program to make sure that state and local governments could continue to borrow as credit markets dried up.What had changed was the onset of the coronavirus pandemic. Roughly 15 of every 100 adults who wanted to work found themselves jobless that month, many of them suddenly. Stocks had plunged in value so precipitously that the nation’s households would lose 5.5 percent of their wealth in just the first three months of the year. Amid government-imposed shutdowns, with millions of people at home, there were real worries that Wall Street and small businesses alike would implode.What hadn’t changed was the Fed’s enormous power. Whether central bankers were ready to embrace it in 2019 or not, the institution has long had sweeping authority to use its ability to create money out of thin air to save the financial system and economy in times of trouble.And it could exercise that power expediently — and with considerable independence from the rest of the government — in no small part because a man named Marriner Eccles reluctantly took on the job of leading America’s central bank in 1934. That history is particularly useful for understanding what happened in 2020 — and what that might set in motion for the future. It is detailed in my new book “Limitless: The Federal Reserve Takes on a New Age of Crisis,” from which this article is adapted.The Fed staged a no-holds-barred intervention during the pandemic to stabilize Wall Street and insulate the economy, slashing interest rates to rock bottom, buying trillions of dollars’ worth of government-backed bonds to keep critical markets functioning and promising trillions more in emergency programs that would keep loans flowing to municipal and corporate borrowers and midsize businesses.It worked. The rescue was so successful that by the end of 2020 the Fed’s response effort was shutting down, rapidly fading from headline-grabbing news to mere historical artifact.But the Fed’s actions quietly opened the monetary and financial policy equivalent of Pandora’s box: They made it clear to Fed officials themselves, to Congress and to financial market players exactly what the central bank is capable of doing and whom it is capable of saving. That makes it much more likely that the central bank will be called on to use its tools expansively again.After seeing what the Fed could do during the 2008 financial meltdown, politicians asked: Why save Wall Street but not Detroit? After 2020, they may wonder: Why react to a pandemic crisis but not a climate crisis, or a military one?Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Inflation Cooled Just Slightly, With Worrying Details

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    WASHINGTON — Inflation has slowed from its painful 2022 peak but remains uncomfortably rapid, data released Tuesday showed, and the forces pushing prices higher are proving stubborn in ways that could make it difficult to wrestle cost increases back to the Federal Reserve’s goal.The Consumer Price Index climbed by 6.4 percent in January compared with a year earlier, faster than economists had forecast and only a slight slowdown from 6.5 percent in December. While the annual pace of increase has cooled from a peak of 9.1 percent in summer 2022, it remains more than three times as fast as was typical before the pandemic.And prices continued to increase rapidly on a monthly basis as a broad array of goods and services, including apparel, groceries, hotel rooms and rent, became more expensive. That was true even after stripping out volatile food and fuel costs.Taken as a whole, the data underlined that while the Federal Reserve has been receiving positive news that inflation is no longer accelerating relentlessly, it could be a long and bumpy road back to the 2 percent annual price gains that used to be normal. Prices for everyday purchases are still climbing at a pace that risks chipping away at economic security for many households.“We’re certainly down from the peak of inflation pressures last year, but we’re lingering at an elevated rate,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives. “The road back to 2 percent is going to take some time.”Stock prices sank in the hours after the report, and market expectations that the Fed will raise interest rates above 5 percent in the coming months increased slightly. Central bankers have already lifted borrowing costs from near zero a year ago to above 4.5 percent, a rapid-fire adjustment meant to slow consumer and business demand in a bid to wrestle price increases under control.Moderating price increases for goods and commodities have driven the overall inflation slowdown in recent months.Casey Steffens for The New York TimesBut the economy has so far held up in the face of the central bank’s campaign to slow it down. Growth did cool last year, with the rate-sensitive housing market pulling back and demand for big purchases like cars waning, but the job market has remained strong and wages are still climbing robustly.That could help to keep the economy chugging along into 2023. Consumption overall had shown signs of slowing meaningfully, but it may be poised for a comeback. Economists expect retail sales data scheduled for release on Wednesday to show that spending climbed 2 percent in January after falling 1.1 percent in December, based on estimates in a Bloomberg survey.Signs of continued economic momentum could combine with incoming price data to convince the Fed that it needs to do more to bring inflation fully under control, which could entail pushing rates higher than expected or leaving them elevated for longer. Central bankers have been warning that the process of wrangling cost increases might prove bumpy and difficult.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    As Biden Prepares to Tout Economy, Fed Chair Powell Takes a Cautious Tone

