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    Soft Landing or No Landing? Fed’s Economic Picture Gets Complicated.

    Stubborn inflation and strong growth could keep the Federal Reserve wary about interest rate cuts, eager to avoid adding vim to the economy.America seemed headed for an economic fairy-tale ending in late 2023. The painfully rapid inflation that had kicked off in 2021 appeared to be cooling in earnest, and economic growth had begun to gradually moderate after a series of Federal Reserve interest rate increases.But 2024 has brought a spate of surprises: The economy is expanding rapidly, job gains are unexpectedly strong and progress on inflation shows signs of stalling. That could add up to a very different conclusion.Instead of the “soft landing” that many economists thought was underway — a situation in which inflation slows as growth gently calms without a painful recession — analysts are increasingly wary that America’s economy is not landing at all. Rather than settling down, the economy appears to be booming as prices continue to climb more quickly than usual.A “no landing” outcome might feel pretty good to the typical American household. Inflation is nowhere near as high as it was at its peak in 2022, wages are climbing and jobs are plentiful. But it would cause problems for the Federal Reserve, which has been determined to wrestle price increases back to their 2 percent target, a slow and steady pace that the Fed thinks is consistent with price stability. Policymakers raised interest rates sharply in 2022 and 2023, pushing them to a two-decade high in an attempt to weigh on growth and inflation.If inflation gets stuck at an elevated level for months on end, it could prod Fed officials to hold rates high for longer in an effort to cool the economy and ensure that prices come fully under control.“Persistent buoyancy in inflation numbers” probably “does give Fed officials pause that maybe the economy is running too hot right now for rate cuts,” said Kathy Bostjancic, chief economist at Nationwide. “Right now, we’re not even seeing a ‘soft landing’ — we’re seeing a ‘no landing.’”We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Higher for Longer After All? Investors See Fed Rates Falling More Slowly.

    Investors went into 2024 expecting the Federal Reserve to cut rates sharply. Stubborn inflation and quick growth call that into question.Investors were betting big on Federal Reserve rate cuts at the start of 2024, wagering that central bankers would lower interest rates to around 4 percent by the end of the year. But after months of stubborn inflation and strong economic growth, the outlook is starting to look much less dramatic.Market pricing now suggests that rates will end the year in the neighborhood of 4.75 percent. That would mean Fed officials had cut rates two or three times from their current 5.3 percent.Policymakers are trying to strike a delicate balance as they contemplate how to respond to the economic moment. Central bankers do not want to risk tanking the job market and causing a recession by keeping interest rates too high for too long. But they also want to avoid cutting borrowing costs too early or too much, which could prod the economy to re-accelerate and inflation to take even firmer root. So far, officials have maintained their forecast for 2024 rate cuts while making it clear that they are in no hurry to lower them.Here’s what policymakers are looking at as they think about what to do with interest rates, how the incoming data might reshape the path ahead, and what that will mean for markets and the economy.What ‘higher for longer’ means.When people say they expect rates to be “higher for longer,” they often mean one or both of two things. Sometimes, the phrase refers to the near term: The Fed might take longer to start cutting borrowing costs and proceed with those reductions more slowly this year. Other times, it means that interest rates will remain notably higher in the years to come than was normal in the decade leading up to the 2020 pandemic.When it comes to 2024, top Fed officials have been very clear that they are primarily focused on what is happening with inflation as they debate when to lower interest rates. If policymakers believe that price increases are going to return to their 2 percent goal, they could feel comfortable cutting even in a strong economy.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Fed Meets Amid Worries That Inflation Progress Might Stall

    Inflation had been moderating steadily, but it is now hovering around 3 percent. Will lowering it fully to normal levels prove difficult?Slowing America’s rapid inflation has been an unexpectedly painless process so far. High interest rates are making it expensive to take out a mortgage or borrow to start a business, but they have not slammed the brakes on economic growth or drastically pushed up unemployment.Still, price increases have been hovering around 3.2 percent for five months now. That flatline is stoking questions about whether the final phase in fighting inflation could prove more difficult for the Federal Reserve.Fed officials will have a chance to respond to the latest data on Wednesday, when they conclude a two-day policy meeting. Central bankers are expected to leave interest rates unchanged, but their fresh quarterly economic projections could show how the latest economic developments are influencing their view of how many rate cuts are coming this year and next.The Fed’s most recent economic estimates, released in December, suggested that Fed officials would make three quarter-point rate cuts by the end of 2024. Since then, the economy has remained surprisingly strong and inflation, while still down sharply from its 2022 highs, has proved stubborn. Some economists think it’s possible that officials could dial back their rate cut expectations, projecting just two moves this year.By leaving rates higher for slightly longer, officials could keep pressure on the economy, guarding against the risk that inflation might pick back up.“The Federal Reserve should not be in a race to cut rates,” said Joseph Davis, Vanguard’s global chief economist, explaining that the economy has held up better than would be expected if rates were weighing on growth drastically, and that cutting prematurely risks allowing inflation to run warmer in 2025. “We have a growing probability that they don’t cut rates at all this year.”We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    The jobs report comes as the Fed considers the timing of interest rate cuts.

