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

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    Jerome H. Powell, the Federal Reserve chair, told lawmakers on Wednesday that the central bank is poised to lift interest rates at its meeting this month as it tries to cool down high inflation — saying that while Russia’s invasion of Ukraine is ramping up economic uncertainty, it isn’t yet shaking the Fed off its course.Mr. Powell, testifying before the House Financial Services Committee, said the economic path ahead remained unsettled as Russia invaded Ukraine and the world reacted. He outlined with more clarity than usual how the Fed is thinking about policy in the coming months, saying, “We are going to avoid adding uncertainty to what is already an extraordinarily challenging and uncertain moment.”With inflation running hot, the labor market showing strength and the economy growing rapidly, the Fed’s leader said he thought a quarter-point interest rate increase would be appropriate at the central bank’s meeting, which will conclude on March 16. He expects the Fed to make a “series” of increases this year. And he thinks officials will agree to a plan for shrinking their balance sheet bond holdings in coming months, as they had been planning to do.“The question now really is how the invasion of Ukraine, the ongoing war, the response from nations around the world — including sanctions — may have changed that expectation,” Mr. Powell said. “It’s too soon to say for sure, but for now I would say that we will proceed carefully along the lines of that plan.”Mr. Powell emphasized that flexibility was critical, because it was too soon to know what today’s geopolitical tumult would mean for the American economy.Economists have said the conflict is likely to push up gas and other commodity prices, further elevating inflation — already, oil prices have shot higher. But at the same time, a combination of higher fuel costs and wavering consumer sentiment could be a drag on economic growth. Given the unclear effects on the American economy, Mr. Powell said, the Fed will need to remain “nimble.”The Fed chair and his colleagues must balance the risks that Ukraine poses to both inflation and growth against another pressing reality: Price gains in America had already been coming in high for about a year. Fed policymakers, who are tasked with maintaining stable prices, want to make sure that those quick increases do not become a permanent feature of the economic backdrop.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.“The game plan is to prevent recent high inflation outcomes from persisting,” Michael Gapen and his colleagues at Barclays wrote in a research report, summing up the crux of Mr. Powell’s testimony.Prices are increasing at the fastest pace in four decades, picking up by 7.5 percent over the year through January in the closely watched Consumer Price Index and by 6.1 percent in the Fed’s preferred inflation gauge, the Personal Consumption Expenditures index. The central bank aims for 2 percent inflation on average over time. Mr. Powell attributed the stubbornly rapid increases to strong consumer demand, especially for goods, that has “collided” with limited supply.“Admitting that inflation — proclaiming that inflation — is far too high, and that we are committed to using our tools to get it back down, it’s really about very, very high demand,” Mr. Powell said. “It’s a very different kind of inflation story than we’ve had in the past, but it’s one we have to deal with, and we will deal with it.”Mr. Powell said the Fed expected inflation to cool off this year as it raised interest rates, government pandemic relief spending faded and supply constraints cleared up. But officials are also closely monitoring factors that could keep it high.If price gains do not begin to come down in 2022, he said the central bank would be prepared to “move more aggressively” and make a larger-than-usual rate increase. Markets have expected that the Fed could increase rates, which are near zero, by half a percentage points at some meetings.“We will use our policy tools as appropriate to prevent higher inflation from becoming entrenched while promoting a sustainable expansion and a strong labor market,” Mr. Powell said.Drivers fueled up last month in Brooklyn. Economists have said the war in Ukraine is likely to push gas and other commodity prices higher.Amir Hamja for The New York TimesHis testimony underscored the tense political and economic moment that confronts the Fed — and policymakers across Washington — as a war rages overseas and inflation dominates headlines and spooks consumers at home.Today’s economy does have many bright spots, which Mr. Powell emphasized: Growth has been stronger than in many other advanced economies, and jobs are plentiful, creating opportunities for workers.“The labor market is extremely tight,” Mr. Powell said. He added that “employers are having difficulties filling job openings, an unprecedented number of workers are quitting to take new jobs and wages are rising at their fastest pace in many years.”Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Federal Reserve Rolls Out Tough Trading Restrictions After Scandal

