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    A Fed Official’s 2020 Trade Drew Outcry. It Went Further Than First Disclosed.

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    Corrected disclosures show that Vice Chair Richard H. Clarida sold a stock fund, then swiftly repurchased it before a big Fed announcement.Richard H. Clarida, the departing vice chair of the Federal Reserve, failed to initially disclose the extent of a financial transaction he made in early 2020 as the Fed was preparing to swoop in and rescue markets amid the unfolding pandemic.Mr. Clarida previously came under fire for buying shares on Feb. 27 in an investment fund that holds stocks — one day before the Fed chair, Jerome H. Powell, announced that the central bank stood ready to help the economy as the pandemic set in. The transaction drew an outcry from lawmakers and watchdog groups because it put Mr. Clarida in a position to benefit as the Fed restored market confidence.Mr. Clarida’s recently amended financial disclosure showed that the vice chair sold that same stock fund on Feb. 24, at a moment when financial markets were plunging amid fears of the virus.The Fed initially described the Feb. 27 transaction as a previously planned move by Mr. Clarida away from bonds and into stocks, the type of “rebalancing” investors often do when they want to take on more risk and earn higher returns over time. But the rapid move out of stocks and then back in makes it look less like a planned, long-term financial maneuver and more like a response to market conditions.“It undermines the claim that this was portfolio rebalancing,” said Peter Conti-Brown, a Fed historian at the University of Pennsylvania. “This is deeply problematic.”The Fed did not provide further explanation of Mr. Clarida’s trade when asked why he had sold and bought in quick succession. Asked if the Fed stood by previous indications that the move was a rebalancing, a spokesperson did not comment.The correction to the disclosures was released late last month and came after Mr. Clarida noticed “inadvertent errors” in his initial filings, a Fed spokesperson said, noting that the holdings were in broad funds (as opposed to investing in individual stocks). Mr. Clarida did not comment for this article.The extent of Mr. Clarida’s transaction is the latest development in a monthslong trading scandal that has embroiled top Fed officials and prompted high-profile departures at the usually staid central bank.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. Those moves drew immediate and intense backlash from lawmakers, ethics experts and former Fed employees alike.That’s because Fed officials were actively rescuing a broad swath of markets in 2020: In March and April, they slashed rates to zero, bought mortgage-tied and government bonds in mass quantities, and rolled out rescue programs for corporate and municipal debt. Continuing to trade in affected securities for their own portfolios throughout the year could have given them room to profit from their privileged knowledge. At a minimum, it created an appearance problem, one that Mr. Powell himself has acknowledged.Mr. Kaplan resigned in September, citing the scandal; Mr. Rosengren resigned simultaneously, citing health issues. Mr. Clarida’s term ends at the close of this month, which it was scheduled to do before news of the scandal broke.Mr. Clarida’s trades, which Bloomberg reported earlier, also raised eyebrows among lawmakers, including Senator Elizabeth Warren of Massachusetts, who has demanded a Securities and Exchange Commission investigation into Fed officials’ 2020 trading. But many ethics experts had seen the transaction as more benign, if poorly timed, because it happened in a broad-based index and the Fed had said it was part of a planned and longer-term investment strategy.The new disclosure casts doubt on that explanation, given that Mr. Clarida sold out of stocks just days before moving back into them.“It’s peculiar,” said Norman Eisen, an ethics official in the Obama White House who said he probably would not have approved such a trade. “It’s fair to ask — in what respect does this constitute a rebalancing?”It is unclear whether Mr. Clarida benefited financially from the trade, but it was most likely a lucrative move. By selling the stock fund as its value began to plummet and buying it back days later when the price per share was lower, Mr. Clarida would have ended up holding more shares, assuming he reinvested all of the money that he had withdrawn. The financial disclosures put both transactions in a range of $1 million to $5 million.The sale-and-purchase move would have made money within a few days, as stock markets and the fund in question increased in value after Mr. Powell’s announcement. The investment would have then lost money as stocks sank again amid the deepening pandemic crisis.But the fund’s value recovered after the Fed’s extensive interventions in markets. Assuming they were held, the holdings would ultimately have appreciated in value and turned a bigger profit than they would have had Mr. Clarida merely held the original investment without selling or buying.The Fed was aware of the reputational risk around trading as the pandemic kicked into high gear — the Board of Governors’ ethics office sent an email in late March 2020 encouraging officials to hold off on personal trades — but notable transactions happened in late February and again as early as May in spite of that, its officials’ disclosures suggest.Mr. Powell has acknowledged the optics and ethics problem the trading created, saying that “no one is happy” to “have these questions raised.” He and his colleagues moved quickly to overhaul the Fed’s trading-related