    The Federal Reserve is considering when and how much to cut interest rates, and the employment report on Friday will give policymakers an up-to-date hint at how the economy is evolving ahead of their next policy meeting.Fed officials meet on March 19-20, and they are widely expected to leave interest rates unchanged at that gathering. But investors think that they could begin to lower interest rates as early as June, a view that Jerome H. Powell, the Fed chair, did little to either strongly confirm or upend during his congressional testimony this week.“We’re waiting to become more confident that inflation is moving sustainably to 2 percent,” Mr. Powell told lawmakers on Thursday. “When we do get that confidence, and we’re not far from it, it will be appropriate to dial back the level of restriction.”The Fed is primarily watching progress on inflation as it contemplates its next steps, but it is also keeping an eye on the labor market. If job growth is strong and the labor market is so robust that wages rise quickly, that could keep price increases higher for longer as companies try to cover their costs. On the other hand, if the job market begins to slow sharply, that could nudge Fed officials toward earlier interest rate cuts.For now, unemployment has remained low and wage growth has been solid — but not as strong as the peaks it reached in 2022. That has given Fed officials comfort that the supply of workers and the demand for new employees is coming back into balance, even without a painful economic slowdown.“Although the jobs-to-workers gap has narrowed, labor demand still exceeds the supply of available workers,” Mr. Powell said this week.If the recent progress in restoring balance continues, it could allow the Fed to pull off what is often called a “soft landing”: a situation in which the economy cools and inflation moderates so the Fed can back away from aggressive interest rate policy without a recession. More

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    U.S. Economy: Has an Era of Increased Productivity Returned?

    Thirty years ago, the U.S. entered an era of productivity gains that enabled healthy growth. Experts are asking if it could happen again.The last time the American economy was posting surprising economic growth numbers amid rapid wage gains and moderating inflation, Ace of Base and All-4-One topped the Billboard charts and denim overalls were in vogue.Thirty years ago, officials at the Federal Reserve were hotly debating whether the economy could continue to chug along so vigorously without spurring a pickup in inflation. And back in 1994, it turned out that it could, thanks to one key ingredient: productivity.Now, official productivity data are showing a big pickup for the first time in years. The data have been volatile since the start of the pandemic, but with the dawn of new technologies like artificial intelligence and the embrace of hybrid work setups, some economists are asking whether the recent gains might be real — and whether they can turn into a lasting boom.If the answer is yes, it would have huge implications for the U.S. economy. Improved productivity would mean that firms could create more product per worker. And a steady pickup in productivity could allow the economy to take off in a healthy way. More productive companies are able to pay better wages without having to raise prices or sacrifice profits.Several of the trends in place today have parallels with what was happening in 1994 — but the differences explain why many economists are not ready to declare a turning point just yet.The Computer Age vs. the Zoom AgeBy the end of the 1980s, computers had been around for decades but had not yet generated big gains to productivity — what has come to be known as the productivity paradox. The economist Robert Solow famously said in 1987, “You can see the computer age everywhere but in the productivity statistics.”We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Fed Chair Powell Says Officials Need More ‘Good’ Data Before Cutting Rates

    Federal Reserve officials are debating when to lower rates. An interview with Jerome H. Powell confirms a move is coming, but not immediately.Jerome H. Powell, the chair of the Federal Reserve, made clear during a “60 Minutes” interview aired on Sunday night that the central bank is moving toward cutting interest rates as inflation recedes, but that policymakers need to see continued progress toward cooler price increases to make the first move.Mr. Powell was interviewed on Thursday, after the Fed’s meeting last week but before Friday’s blockbuster jobs report. He reiterated his message that lower borrowing costs are coming. But he also said that the Fed’s next meeting in March is probably too early for policymakers to feel sure enough that inflation is coming under control to reduce rates.“We think we can be careful in approaching this decision just because of the strength that we’re seeing in the economy,” Mr. Powell said during the interview, based on a transcript released ahead of its airing. He added that officials would want to see a continued moderation in price increases, even after several months of milder readings.The progress on inflation “doesn’t need to be better than what we’ve seen, or even as good. It just needs to be good,” Mr. Powell said.His remarks reaffirm that lower borrowing costs are likely coming this year — a change that could make mortgages, car loans and credit card debt cheaper for Americans. They also underscore how much better today’s economic situation is proving to be than what economists and Fed officials expected just a year ago.Many forecasters had predicted that the Fed’s rapid campaign of interest rate increases, which pushed borrowing costs from near zero to a range of 5.25 to 5.5 percent from March 2022 to July 2023, would slow the economy so much that it might even spur a recession. Central bankers themselves — including Mr. Powell — believed that some economic pain would probably be needed to cool consumer and business demand enough to prod businesses to stop raising prices so quickly.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Price Increases Cooled in November as Inflation Falls Toward Fed Target