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    The Federal Reserve on Friday adopted a new set of ethics rules meant to prevent questionable financial market trading activity by top officials, a sweeping response to a scandal that has rocked the central bank since late last year.Fed officials traded in individual stocks, real estate securities and stock funds in 2020, a year in which the central bank rolled out a range of pandemic response programs that placed officials’ day-to-day decisions at the core of what happened in financial markets. Three high-ranking policymakers resigned earlier than they had planned after news of the trading broke last year and early in 2022.Jerome H. Powell, the Fed chair, acknowledged in the wake of the revelations that he and his colleagues were not “happy” with what had happened and said they would revamp the central bank’s ethics rules to prevent a similar situation in the future.The new rules, which were previewed in October, aim to fulfill that promise. They prevent senior officials from purchasing individual stocks or funds tracing business sectors, the Fed said, and they ban investments in individual bonds, cryptocurrencies, commodities or foreign currencies, among other securities.Senior Fed officials must now announce that they are buying or selling a security 45 days in advance, and that notice will not be retractable. Investments must be held for at least one year under the new guidelines.The Fed’s 12 regional bank presidents will be required to publicly disclose securities transactions within 30 days, the way that its seven board members in Washington already do. They must post financial disclosures on their bank websites, something they now do only sporadically.The fresh set of rules will apply to a wide array of personnel with access to sensitive information, from reserve bank first vice presidents and research directors to high-ranking staff members and people designated by the chair.The Fed will also extend its financial trading blackout period — which typically applies in the run-up to Fed meetings — by one day after each meeting. That will align it with the period in which Fed officials are not allowed to give speeches.Most of the restrictions will take effect on May 1, although the new rules on the advance notice and preclearance of transactions will take effect on July 1.Financial disclosures released in late 2021 showed that Robert S. Kaplan, the former Federal Reserve Bank of Dallas president, had made big individual-stock trades, while Eric S. Rosengren, the Boston Fed president, had traded in real estate securities. Mr. Kaplan resigned in September, citing the scandal; Mr. Rosengren resigned simultaneously, citing health issues.Richard H. Clarida, then the Fed’s vice chair, sold and then rapidly repurchased a stock fund on the eve of a major Fed decision, corrected financial disclosures showed. Mr. Clarida also resigned slightly earlier than planned, though he did not cite a reason. More

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    January Fed Minutes Show Concern About Inflation's Spread

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

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    Senate Republicans Stall Crucial Vote on Fed Nominees