rules after the revelations, releasing new and stricter ethics standards that will force officials to trade less rapidly while banning many types of investment.The individuals in question also faced censure. They are under independent investigation to see if their transactions were legal and consistent with internal central bank rules. The S.E.C. declined to comment on whether it has opened or will open an investigation into Mr. Clarida’s trades and his colleagues’, as Ms. Warren had requested.While the officials who came under the most scrutiny for their trades have left or will leave soon, the new disclosure could cause problems for the Fed’s remaining leaders — including Mr. Powell, whom President Biden recently renominated to a second term as chair.Mr. Powell will appear before the Senate Banking Committee next week for his confirmation hearing, as will Lael Brainard, a Fed governor, whom Mr. Biden nominated to replace Mr. Clarida as vice chair.Both could face sticky questions about why a Fed culture permissive of trading at activist moments was, until recently, allowed to prevail. Mr. Powell led the organization, while Ms. Brainard headed the committee in charge of reserve bank oversight.Jerome H. Powell and his colleagues moved quickly to overhaul the Fed’s trading-related rules after the revelations.Stefani Reynolds for The New York TimesThe trading scandal has also resurfaced longstanding concerns about whether the Fed is too cozy with Wall Street, and whether its officials are working for the public or to profit from their own actions.If he is asked about the scandal, Mr. Powell is likely to point to the tougher ethics guidelines that the Fed unveiled in October. Mr. Clarida’s apparently rapid transaction would most likely have been trickier under the new rules, which require officials to give 45 days’ notice before buying an asset, and which prevent trading during tumultuous market periods.The updated disclosures do show that Mr. Clarida was “in compliance with applicable laws and regulations governing conflicts of interest,” based on the Fed ethics officer’s assessment. But that alone is unlikely to prevent scrutiny.Regardless of legality, “the public would be concerned if it turned out that he bought shares of the fund before a major announcement by the Federal Reserve potentially affecting the value of his shares,” Walter Shaub, a former government ethics official now at the Project on Government Oversight, said in an email.Mr. Shaub said more information was needed to know if the trade was problematic, including whether Mr. Clarida knew the Feb. 28 announcement was coming — and when he knew that.The Fed previously told Bloomberg that Mr. Clarida was not yet involved in deliberations about the coronavirus response at the time of the trade.But Mr. Clarida was in close touch with his colleagues throughout that week. He had a call with a board member and a regional Fed president on Feb. 26, his calendars show. That is the way the Fed typically lists meetings of the Fed chair, vice chair and New York Fed president — the Fed’s so-called troika, which sets the agenda for central bank policy — on its largely anonymized official calendars.Mr. Conti-Brown said that regardless of how much Mr. Clarida knew about his colleagues’ plans, the February trades were an issue that the Fed needed to explain in detail.“Richard Clarida is a decision maker,” he said. “The deliberations that happen within his brain are what matter here.” More

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    PCE Index Probably Popped Again in November

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    Federal Reserve policymakers are likely to finish a year that has been colored by surprisingly high inflation with yet more bad news: Their preferred price measure could touch its highest level since 1982 when the latest reading is published on Thursday morning.The Personal Consumption Expenditures price index, which is the indicator that the Fed officially targets when it aims for 2 percent annual inflation on average over time, is expected to have climbed by 5.7 percent in November from a year earlier, economists surveyed by Bloomberg estimate. That would be the fastest pace of increase in nearly 40 years.Part of the jump will be caused by gasoline prices, which were up sharply in November, and have moderated this month. But a so-called “core” index that excludes food and fuel prices is also expected to increase sharply, to 4.5 percent.Rapidly rising prices are lasting longer than policymakers had hoped, and they have become broader in recent months. Earlier this year, big price increases were largely limited to goods that were in short supply as demand surged and as overtaxed shipping lines struggled to keep up. More recently, they have spread into categories like rent — which can be more long-lasting.Fed officials are tasked with keeping inflation moderate and helping the country achieve full employment, and they have grown increasingly worried about the surge in prices. This month they pivoted on policy, speeding up plans to cut back on economic support and preparing to raise interest rates early next year if that proves necessary. Higher interest rates can weaken demand for everything from homes to cars, helping to slow down the economy and restrain inflation.What to Know About Inflation in the U.S.Inflation, Explained: What is inflation, why is it up and whom does it hurt? We answered some common questions.The Fed’s Pivot: Jerome Powell’s abrupt change of course moved the central bank into inflation-fighting mode.Fastest Inflation in Decades: The Consumer Price Index rose 6.8 percent in November from a year earlier, its sharpest increase since 