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    The White House has embraced signs that the economy is strong. For the Fed, that strength could prolong its fight against inflation.WASHINGTON — Jerome H. Powell, the chair of the Federal Reserve, underscored that the central bank has more work to do when it comes to slowing the economy and that officials remain determined to wrestle rapid inflation under control, even if that means pushing rates higher than expected.Mr. Powell, speaking on Tuesday in a question-and-answer session at the Economic Club of Washington, D.C., called a recent slowdown in price increases “the very early stages of disinflation.” He added that the process of getting inflation back to normal was likely to be bumpy.“There has been an expectation that it will go away quickly and painlessly — and I don’t think that’s at all guaranteed; that’s not the base case,” Mr. Powell said. “The base case for me is that it will take some time, and we’ll have to do more rate increases, and then we’ll have to look around and see whether we’ve done enough.”The Fed chair’s comments came hours before President Biden delivered the annual State of the Union address, which offered a contrasting tone.Democrats are embracing a historically strong economy with super-low unemployment and rapid wage growth, cheering a report last week that showed employers added more than half a million jobs in January. But Fed officials have met the news with more caution. The central bank is supposed to foster both full employment and stable inflation, and policymakers have been concerned that the strength of today’s job market could make it harder for them to return wage and price increases to historically normal levels.Mr. Powell said that the Fed had not expected the jobs report to be so strong, and that the robustness reinforced why the process of lowering inflation “takes a significant period of time.”While he said it was good that the disinflation so far had not come at the expense of the labor market, he also underscored that further interest rate moves would be appropriate and that borrowing costs would need to remain high for some time. And he embraced how markets have adjusted in the wake of the strong hiring numbers: Investors had previously expected the Fed to stop adjusting policy very soon, but now see rate increases in both March and May.The biggest inflation challenge facing the Fed is in the services sector of the economy, which includes restaurants, travel and health care.Jim Wilson/The New York Times“We anticipate that ongoing rate increases will be appropriate,” Mr. Powell said. He said that in the wake of the jobs report, financial conditions were “more well aligned” with that view than they had been previously.To try to slow the economy and choke off inflation, policymakers raised interest rates from near zero early last year to more than 4.5 percent at their last meeting, the quickest pace of adjustment in decades. Higher borrowing costs weigh on demand by making it more expensive to fund big purchases or business expansions. That in turn tempers hiring and wage growth, with further cools the economy. Inflation F.A.Q.Card 1 of 5What is inflation? More

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    January Jobs Report Contained Hopeful and Worrying News for the Fed

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    The Federal Reserve is tracking incoming labor figures as it decides how high interest rates need to go and how long they should stay elevated.WASHINGTON — Federal Reserve officials have said they are looking for the labor market to cool as they assess how much more they need to do to slow the economy, and the job report on Friday underscored that policymakers may still have a ways to go.Employers hired ravenously in January, adding 517,000 workers. The jobless rate dipped to a level not seen since 1969, and revisions to last year’s data showed that job growth was even stronger in 2021 and 2022 than previously understood — all signs that the demand for labor is booming.Yet at the same time, wage growth continued to moderate. Average hourly earnings climbed 4.4 percent over the year, more than forecast in a Bloomberg survey of economists but less than the 4.8 percent year-over-year increase in December. Pay growth has been decelerating for months, though it remains faster than is typical and notably quicker than the pace that Fed officials have at times suggested would be consistent with their 2 percent inflation goal.For central bankers who are trying to bring down the fastest inflation in decades, the report offered both encouraging and worrying news. On one hand, the continued slowdown in pay increases was a welcome sign that, if it persists, could pave the way for slower price increases down the road. But Fed policymakers who spoke on Friday focused more intently on the fresh evidence that demand for workers remains intense despite their efforts, suggesting that they have more work to do before they will be able to feel confident that rapid inflation will fade fully.“The biggest surprise — and the thing to take the most signal from — is the combination of the job gains over the past month and the restatement over the past year,” Thomas Barkin, the president of the Federal Reserve Bank of Richmond, said in an interview with The New York Times. “We still have more to do. Inflation is the guidepost.”Fed officials have already lifted rates from near zero a year ago to more than 4.5 percent, ushering in a quarter-point move just this week. While they have signaled more to come, investors and economists had been betting that they might stop moving after their next meeting, in March.The strong job numbers upended that expectation. Investors on Friday penciled in another rate move in May, and stocks fell in response to the jobs data as Wall Street braced for a more aggressive central bank. Higher rates weigh on demand by making it more expensive to borrow to buy a house or expand a business.The State of Jobs in the United StatesEconomists have been surprised by recent strength in the labor market, as the Federal Reserve tries to engineer a slowdown and tame inflation.Job Trends: The Labor Department reported that the nation’s demand for labor only got stronger in December, as job openings rose to 11 million.Burrito Season: Chipotle Mexican Grill, the fast-casual food chain, said that it planned to hire 15,000 workers ahead of its busiest time of year, from March to May.Retail Industry: With consumers worried about inflation in the prices of day-to-day necessities like food, retailers are playing defense and reducing their work forces.Tech Layoffs: The industry’s recent job cuts have been an awakening for a generation of workers who have never experienced a cyclical crash.Fed officials themselves underlined that further rate adjustments are coming.“The number today on the jobs report was a ‘wow’ number,” Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said on Fox Business. She added that it did not change the economic narrative: It was just additional confirmation that the labor market is strong.She said the Fed’s December forecast — which called for two more quarter-point rate increases, pushing rates just above 5 percent — remained “a good indicator of where policy is at least headed,” adding that she is “prepared to do more than that if more is needed.”Wage growth is slowing along with inflationYear-over-year percentage change in earnings vs. inflation More