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    President Biden’s plans to reshape the Federal Reserve suffered a setback on Tuesday as Republicans delayed a key vote on his five nominees for its Board of Governors.Republicans did not show up for a committee decision that would have advanced the nominees to the full Senate for a confirmation vote. Because a majority of the Senate Banking Committee’s members need to be physically present for such votes to count, their blockade effectively halted the process.The unusual maneuver, spearheaded by Senator Patrick J. Toomey of Pennsylvania, was driven by Republican opposition to Mr. Biden’s pick for the nation’s top bank cop, Sarah Bloom Raskin.The president has renominated Jerome H. Powell as Fed chair and has tapped Lael Brainard, a current Fed governor, as vice chair. He has also nominated the economists Lisa D. Cook and Philip N. Jefferson as Fed governors. But Ms. Raskin — a longtime Washington policymaker and lawyer whom Mr. Biden has picked as vice chair for bank supervision — has garnered the most pushback.To prevent her nomination from advancing to the full Senate, Republicans held up the vote on all five nominees.Democrats and the White House criticized Republicans for engineering a boycott and scrambled for a solution that could get the nominees to a confirmation vote. Senator Sherrod Brown, Democrat of Ohio and chair of the Banking Committee, on Tuesday shot down the idea that he would separate Ms. Raskin from the other nominees to allow the rest to advance. Ms. Raskin could face tough odds of passing, especially on her own.By nominating five of the Fed’s seven governors and all of its highest-ranking leaders, Mr. Biden had a chance to shake up the institution. While some of his picks — like Mr. Powell — represented continuity, together they would have made up the most racially and gender-diverse Fed leadership team ever.Sarah Binder, a professor of political science at George Washington University who co-wrote a book on the politics of the Fed, said Democrats would need to come up with a strategy to overcome the Republican block or the nominees could get stuck in limbo.“It is really a delay — it might yet scupper Raskin,” she said. She noted that Democrats could break the nominations up or try to garner enough support among the full Senate to override the rules and get the nominees past the committee, though that might be a challenge.“It’s pretty uncharted, and they’re going to have to find a way,” Dr. Binder said.Molly Reynolds, a senior fellow in governance studies at the Brookings Institution, said that outside of trying to change Senate rules — which she called the “nuclear option” — Democrats’ clearest avenue was probably to negotiate with Republicans.“They just need a Republican to show up,” she noted, explaining that the senator would not even need to vote yes for the committee to secure a majority and move the candidates along.Tuesday’s maneuver was the latest step in Mr. Toomey’s opposition campaign against Ms. Raskin, who would serve as arguably the nation’s most important bank regulator if confirmed.Mr. Toomey has criticized Ms. Raskin for past comments on climate-related regulation, worrying that she would be too activist in bank oversight. More recently, he has pressed for more information about her interactions with the Fed while she was on the board of a financial technology company that was pushing for a potentially lucrative central bank account.“Until basic questions have been adequately addressed, I do not think the committee should proceed with a vote on Ms. Raskin,” Mr. Toomey said in the statement.White House officials criticized his move as inappropriate when the Fed is wrestling with rapidly rising prices and preparing to raise interest rates next month.“It’s totally irresponsible, in our view — it’s never been more important to have confirmed leadership at the Fed,” said Jen Psaki, the White House press secretary. She added that the administration’s focus now was moving the nominees through the committee and called Mr. Toomey’s probing of Ms. Raskin’s background “false allegations.”The dispute centers on the revolving door between government regulators and the arcane world of financial technology.Mr. Toomey and his colleagues have said Ms. Raskin, a former Fed and Treasury official, had contacted the Federal Reserve Bank of Kansas City on behalf of Reserve Trust, a financial technology company. Reserve Trust secured a strategically important account at the Fed while she was on its board: To this day, it advertises that it is the only company of its kind with what’s known as a “master” account.Master accounts give companies access to the U.S. payment system infrastructure, allowing firms to move money without working with a bank, among other advantages.Republicans are blocking the process over concerns about one of the nominees, Sarah Bloom Raskin.Pool photo by Ken CedenoMs. Raskin said in written responses to Mr. Toomey’s questions early this month that she did “not recall any communications I made to help Reserve Trust obtain a master account.” But Mr. Toomey said in a subsequent letter that the president of the Kansas City Fed, Esther George, had told his staff that Ms. Raskin called her about the account in 2017.The Kansas City Fed has insisted that it followed its normal protocol in granting Reserve Trust’s master account and noted that talking with a firm’s board members was “routine.” But Mr. Toomey has continued to push for more information.“Important questions about Ms. Raskin’s use of the ‘revolving door’ remain unanswered largely because of her repeated disingenuousness with the committee,” Mr. Toomey said in his statement Tuesday.Democrats have emphasized that Ms. Raskin recently committed to a new set of ethics standards, agreeing not to work for financial services companies for four years after she leaves government — a pledge Ms. Cook and Mr. Jefferson also made, at the urging of Senator Elizabeth Warren, Democrat of Massachusetts.Ms. Brainard agreed to a weaker version of that commitment that would bar her from working at bank holding companies and depository institutions outside of mission-driven exceptions like banks that target underserved communities, a spokesperson for Ms. Warren’s office said Tuesday.Mr. Powell declined to make a similar commitment, the spokesperson said. The Fed chair did signal that he would adhere to the administration’s ethics rules, which ban paid work related to government service for two years upon leaving office.On Tuesday, a dozen Republican chairs in the room where the committee met remained empty while Democrats occupied their seats across the room. Democrats took a vote to show support, though it was not binding, and Mr. Brown pledged to reschedule.“Few things we do as senators will do more to help address our country’s economic concerns more than to confirm this slate of nominees, the most diverse and most qualified slate of Fed nominees ever put forward,” Mr. Brown said, chiding Republicans for skipping the session.“They’re taking away probably the most important tool we have — and that’s the Federal Reserve — to combat inflation,” he later added.The Fed has four current governors, in addition to its 12 regional presidents, five of whom vote on monetary policy at any given time. Mr. Powell has already been serving as chair on an interim basis, since his leadership term officially expired this month. Even if the nominees advance, Ms. Raskin may struggle to pass the full Senate. Winning confirmation would require her to maintain full support from all 50 lawmakers who caucus with Democrats and for all those lawmakers to be present unless she can win Republican votes. Senator Ben Ray Luján, Democrat of New Mexico, has been absent as he recovers from a stroke.“The Republicans are playing hardball because they can,” said Ian Katz, the managing director at Capital Alpha Partners. “At the least, it delays her confirmation. It could have the ultimate effect of killing it.” More