1982.Why Washington Is Worried: Policymakers are acknowledging that price increases have been proving more persistent than expected.The Psychology of Inflation: Americans are flush with cash and jobs, but they also think the economy is awful.The big question for officials at the central bank — and in the Biden administration — is what will come next. With the Omicron variant of the coronavirus surging around the world, it is unlikely that tangled supply chains will get back to normal quickly. At the same time, rising housing costs could keep inflation high even as some of the most painful trends of 2021, including a surge in used-car prices tied to a computer chip shortage, moderate.Fed officials do expect inflation to ease to 2.6 percent by the end of next year, their most recent economic forecasts showed, but that would remain substantially above their 2 percent goal. None of the Fed’s 18 top officials expect inflation to drop below 2 percent next year. High inflation also is sapping consumer confidence as people face down rising costs, even at a time when job openings far exceed available workers and wages are rising.“It’s a devastating thing for people who are working class and middle-class,” President Biden said at the White House on Tuesday, adding: “It really hurts.”The administration is trying to pull what levers it can — increasing the supply of oil and gas and trying to keep ports open longer in an effort to clear shipping backlogs.But costs also are increasing because households have saved a lot after repeated government stimulus checks and months locked at home. People are spending voraciously, giving companies the power to raise prices without losing customers.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Lingering Virus, Lasting Inflation: A Fed Official Explains Her Pivot

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    Mary Daly, president of the Federal Reserve Bank of San Francisco, wanted to withdraw economic help slowly. Now, she might support a rate increase as soon as March.SAN FRANCISCO — Mary C. Daly was in line behind a woman in her neighborhood Walgreens in Oakland, Calif., this fall when she witnessed an upsetting consequence of inflation. The shopper, who was older, was shuffling uncomfortably as the clerk rang up her items.“She starts ruffling in her pockets, and in her purse,” Ms. Daly said in an interview. “And she says: This is a lot more expensive than it usually is. I buy these things — these are my monthly purchases.”The woman had to put something back — she chose potato chips — because she couldn’t afford everything in her basket.It would have been sobering to watch for anyone, but the moment hit especially hard for Ms. Daly, who is president of the Federal Reserve Bank of San Francisco. As one of the Fed’s 18 top officials, she is one of the people who sets economic policy to help to ensure a strong job market and to keep prices for goods and services stable.Like many of her colleagues, Ms. Daly initially expected inflation to fade relatively quickly in 2021 as the economy reopened and got back to normal. But continued waves of virus that have interrupted and complicated the recovery and increasingly broad price increases have made central bankers nervous that rapid inflation and pandemic-caused labor shortages might linger.Those risks have prompted the Fed to speed up its plans to pull back policies meant to stimulate the economy. Officials had previously suggested that they would keep interest rates low for a long time to allow more people who lost or quit their jobs during the pandemic to return to the job market. But in recent weeks, they announced a plan to more rapidly scale back their other main policy to boost the economy — large-scale bond purchases that have kept long-term borrowing costs low and kept money flowing around the financial system. Concluding that program promptly could put them in position to raise interest rates as soon as March.Ms. Daly, who spoke to The New York Times in two interviews in November and December, has shifted her tone particularly dramatically in recent weeks. How she came to change her mind highlights how policymakers have been caught off guard by the persistence of high inflation and are now struggling to strike the right balance between addressing it while not harming the labor market.As recently as mid-November, she had argued that the Fed should be patient in removing its support, avoiding an overreaction to inflation that might prove temporary and risk unnecessarily slowing the recovery of the labor market. But incoming data have confirmed that employers are still struggling to hire even as consumer prices are rising at the fastest clip in nearly 40 years. Rising rents and tangled supply chains could continue to push up inflation. And she’s running into more people like that woman in Walgreens.“My community members are telling me they’re worried about inflation,” Ms. Daly said last week. “What influenced me quite a lot was recognizing that the very communities we’re trying to serve when we talk about people sidelined” from the labor market “are the very communities that are paying the largest toll of rising food prices, transportation prices and housing prices.”Ms. Daly said she supported ending bond buying quickly so that officials were in a position to begin raising interest rates. A higher Fed policy rate would percolate through the economy, lifting the costs of mortgages, car loans and even credit cards and cooling off consumer and business demand. That would eventually tamp down inflation, while also likely slowing job growth.Ms. Daly said it was too early to know when the first rate increase would be warranted, but suggested she could be open to having the Fed begin raising rates as soon as March.