    A key inflation measure has been slowing and overall prices actually declined slightly from October, good news for officials and consumers.A closely watched measure of inflation cooled notably in November, good news for the Federal Reserve as officials move toward the next phase in their fight against rapid price increases and a positive for the White House as voters see relief from rising costs.The Personal Consumption Expenditures inflation measure, which the Fed cites when it says it aims for 2 percent inflation on average over time, climbed 2.6 percent in the year through November. That was down from 2.9 percent the previous month, and was less than what economists had forecast. Compared with the previous month, prices overall even fell slightly for the first time in years.That decline — a 0.1 percent drop, and the first negative reading since April 2020 — came as gas prices dropped. After volatile food and fuel prices were stripped out for a clearer look at underlying price pressures, inflation climbed modestly on a monthly basis and 3.2 percent over the year. That was down from 3.4 percent previously.While that is still faster than the Fed’s goal, the report provided the latest evidence that price increases are swiftly slowing back toward the central bank’s target. After more than two years of rapid inflation that has burdened American shoppers and bedeviled policymakers, several months of solid progress have helped to convince policymakers that they may be turning a corner.Increasingly, officials and economists think that they may be within sight of a soft economic landing — one in which inflation moderates back to normal without a painful recession. Fed policymakers held interest rates steady at their meeting this month, signaled that they might well be done raising interest rates and suggested that they could even cut borrowing costs three times next year.“Inflation is slowing a lot faster than the Fed had anticipated — that could allow them to potentially cut soon, and more aggressively,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities. “They’re really trying their best to deliver a soft landing here.”The inflation progress is welcome news for the Biden administration, which has struggled to capitalize on strong economic growth and low unemployment at a time when high prices are eroding household confidence.President Biden released a statement celebrating the report, and Lael Brainard, director of the National Economic Council, called the slowdown in inflation “a significant milestone” in a call with reporters.“Inflation has come down faster than even the more optimistic forecasts,” she said, noting that wage gains are outstripping price increases. While she didn’t comment on monetary policy directly, citing the central bank’s independence from the White House, she did note that households are already facing lower mortgage rates as investors come to expect a more lenient Fed.Based on market pricing, the Fed is expected to begin lowering interest rates as soon as March, though officials have argued that it is too early to talk about when rate cuts will commence.“Inflation has eased from its highs, and this has come without a significant increase in unemployment — that’s very good news,” Jerome H. Powell, the Fed chair, said at that meeting. Still, he emphasized that “the path forward is uncertain.”Central bankers are likely to watch closely for signs that inflation has continued to cool as they contemplate when to start cutting rates. Some officials have suggested that keeping borrowing costs steady when price increases are slowing would effectively squeeze the economy more. (Interest rates are not price-adjusted, so they get higher after stripping inflation out as inflation falls.)Still, Fed officials have been hesitant to declare victory after repeated head fakes in which price increases proved more stubborn than expected, and at a time when geopolitical issues could complicate supply chains or push up gas prices.“The more benign inflation data is certainly something to celebrate, but there is some turbulence ahead,” Omair Sharif, founder of Inflation Insights, wrote in a note reacting to Friday’s data. “Fed officials will want to get through before turning the focus squarely to rate cuts.”Policymakers are also likely to keep a close eye on consumer spending as they try to figure out how much momentum is left in the economy.The report released Friday showed that consumers are still spending at a moderate clip. A measure of personal consumption climbed 0.2 percent from October, and 0.3 percent after adjusting for inflation. Both readings were quicker than the previous month. That suggested that growth is still positive, though is no longer quite as hot as it was earlier this year.Officials still expect the economy to slow more notably in 2024, a demand cool-down that they think would pave the way to sustainably slower price increases.After a year in which inflation cooled rapidly in spite of surprisingly strong growth, economists are expressing humility. But policymakers remain wary of a situation in which growth remains too strong.“If you have growth that’s robust, what that will mean is probably we’ll keep the labor market very strong; it probably will place some upward pressure on inflation,” Mr. Powell said at his news conference. “That could mean that it takes longer to get to 2 percent inflation.”That, he said, “could mean we need to keep rates higher for longer.” More