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

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

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    Year-over-year changes in the Consumer Price Index
    Seasonally adjustedSource: Bureau of Labor StatisticsBy The New York TimesA key inflation measure released on Thursday showed that prices are climbing at the fastest pace in 40 years and broadening to touch nearly every corner of the American economy, heightening the risk that they will stay elevated for longer and that policymakers may have to react more aggressively.Markets tumbled after the government released Consumer Price Index data for January, which showed prices jumping 7.5 percent over the year and 0.6 percent over the past month, exceeding forecasts. More worrying were the report’s details, which showed inflation moving beyond pandemic-affected goods and services, a sign that rapid gains could prove longer lasting and harder to shake off.Investors speculated that the hot inflation would spur a decisive reaction from the Federal Reserve — possibly a big interest rate increase at the central bank’s next gathering in March, though few Fed officials have signaled comfort with such a large move. Making money more expensive to borrow and spend could weigh on demand, slowing the economy and tamping down prices.Wall Street is now anticipating that interest rates could rise to more than 1.75 percent by the end of the year, up from near zero now, and the possibility of a more forceful Fed reaction sent a key bond yield above 2 percent for the first time since July 2019 and deflated stock prices.Most economists still believe inflation will cool by year’s end, as automobile prices climb at a more moderate pace and as supply chain problems hopefully ease. But high and widespread price increases portend trouble for a White House that is struggling to convince voters that the economy is strong, and for a Fed that looks increasingly at risk of falling behind the curve.“It was more than expected, and it was broad-based,” said Priya Misra, head of global rates strategy at TD Securities, adding that she now expects price gains to slow less drastically this year. “We’ve gotten used to these big headline numbers, but every aspect of ‘transitory’ you can push back against now.”Economists thought price gains would fade quickly in 2021 — making now-infamous predictions that inflation would prove “transitory” — only to have those projections proved wrong time and again as booming consumer demand for goods collided with roiled global supply chains that could not ramp up production fast enough.High inflation has been a political liability for the White House, as rising prices have eaten away at household paychecks, leaving consumers feeling pessimistic.Amir Hamja for The New York TimesLately, it is more than just shortages of goods at play. Price gains are increasingly hitting consumers in hard-to-avoid ways as they show up in necessities: January’s inflation reading was driven by food, electricity and shelter costs, the Bureau of Labor Statistics said.High and broadening inflation has become a political liability for President Biden, as rising prices eat away at household paychecks and detract from a strong labor market with solid wage growth. That has left consumers feeling pessimistic and has all but killed Mr. Biden’s chance to pass a sweeping climate and social policy bill given lawmaker concerns about rising prices.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.Ryan Sweet, an economist at Moody’s Analytics, estimated that inflation was costing the average household $276 a month, compared with a more normal rate of inflation, which had been hovering just around 2 percent before the pandemic.“While today is a reminder that Americans’ budgets are being stretched in ways that create real stress at the kitchen table, there are also signs that we will make it through this challenge,” Mr. Biden said in a statement. He emphasized that wages grew more quickly than prices last month — though in general they have not kept up with price gains over the past year.The White House has introduced policies that might help to ease inflation slightly — discussing plans to help place military veterans into the short-staffed trucking industry, for instance — but the Fed is primarily in charge of slowing down demand to keep prices under control. Fed officials have already shifted away from trying to foster a quick economic rebound and toward bringing inflation down. After Thursday’s report, investors expected the Fed to withdraw economic support even more quickly. Markets braced for a half-percentage-point increase in the federal funds rate at the central bank’s meeting next month — double the usual increment.The inflation reading sent stocks down and government bond yields up. The S&P 500 dropped 1.8 percent, while the Nasdaq composite fell 2.1 percent. The yield on 10-year U.S. Treasury notes rose 0.1 percentage points, to about 2.03 percent, the highest level since November 2019.James Bullard, the president of the Federal Reserve Bank of St. Louis, fretted about the January inflation report in an interview with Bloomberg News and suggested that policymakers should be open to both a bigger-than-normal rate increase and to increasing rates in between officially scheduled meetings.“You have got the highest inflation in 40 years, and I think we are going to have to be far more nimble and far more reactive to data,” said Mr. Bullard, who has at times espoused bold stances that are not followed by his policymaking colleagues.The Fed generally moves borrowing costs in between meetings only at stressed moments and in emergencies, as was the case when it cut rates to zero between planned gatherings in March 2020.Inflation is abnormally high relative to the central bank’s goal: The Fed aims for 2 percent inflation on average over time, defining that target using a different but related inflation index that is also sharply elevated.And it increasingly appears to be driven less by the pandemic and more by a strong economy. Price increases in 2021 came heavily from roiled supply chains that sent new and used car prices and furniture costs up sharply. Those continue to be a big factor elevating overall inflation, but other areas are also fueling the rapid rise.

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

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    Fed nominees commit to not taking part in finance’s revolving door.