“I’m comfortable with saying that I expect us to need to raise rates next year,” Ms. Daly said last week. “But exactly how many will it be — two or three — and when will that be — March, June, or in the fall? For me it’s just too early to know, and I don’t see the advantage of a declaration.”Many investors and economists now expect the Fed to lift rates from their current near-zero level in March, and Christopher Waller, a Fed governor, suggested last week that he could support a move then.That higher rates could be coming so soon is a big change from what officials were signaling — and what people who watch the Fed closely were expecting — until very recently.Fed officials have long said they want the economy to return to full employment before they lift interest rates. Early in the pandemic, many policymakers suggested that they would like to see the number of people with jobs rebound to levels approaching those that prevailed in early 2020, suggesting a long period of low rates would be needed.But increasingly, officials have argued that the economy is close to achieving their employment target by focusing on the overall unemployment rate and the rates for different racial groups.The jobless rate has fallen to 4.2 percent, and Fed officials expect it to drop to 3.5 percent next year. That would match the rate that prevailed before the pandemic, and would be a marked improvement from a pandemic high of 14.8 percent in April 2020. Black unemployment is dropping swiftly, too.“The economy has been making rapid progress toward maximum employment,” Jerome H. Powell, the Fed chair, said during a news conference this month.Yet that unemployment rate tells just part of the story, because it counts only people who are actively applying for jobs. The share of people in their prime employment ages, between 25 and 54, who are either working or looking for work has dropped notably, and is only starting to recover. Ms. Daly said she was thinking about the Fed’s full employment target in terms of what is achievable in the short term, as the coronavirus keeps many workers at home, and in the longer term, when more employees may be able to return because the virus is more under control.“There’s the labor market we can get eventually, after Covid,” she said. “And there’s the labor market that we have to deal with today.”For now, job openings far exceed the number of people applying for positions, and wages are climbing briskly, two signs that suggest that workers are — at least temporarily — scarce.It may be the case that “in the short run, this is all the workers we have,” Ms. Daly said. “But in the long run, we expect more workers to come.”Retailers in her area are cutting hours on busy shopping days because they can’t hire enough staff. Production lines are shuttered. And with virus infections rising again and the new Omicron variant spreading rapidly, there is no immediate end in sight.“If we get past Covid, inflation comes down, the labor supply recovers — then definitely we want more patience, because we want time for that to work itself through,” she said. “But we have Covid, and it won’t go away.” More

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    Omicron Is an Economic Threat, but Inflation Is Worse, Central Bankers Say

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    Within 24 hours, the Federal Reserve, Bank of England and European Central Bank all stepped forward to deal with price increases.There is still a lot scientists do not know about Omicron. There is cautious optimism — but no certainty — about the effectiveness of vaccines against this fast-spreading variant of the coronavirus, and experts do not fully understand what it means for public health or the economy.But central banks have concluded they don’t have the luxury of waiting to find out.Facing surging inflation, three of the world’s most influential central banks — the Federal Reserve, Bank of England and European Central Bank — took decisive steps within 24 hours of each other to look past Omicron’s economic uncertainty. On Thursday, Britain’s central bank unexpectedly raised interest rates for the first time in more than three years as a way to curb inflation that has reached a 10-year high. The eurozone’s central bank confirmed it would stop purchases under a bond-buying program in March. The day before, the Fed projected three interest rate increases next year and said it would accelerate the wind down its own bond-buying program.The perception that the Bank of England would “view the outbreak of the Omicron variant with greater concern than it actually did” caused the surprise in financial markets, ” Philip Shaw, an economist at Investec in London, wrote in a note to clients. The Fed also “carried on regardless” with its tightening plans, he added.Aside from Omicron, the central banks were running out of reasons to continue emergency levels of monetary stimulus designed to keep money flowing through financial markets and to keep lending to businesses and households robust throughout the pandemic. The drastic measures of the past two years had done the job — and then some: Inflation is at a nearly 40-year high in the United States; in the eurozone it is the highest since records began in 1997; and price rises in Britain have consistently exceeded expectations.It is still unknown how Omicron will affect the economic recovery. Vaccine makers are still testing their shots against the variant.Alessandro Grassani for The New York TimesThe heads of all three central banks have separately decided that the price gains won’t be as temporary as they once thought, as supply chains take a while to untangle and energy prices pick up again.Andrew Bailey, the governor of the Bank of England, said that policymakers in Britain were seeing things that could threaten inflation in the medium-term. “So that’s why we have to act,” he said on Thursday.