Powell, Jerome H

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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

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    Can A Trillion Dollar Coin Resolve the Debt Ceiling Crisis?

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    The latest standoff over raising the nation’s debt ceiling is giving new life to an old theory about how to avoid a default.WASHINGTON — The debt limit standoff between Republicans and Democrats has elevated questions about creative solutions for averting a crisis, including one that at first blush might seem unthinkable: Could minting a $1 trillion platinum coin make the whole problem go away?What was once a fringe idea is now being presented to top economic policymakers as a serious remedy.Asked on Wednesday about the notion that there might be another option if Congress failed to lift the borrowing cap, Jerome H. Powell, the Federal Reserve chair, said there was not.“There’s only one way forward here, and that is for Congress to raise the debt ceiling so that the United States government can pay all of its obligations when due,” Mr. Powell said. “Any deviations from that path would be highly risky.”Treasury Secretary Janet L. Yellen was unable to avoid the debt limit crisis brewing back in the United States as she crisscrossed Africa last week and fielded queries about the coin, which she dismissed as a “gimmick.”Instead, Ms. Yellen sent two stern letters to Speaker Kevin McCarthy outlining the “extraordinary measures” she was taking to ensure the United States can keep paying its bills and urged Congress to “act promptly” to protect the nation’s full faith and credit by lifting the debt limit.President Biden told Mr. McCarthy on Wednesday that while there was room for discussion about addressing the deficit, Congress would have to pass a debt limit increase with no strings attached to avoid a financial cataclysm. Mr. Biden and Mr. McCarthy met at the White House for more than an hour in a discussion that carried high stakes, with the federal government set to exhaust its ability to pay its bills on time as early as June.But the idea of a coin still has its fair share of supporters, and they are not giving up.As political gridlock over the borrowing cap has hardened, the notion that the Treasury secretary could defuse the debt limit drama with her currency minting powers has re-emerged, including on Twitter, where the hashtag #MintTheCoin is again buzzing.Still, the feasibility of averting America’s debt crisis by minting a valuable piece of currency is far from clear. Here’s a look at origins of the coin, how it might be used and the potential consequences.A Most Extraordinary MeasureIf Congress cannot reach an agreement by early June to increase the debt limit, which was capped at $31.4 trillion in late 2021, Ms. Yellen’s ability to use government accounting tools to delay a default could soon be exhausted, and the United States would be unable to pay all of its bills on time.Treasury Secretary Janet L. Yellen in Zambia last month. She urged Congress to “act promptly” to protect the nation’s full faith and credit by lifting the debt limit.Fatima Hussein/Associated PressThis could cause a deep recession and potentially a financial crisis, shutting down large swaths of the economy and preventing beneficiaries of Social Security and Medicare from receiving their money. Although Ms. Yellen has the power to move funds around government accounts to delay a default, eventually the government’s coffers will run dry without the ability to raise more tax revenue or borrow more money.That’s where the coin comes in. Proponents of the idea believe Ms. Yellen could use her authority to instruct the U.S. Mint to produce a platinum coin valued at $1 trillion — or another large denomination — and deposit it with the Federal Reserve, the government’s banker, which manages the Treasury Department’s “general account.”Understand the U.S. Debt CeilingCard 1 of 5What is the debt ceiling? More

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    Smaller Rate Increase by Federal Reserve Likely as Inflation Cools

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    America’s central bank is expected to raise rates by a quarter point on Wednesday. The question now is what comes next.Federal Reserve officials are widely expected to raise interest rates by a quarter point at their meeting this week, further slowing what had been an aggressive pace of rate increases in 2022 as they wait to see how swiftly inflation will fade.Moving gradually will give Fed officials more time to assess how high rates need to rise and how long they need to stay elevated to fully wrangle inflation, both of which are looming and crucial questions. The answers will help to determine how much damage the Fed inflicts on the labor market and broader economy in its quest to control price increases.Central bankers raised interest rates from near zero to above 4.25 percent last year, and they are expected to lift rates to a range of 4.5 to 4.75 percent on Wednesday. Investors will be even more attuned to what may come next, and will parse the Fed’s 2 p.m. statement and the subsequent news conference by the Fed chair Jerome H. Powell for clues about the future.Fed officials predicted in December that they would lift rates to just above 5 percent in 2023, then hold them at a high level throughout the year. But incoming data will drive how high the Fed raises rates and how long they keep them at that level.Since the Fed’s last decision, inflation has meaningfully slowed, and data on the economy show that consumers are becoming more cautious and beginning to spend less. Anecdotes suggest that shoppers may be more sensitive to prices, which would make it more difficult for companies to continue passing along big price increases. At the same time, the job market remains very strong, and economists and central bankers have warned that a re-acceleration in growth and inflation remains possible. That is likely to keep the Fed wary of prematurely declaring victory over inflation.“They’re going to stay vigilant on inflation — I don’t think they’re going to break out the ‘mission accomplished’ banner just yet,” said Gennadiy Goldberg, a rates strategist at T.D. Securities. “If they don’t send the signal that they really want to get inflation under control, the market could over-interpret that as a signal that they’re done. That’s not the message they want to send.”Wall Street will be focused on one word in particular in the Fed’s policy statement: “ongoing.” In recent months, central bankers have stated that “ongoing increases in the target range will be appropriate.”Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Powell Says Fed Will Not Be a ‘Climate Policymaker’

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    In a speech on Federal Reserve independence, Chair Jerome H. Powell emphasized that climate change should be addressed by elected officials.Jerome H. Powell, the Federal Reserve chair, said that to retain its independence from politics, the central bank must “stick to its knitting” — and that means it is not the right institution to delve into issues like mitigating climate change.“Without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals,” said Mr. Powell, who delivered his comments at a conference held by Sweden’s central bank. “We are not, and will not be, a ‘climate policymaker.’”Mr. Powell’s comments responded to occasional calls from Democrats for the Fed to take a more active role in policing climate change, and to skepticism from some Republicans that it can guard against climate-related risks to the financial system without overstepping and actively influencing whether industries like oil and gas can access credit.While the central bank is working on ways to better monitor climate-related risks at financial institutions, officials including Mr. Powell have been clear that they should not try to incentivize banks to lend to green projects or discourage them from lending to carbon-producing ones.“Addressing climate change seems likely to require policies that would have significant distributional and other effects on companies, industries, regions, and nations,” Mr. Powell said in his remarks.Inflation F.A.Q.Card 1 of 5What is inflation? More