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    Three of President Biden’s nominees to the Federal Reserve committed to lawmakers that, if confirmed to their posts, they would not work in financial services for four years after leaving the Fed.The pledge comes amid growing concern about the revolving door between Washington and Wall Street.The three potential Fed governors in question — the economists Lisa D. Cook and Philip N. Jefferson and a longtime government official and lawyer, Sarah Bloom Raskin — said they would “commit not to seek employment or compensation” from any financial services company after leaving the board, which oversees the largest banks.Their promises came at the urging of Senator Elizabeth Warren, the Massachusetts Democrat who has criticized the so-called revolving door between government and finance. Fed officials regularly go to work for Wall Street after leaving the institution, making the commitment notable.“These are the strongest ethics standards ever agreed to by Federal Reserve Board nominees,” Ms. Warren said in a statement on Wednesday. “U.S. Senators and the American people can be confident that these public servants will make sound economic policy decisions in the public’s best interest.”Republicans have been questioning Ms. Raskin’s nomination by highlighting her stint on the board of directors for a financial technology company, Reserve Trust.The company got a critical account with the Fed — known as a master account — while Ms. Raskin was on the company’s board. The account provided the firm with advertisable benefits, like access to the Fed’s payments system.During her confirmation hearing before the Senate Committee on Banking, Housing and Urban Affairs last week, senators questioned whether she had used her previous positions at the Fed and Treasury to help secure the account. Ms. Raskin did not confirm or deny whether she had been in touch with the company’s local Fed bank while she sat on its board.The Federal Reserve Bank of Kansas City, which approved the master account, has said that it “did not deviate from its review process in evaluating this request.”Senator Patrick J. Toomey, Republican of Pennsylvania, asked Ms. Raskin to respond in writing by Wednesday about the Reserve Trust situation.Ms. Raskin, in her response, said she did “not recall any communications I made to help Reserve Trust obtain a master account. Had I done so, I would have abided by all applicable ethics rules in such communications.”Amanda Thompson, the communications director for Republicans on the Banking Committee, called those responses a “case of selective amnesia.”The White House has continued to stand behind its nominees. Christopher Meagher, a spokesman for the White House, called the Republican questioning “smears” and said that they “continue to fall flat in the face of scrutiny and facts.”Dr. Cook, Dr. Jefferson and Ms. Raskin are up for confirmation alongside Jerome H. Powell — who Mr. Biden renominated to be Fed chair — and Lael Brainard, a Fed governor who is the Biden administration’s pick for vice chair.Senator Sherrod Brown, Democrat of Ohio and the chairman of the Banking Committee, said last week that all five candidates would face a key committee vote on Feb. 15. More

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    Modern Monetary Theory Got a Pandemic Tryout. Inflation Is Now Testing It.