“We don’t know, of course, a lot about Omicron at the moment,” he added. It could slow the economy, and already there are canceled holiday parties, fewer restaurant bookings, less retail foot traffic and signs that more people are staying home. But Omicron could also worsen inflationary pressures, he said. “And that’s, I’m afraid, a very important factor for us.”Already, price gains have popped higher this year as snarled supply chains and goods shortages have raised shipping and manufacturing costs. Depending on the severity of Omicron and how governments react, the variant could cause factories to shut down and could keep supply chains in disarray and workers at home, prolonging goods and labor shortages and pushing inflation higher.At the same time, policymakers are assuming the impact on the economy will be milder than previous waves of the virus. With each surge in cases and reintroduction of restrictions, the dent to the economy has gotten smaller and smaller. This would lessen the risk that the central banks end up tightening monetary policy into a downturn.Still, it is an awkward balancing act. On the same day the Bank of England raised rates, its staff cut half a percentage point from their growth forecasts for the final three months of the year. By the end of 2021, the British economy will still be 1.5 percent smaller than its prepandemic size, the bank estimated.Christine Lagarde, the president of the European Central Bank, said Omicron had created uncertainty in the face of a strong recovery.Pool photo by Ronald Wittek“From a macroeconomic perspective, it’s unlikely that the fourth wave is going to have as meaningful an impact as we’ve seen even during last winter,” said Dean Turner, an economist at UBS Global Wealth Management.The economic recoveries from the pandemic, though bumpy, haven’t been derailed yet. Unemployment rates are falling in Europe and the United States, and businesses are complaining that is difficult to hire staff. That, combined with the burst of inflation, was enough to bolster the case for some monetary tightening.“There’s a lot of uncertainty with the new variant, and it’s not clear how big the effects would be on either inflation or growth or hiring,” Jerome H. Powell, the Fed chair, said on Wednesday. But there is a “real risk” inflation could be more persistent, he also said, which was part of the reason the bank sped up its plans to taper its bond purchases.Ending the Fed’s bond purchases sooner would give the central bank room to react to a wider range of economic outcomes next year, Mr. Powell said.“The data is pretty glaring,” Mr. Turner of UBS said of recent statistics on inflation and employment. “There’s only so much caution you can get away with,” before central banks need to take action, he said.Omicron has created uncertainty in the face of a strong recovery, Christine Lagarde, the president of the European Central Bank said on Thursday after she outlined how the bank would end its largest pandemic-era stimulus measure.Vaccine-makers are still testing their shots against Omicron and medical officials are encouraging restraint when it comes to socializing rather than implementing new lockdowns, but central bankers are marching ahead because time isn’t on their side. The effect of monetary policy decisions on the wider economy isn’t immediate.The Bank of England is forecasting that inflation will peak at 6 percent in April, three times the central bank’s target. Within such a short time frame, there is little policymakers can do to stop that from happening, but they can try to signal to businesses and unions setting wages that they will act to stop higher inflation from becoming entrenched, said Paul Mortimer-Lee, the deputy director of the National Institute of Economic and Social Research in London. This may prevent higher prices from spilling over into significantly higher wages, which could cause businesses to raise prices even more.While all three central banks are facing similar problems with high inflation and are keeping watch over wage negotiations, their future challenges are different.The Federal Reserve and Bank of England are worried about the persistence of high inflation. For the European Central Bank, inflation in the medium term is too low, not too high. It is still forecasting inflation to be below its 2 percent target in 2023 and 2024. To help reach that target in coming years, the central bank will increase the size of an older bond-buying program beginning in April, after purchases end in the larger, pandemic-era program. This is to avoid “a brutal transition,” Ms. Lagarde said.She warned against drawing strong comparisons between Britain, the United States and the eurozone economies.“Those three economies are at a completely different states of the cycle,” she said. “We are in a different universe and environment,” even though there might be some spillover effects across countries from the actions each central bank takes.Melissa Eddy More

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    Fed Could Raise Rates 3 Times in 2022 and Speeds End of Bond-Buying