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    The sun was sinking low over Long Island Sound as Stephanie Kelton, wearing the bright red suit jacket she had donned to give a virtual guest lecture to university students in London that morning, perched before a pillow fort she had constructed atop the heavy wooden desk in her home office.The setup was meant to keep out noise as she recorded the podcast she co-hosts, a MarketWatch production called the “Best New Ideas in Money.” The room was hushed except for Ms. Kelton, who bantered energetically with the producers she was hearing through noise-blocking headphones, sang a Terri Gibbs song and made occasional edits to the script. At one point, she muttered, “That sounds like Stephanie.”What Stephanie Kelton sounds like, circa early 2022, is the star architect of a movement that is on something of a victory lap. A victory lap with an asterisk.Ms. Kelton, 52, is the most familiar public face of Modern Monetary Theory, which posits that if a government controls its own currency and needs money — to make sure its citizens have food and places to live when, say, a global pandemic pushes many out of work — it can just print it, as long as its economy has the ability to churn out the needed goods and services.In the M.M.T. view of the world, “How will you pay for it?” is a vapid policy question. Real-world resources and political priorities determine how much lawmakers can and should spend.It is an idea that was forged, and put to something of a test, during a low-inflation era.When Ms. Kelton’s book, “The Deficit Myth,” was published in June 2020 and shot onto best seller lists, inflation had been weak for decades and had dropped below 1 percent as consumers retrenched in the pandemic. The government had begun to spend rapidly to try to prop up flailing households.When Ms. Kelton appeared on a Bloomberg podcast episode, “How M.M.T. Won the Fiscal Policy Debate,” in early 2021, inflation had bounced back to around 2 percent.But by a chilly January afternoon, as ducks flew over the frosty estuary outside Ms. Kelton’s house near Stony Brook University, where she teaches, inflation had rocketed up to 7 percent. The government’s debt pile has exploded to $30 trillion, up from about $10 trillion at the start of the 2008 downturn and $5 trillion in the mid-1990s.The good news: The government has had no trouble selling bonds to fund its spending, contrary to the direst projections of deficit scolds.The bad news: Some economists blame big spending in the pandemic for today’s rapid price increases. The government will release fresh Consumer Price Index data this week, and it is expected to show inflation running at its fastest pace since 1982.And that may be why Ms. Kelton, and the movement she has come to represent, now seem anxious to control the narrative. The pandemic spending wasn’t entirely consistent with M.M.T principles, they say — it wasn’t assessed carefully for its inflationary effects as it was being drawn up, because it was crisis policy. But the situation has underlined how hard it is to know just where the economy’s constraints lay, and how difficult it is to fix things once you run into them.Last summer, Ms. Kelton called inflation a temporary sign of “growing pains.” By the fall, she painted it as a good problem to solve, compared with a continued weak economy. As it lingers, she has argued that diagnosing what is causing it is key.“Can we blame ‘MMT’ for the run-up in inflation?” she tweeted rhetorically last month, just hours before her podcast recording.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.“Of course not.”Emon Hassan for The New York TimesThe economy is the limitTo understand how M.M.T. fits in with other dominant ways of thinking, it’s helpful to take a trip to the beach.In economics, there’s a school of thought sometimes called “freshwater.” It’s the set of ideas that became popular at inland universities in the 1970s, when they began to embrace rational markets and limited government intervention to fight recessions. There’s also “saltwater” thinking, an updated version of Keynesianism that argues that the government occasionally needs to jump-start the economy. It has traditionally been championed in the Ivy League and other top-ranked schools on the coasts.You might call the school of thought Ms. Kelton is popularizing, from a bay that feeds into the East River, brackish economics.M.M.T. theorists argue that society should feel capable of spending to achieve its goals to the extent that there are resources available to fulfill them. Deficit spending need not be constrained to recessions, even theoretically. Want to build a road? No problem, so long as you have asphalt and construction workers. Want to feed children free lunches? Also not a problem, so long as you have the food and the cafeteria workers.What became Modern Monetary Theory began to percolate among a small group of academics when Ms. Kelton, a former military brat and one-time furniture saleswoman, was a graduate student.She had a gap period between graduating with a bachelor’s degree from California State University, Sacramento and attending Cambridge University on a Rotary scholarship, and her college economics professor recommended that she spend the time studying with L. Randall Wray, an early pioneer in the set of ideas.They hit it off. She remained in Mr. Wray’s circle, and he — and Warren Mosler, a hedge fund manager who had written a book on what we get wrong about money — convinced her that the way America understood cash, revenues and budgeting was all backward.Ms. Kelton earned her doctorate at The New School, long a booster of out-of-mainstream economic thinking, and went on to teach at the University of Missouri-Kansas City. She, Mr. Wray, who was there at the time, and their colleagues mentored doctoral students and began to write academic papers on the new way of thinking.But academic missives reached only a small circle of readers. After the 2008 financial crisis punched a hole in the economy that would take more than a decade to fill, Ms. Kelton and her colleagues, invigorated with a new urgency, began a blog called “New Economic Perspectives.” It was a bare bones white, red and black layout, using a standard WordPress template, that served as a place for M.M.T. writers to make their case (and, in its early days, featured a #Occupy[YourCityHere] tab).The theory picked up some fervent followers but limited popular acceptance, charitably, and outright derision, uncharitably. Mainstream economists panned it as overly simplistic. Many were confused about what it was arguing.“I have heard pretty extreme claims attributed to that framework and I don’t know whether that’s fair or not,” Jerome H. Powell, the Fed chair, said in 2019. “The idea that deficits don’t matter for countries that can borrow in their own currency is just wrong.”Ms. Kelton kept the faith. She and her colleagues held conferences, including one in 2018 at The New School where she gave a lecture on “mainstreaming M.M.T.”Rohan Grey organized the conference and a media reception afterward at an Irish pub (“‘Shades of Green,’ monetary pun intended,” he said). It was attended by organizers, academics, “lay people” and lots of journalists. At the happy hour — which lasted until 1 a.m. — Ms. Kelton was mobbed when she walked in the door. “She was already on her way to super celebrity status at that point,” said Mr. Grey, an assistant professor at Willamette Law.When she gave presentations on her ideas, Ms. Kelton would occasionally display a quote often attributed to Mahatma Gandhi: “First they ignore you, then they laugh at you, then they fight you. Then you win.”And her star was rising more broadly. She advised Bernie Sanders’ presidential campaigns in 2016 and 2020, getting to know the Vermont senator. He never fully publicly embraced M.M.T., but he nevertheless advanced policies — like Medicare for All — that reflected its ideals.She amassed a following of tens of thousands, later growing to 140,000, on Twitter. Her first handle, @deficitowl, prompted ardent fans to gift her wise bird figurines, some of which are still on display in her home office. She cultivated a small coterie of prominent journalists who were interested in the idea, most notably Joe Weisenthal at Bloomberg. She signed a book deal. She was regularly talking to Democratic lawmakers, sometimes in groups.Her idea percolated through Washington’s media and liberal policy circles. Mainstream economic predictions that huge debt loads would come back to haunt nations like Japan had not played out, the anemic rebound from 2008 had scarred society and called the size of the crisis response into question. Ms. Kelton and her colleagues were ensuring that their theory on benign deficits was an ever-present feature of the blossoming debate.Then the pandemic hit, and suddenly the theoretical question of just how much the government could spend before it ran into limits faced a real-world experiment.The $1.9 Trillion FloorWithout thinking about paying for it, Donald J. Trump’s government quickly passed a $2.3 trillion relief package in late March 2020. In December, it followed that up with another $900 billion. President Biden took office in early 2021, and promptly added $1.9 trillion more.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Covid’s effect on the jobs numbers may leave Washington in the dark.