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    With the economy healing, but price gains pinching consumers, officials are dialing back bond purchases and getting in position to raise interest rates (three are possible next year).Federal Reserve policymakers moved into inflation-fighting mode on Wednesday, saying they would cut back more quickly on their pandemic-era stimulus at a moment of rising prices and strong economic growth, capping a challenging year with a policy shift that could usher in higher interest rates in 2022.The central bank’s policy statement set up a more rapid end to the monthly bond-buying program that the Fed has been using throughout the pandemic to keep money chugging through markets and to bolster growth. A fresh set of economic projections released on Wednesday showed that officials expect to raise interest rates, which are now set near-zero, three times next year.“Economic developments and changes in the outlook warrant this evolution,” Jerome H. Powell, the Fed chair, said of the decision to pull back on bond purchases more quickly.By tapering off its bond buying faster, the Fed is doing less to stimulate the economy with each passing month, and putting the program on track to end completely in March.That would place Fed policymakers in a position to raise interest rates — their more traditional and more powerful tool — sooner. The Fed has made clear it wants to end its bond-buying program before it raises rates, which would cool off demand by making it more expensive to borrow for a home, a car or expanding a business. That would in turn weigh on growth and, eventually, price gains. The Fed’s new economic projections suggested rates, which have been at rock-bottom since March 2020, might rise to 2.1 percent by the end of 2024. More

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    The Fed Meets Amid Faster Inflation and Prepares to React

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    The Federal Reserve could announce plans to cut economic support faster, and may signal 2022 rate increases, at its Dec. 14-15 meeting.Federal Reserve officials, worried about rising costs and buoyed by a healing labor market, are pivoting from bolstering the economic recovery to more quickly withdrawing the support that has aided the economy since the pandemic began.The policymakers, who meet this week for their final gathering of 2021, are widely expected to outline a faster end to their bond-buying campaign and will telegraph how aggressively they expect to raise rates from rock-bottom next year.The potential for major policy signals at the Fed’s meeting, which concludes at 2 p.m. on Wednesday, will make it one of the most closely watched of the pandemic era.Officials took their first step toward weaning the economy off the central bank’s support in November, when they said they would begin to slow a large-scale bond buying program that had been in place since early in the pandemic to keep money flowing around markets and support the economy. In the weeks since the Fed’s last meeting, fresh data has showed that consumer prices are climbing at the fastest pace in nearly 40 years and the unemployment rate has fallen to 4.2 percent, far below its pandemic peak.Given inflation and growth trends, Fed officials signaled clearly that they would discuss withdrawing support more quickly at this gathering, and economists think officials will signal a plan to taper off bond purchases so that the buying will stop altogether in March.Policymakers will also provide their latest thinking on the path for interest rates in their updated quarterly economic projections, and could pencil in two or three increases next year. When they last released the projections in September, officials were split on whether they would raise rates at all in 2022. Lifting the federal funds rate is arguably the Fed’s most powerful tool for pushing back on inflation, because it would slow demand and economic growth by percolating through the rest of the economy, lifting borrowing costs on mortgages, business loans and auto debt.In late November, Jerome H. Powell, the Fed chair, set the stage for the central bank’s shift from an economy-stoking stance to one that is more focused on keeping inflation under control.“At this point, the economy is very strong, and inflationary pressures are high, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at our November meeting, perhaps a few months sooner,” Mr. Powell said during congressional testimony on Nov. 30.The Fed chair is expected to further explain during a post-meeting news conference on Wednesday how he is thinking about the central bank’s policy stance as it confronts rapid inflation and an uncertain economic path at a time when the virus shows no signs of abating and a new variant, Omicron, complicates the outlook.The Fed spent much of 2021 tiptoeing away from full-blast economic support, hoping to remove stimulus gradually enough that the job market would heal fully and quickly. But gradualism has given way to wariness in recent weeks, partly thanks to a new series of data points showing that inflation is still high and might stay elevated for some time.Central bankers knew that prices would climb quickly in early 2021 as the economy recovered from the depths of the pandemic, but the increases have been strikingly broad-based and long-lasting. The gains are broadening beyond pandemic-sensitive goods and into rent and some services, and both wages and inflation expectations are picking up. Policymakers have increasingly questioned the wisdom of adding juice to the economy with each passing month.