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    Without clarity on how quickly the labor market can shake off Omicron, the Fed will have difficulty applying the data to its interest rate strategy.Jerome H. Powell, the Federal Reserve chair, has compared setting monetary policy to stumbling through an unlit room: You feel your way to the door cautiously to avoid making a painful mistake.The analogy is likely to ring especially true after the Omicron-jumbled job report for January, as the virus obscures the pace of progress in the job market and leaves policymakers in the dark. But the Fed may lack the luxury of creeping slowly through the dinginess this time.Mr. Powell and his colleagues are poised to raise interest rates for the first time since 2018 in March, a move meant to cool off the economy as inflation runs at its fastest pace in nearly 40 years. It will likely be in the uncomfortable position of making that move — and signaling what comes next, as markets are pointing to as many as five 2022 rate increases — at a time when the latest job market data look lackluster at best, bleak at worst.The Fed will look past a few months of virus-depressed job market data as officials try to assess the actual strength of the economic rebound: The Omicron variant is already in retreat in the United States, and there’s little reason to expect an extended lull in hiring after a year of breakneck labor market progress.But the virus flare-up and its economic repercussions underline a challenge that is likely to confront the Fed throughout 2022 as it pares back its support. It’s hard to know what will happen next in a coronavirus-stricken business environment.“We’ll be humble and nimble,” Mr. Powell pledged of the central bank’s policy path, speaking at a news conference last month.The Fed typically navigates by watching incoming labor market data — especially the unemployment rate, lately — and inflation data. But it could take a few months for the jobs picture to clear, and in the meantime, inflation is running hot. Used-vehicle prices, which have been a big driver of overall price increases, might be on the cusp of stabilizing but have yet to cool off notably. Gasoline prices are headed back up, food is costing more and rents have been increasing steeply.That is likely to leave the Fed, which typically takes away its help at moments of strong labor market progress, moving when the job market is hitting a bump.“It’s the Omicron fog,” said Diane Swonk, chief economist for the accounting firm Grant Thornton. “It’s not going to give us visibility.”Fed officials are trying to make sure that they do not fall behind the curve on high inflation, allowing it to become so locked into consumer and business expectations that it becomes a permanent feature of the economic landscape. How the Fed strikes the balance — and how much it slows down the economy with its rate increases this year — could have important political implications, too. Voters are already glum about the economy’s prospects, and President Biden is suffering in the polls. More