“They’re realizing that they need to stop pouring gasoline on the fire,” said Gennadiy Goldberg, a rates strategist at T.D. Securities.The Fed has two key jobs: keeping prices stable and fostering maximum employment. Progress on the second goal has also been notable in recent months. The unemployment rate has dropped sharply, falling to 4.2 percent in November and improving faster than Fed officials or most economist expected.Even so, about four million jobs are still missing compared to before the pandemic. Some of those people may have retired, but others are expected to return to the job search once health concerns and pandemic-related child-care problems become less pronounced. Many Fed officials had been hoping to keep their policies very accommodative as those people came back.But inflation is forcing policymakers to balance their job market ambitions with their goal of keeping price gains under control. While an unhealed job market is bad for American households, so too are high and unpredictable price increases that chip away at paychecks and make it hard for businesses to plan. Plus, if the Fed waits too long to react to inflation, the fear is that they might have to lift rates sharply to bring it to heel, setting off a new recession.“We have to balance those two goals when they are in tension as they are right now,” Mr. Powell said in testimony on Dec. 1. “But I assure you we will use our tools to make sure that this high inflation that we are experiencing does not become entrenched.”Shoppers in New York last week. A burst in inflation has caught policymakers by surprise.George Etheredge for The New York TimesThe Biden administration announced in late November that it would reappoint Mr. Powell as Fed chair, which may have also given Mr. Powell a renewed mandate to lay out a plan to manage the risks around inflation and might explain the Fed’s sudden and notable pivot toward focusing more intently on inflation, said Krishna Guha, head of the global policy central bank strategy team at Evercore ISI.If Mr. Powell were leaving the central bank early next year when his term expires, it might have been tough for him to signal a plan for the future that his successor would have been stuck executing.Plus, “there is pressure from both sides of the aisle for the Fed to bring inflation under control,” Mr. Guha said. But he thinks the political element of the shift could be exaggerated; economic fundamentals also explain it.While many Fed officials say they still expect high inflation to fade, plenty of signs suggest it is at risk of remaining too high for too long. Businesses report that they are raising wages or setting aside money as they prepare to pay more. Companies — from dollar stores to pizza shops — are lifting prices and finding that consumers accept the change.Even companies taking a cautious approach to lifting prices express uncertainty about how long it will take to clear the supply chain snarls that are pushing up prices for inputs like food commodities and imported goods.“I think we’re living in elevated time of everything, right?” Randy Garutti, chief executive officer of Shake Shack, said at an investor conference early this month. “That will moderate. I can’t tell you when, I don’t know if it will be next year ’23 or ’24, or which product it will be? That’s unclear.”Fed officials are quick to acknowledge that the supply snarls seem likely to last into next year, and they seem to view the new coronavirus variant — about which much is still unknown — as something with the potential to prevent tortured supply routes from returning to normal.As they wrestle with the crosscurrents, Wall Street is debating how quickly the Fed might move to push rates higher next near, and will closely watch how many rate increases officials pencil into their fresh economic projections this week for any hint at the trajectory.“We think it’s a close call between two or three” estimated increases, J.P. Morgan economists wrote in a preview note, noting that they think three are more likely. They expect the Fed to first raise rates in June 2022, then lift them again every three months.The plan won’t necessarily be to try to constrain the economy by withdrawing support so rapidly that Fed policy becomes a big drag on growth — the equivalent of slamming the brakes. Instead, it will be to stop helping the economy so much, said Diane Swonk, chief economist at Grant Thornton LLP.“The Fed is going to take their foot off the gas pedal,” she said. The new development at this meeting is that the stimulus deceleration will be happening “even faster.” More

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    A Top Official Says the Fed Will ‘Grapple’ With a Faster Bond-Buying Taper

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    The president of the New York Federal Reserve said Omicron could prolong supply and demand mismatches, causing some inflation pressures to last.John C. Williams, president of the Federal Reserve Bank of New York, said the latest variant of the coronavirus could prolong the bottlenecks and shortages that have caused inflation to run hotter than expected, and is a risk Fed officials will assess as they “grapple” with how quickly to remove economic support.It is still too soon to know how the Omicron variant, which public health officials in southern Africa identified just last week, will affect the economy, Mr. Williams said Tuesday in an interview with The New York Times. But if the new version of the virus leads to another wave of infections, it could exacerbate the disruptions that have caused prices to rise at their fastest pace in three decades.“Clearly, it adds a lot of uncertainty to the outlook,” Mr. Williams said of the new variant. He later added that a risk with the new variant is that it “will continue that excess demand in the areas that don’t have capacity, and will stall the recovery in the areas where we actually have the capacity.”That, he said, would “mean a somewhat slower rebound overall” and “also does increase those inflationary pressures, in those areas that are in high demand.”Mr. Williams’s comments are the latest indication that policymakers are growing more concerned about inflation and are weighing how to respond. Jerome H. Powell, the Fed chair, signaled on Tuesday that the central bank could move to withdraw economic support more quickly than it initially expected and suggested that such a decision could come as soon as the Fed’s December meeting.The Fed had been buying $120 billion in government-backed securities each month throughout much of the pandemic to bolster the economy by keeping money flowing in financial markets. In November, officials announced plans to wind down that program gradually through the end of the year and the first half of 2022, a process known as “tapering.” But Mr. Powell indicated on Tuesday that the central bank could wrap up its bond-buying more quickly.Mr. Williams, who is vice chair of the Fed’s policymaking Open Market Committee and is a top adviser to Mr. Powell, did not explicitly endorse a faster tapering process, saying that “there’s a lot to learn and digest and think about coming up to the next meeting.”.css-1xzcza9{list-style-type:disc;padding-inline-start:1em;}.css-3btd0c{font-family:nyt-franklin,helvetica,arial,sans-serif;font-size:1rem;line-height:1.375rem;color:#333;margin-bottom:0.78125rem;}@media (min-width:740px){.css-3btd0c{font-size:1.0625rem;line-height:1.5rem;margin-bottom:0.9375rem;}}.css-3btd0c strong{font-weight:600;}.css-3btd0c em{font-style:italic;}.css-1kpebx{margin:0 auto;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1kpebx{font-family:nyt-cheltenham,georgia,’times new roman’,times,serif;font-weight:700;font-size:1.375rem;line-height:1.625rem;}@media (min-width:740px){#NYT_BELOW_MAIN_CONTENT_REGION .css-1kpebx{font-size:1.6875rem;line-height:1.875rem;}}@media (min-width:740px){.css-1kpebx{font-size:1.25rem;line-height:1.4375rem;}}.css-1gtxqqv{margin-bottom:0;}.css-19zsuqr{display:block;margin-bottom:0.9375rem;}.css-12vbvwq{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;}@media (min-width:740px){.css-12vbvwq{padding:20px;width:100%;}}.css-12vbvwq:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-12vbvwq{border:none;padding:10px 0 0;border-top:2px solid #121212;}.css-12vbvwq[data-truncated] .css-rdoyk0{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-12vbvwq[data-truncated] .css-eb027h{max-height:300px;overflow:hidden;-webkit-transition:none;transition:none;}.css-12vbvwq[data-truncated] .css-5gimkt:after{content:’See more’;}.css-12vbvwq[data-truncated] .css-6mllg9{opacity:1;}.css-qjk116{margin:0 auto;overflow:hidden;}.css-qjk116 strong{font-weight:700;}.css-qjk116 em{font-style:italic;}.css-qjk116 a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;text-underline-offset:1px;-webkit-text-decoration-thickness:1px;text-decoration-thickness:1px;-webkit-text-decoration-color:#326891;text-decoration-color:#326891;}.css-qjk116 a:visited{color:#326891;-webkit-text-decoration-color:#326891;text-decoration-color:#326891;}.css-qjk116 a:hover{-webkit-text-decoration:none;text-decoration:none;}But he emphasized that the economy had rebounded more strongly this year than he and other officials had been expecting, and said the unemployment rate had fallen quickly. That economic strengthening at a moment of high inflation may warrant less Fed support, he said.“The question is: Would it make sense to end those purchases somewhat earlier, by maybe a few months, given how strong the economy is?” he said. “That’s a decision, discussion, I expect we’ll have to grapple with.”Inflation has proved a thornier problem than the Fed and most private-sector economists predicted earlier this year. In March, Fed officials said they expected their preferred inflation measure to show consumer prices rising at 2.4 percent at the end of 2021; by September, they had revised that forecast to 4.2 percent.That’s likely to increase further. The central bank’s preferred inflation gauge climbed 5 percent in its most recent reading. Policymakers are closely watching to see what happens in a Consumer Price Index report set for release on Dec. 10, just before the Fed’s meeting on Dec. 14 and 15.Mr. Williams acknowledged that inflation had proved stronger and more lasting than he initially expected. But he said the error wasn’t the result of a misunderstanding of how the economy works; rather, it was his failure to anticipate the resurgence of the pandemic itself. Mr. Powell made similar comments in his testimony before the Senate on Tuesday.The spread of the Delta variant over the summer delayed the return of workers to the labor force by disrupting child care and making some people nervous to return to in-person work. It also contributed to supply-chain issues by causing a new round of factory shutdowns in some parts of the world and by extending the pandemic-era shift in consumer spending away from services and toward goods.Empty office space in New York this summer when the Delta variant wave delayed the return of workers. A new wave of cases could lead to more and longer-lasting inflation.Gabriela Bhaskar/The New York Times“These are all things that are driven — I think in large part, not totally, but in large part — to Covid, and the ability so far for us to get control of that,” he said. “This is just lasting a lot longer than expected.”The new variant, Mr. Williams added, “has that potential to just extend this process we’ve been going through.”If the Omicron variant further delays the return of workers and the easing of supply shortages, that could lead to more and longer-lasting inflation. But a new wave of virus cases could also hurt the demand side of the economy, leading people to spend less at restaurants and movie theaters and provoking a new wave of layoffs.Understand the Supply Chain CrisisCard 1 of 5Covid’s impact on the supply chain continues. More