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    Federal Reserve’s June Meeting: What to Watch

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    Central bankers are expected to leave interest rates unchanged on Wednesday, but the decision is an unusual nail-biter. Also: Keep an eye on the economic forecasts.Federal Reserve officials will announce their June policy decision on Wednesday, and they are widely expected to hold steady after 10 straight interest rate increases — taking a breather to see how the economy is shaping up 15 months into their fight against rapid inflation.Prices have been increasing faster than the Fed would like for more than two years, but a report on Tuesday confirmed that the pace of overall inflation continues to cool. That doesn’t mean the Fed can declare victory: Once volatile food and fuel prices were stripped out, the data showed inflation remained stubbornly rapid.Investors are betting that Fed officials will respond to the mixed picture by skipping an increase this month, even as they signal that they might lift rates in July.Still, the outlook is very uncertain, and investors will be watching Wednesday’s Fed meeting closely for any hint at what could come next. Central bankers will release their rate decision and fresh economic forecasts at 2 p.m., followed by a news conference with Jerome H. Powell, the Fed chair, at 2:30 p.m. Here’s what to know about the decision.Interest rates are at their highest since 2007.Fed officials have raised interest rates sharply since March 2022, pushing them to just above 5 percent in the fastest series of rate increases since the 1980s.The speed of adjustment is relevant because it takes months or even years for the effects of interest rate changes to fully trickle through the economy.Given that, the economy is — most likely — feeling only part of the brunt of the Fed’s past moves. That increases the risk that the central bank could overdo it and slow growth by more than is strictly necessary to contain inflation if officials push forward without taking time to assess conditions.Overshooting would have serious ramifications: Restraining the economy too aggressively would very likely cost jobs, diminishing financial security for many Americans.But an incomplete policy response would also carry consequences. If rapid inflation drags on for years, consumers could come to see fast price increases as the norm, making them harder to stamp out without serious economic pain that causes higher unemployment down the road.Skipping does not mean stopping.If setting monetary policy is like a marathon, a pause now is like stopping for a water break — to stretch and take stock — rather than giving up on running altogether. Fed officials have been clear that while they may hit pause temporarily, they could lift rates again if needed.“A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle,” Philip Jefferson, a Fed governor who is President Biden’s pick to be the central bank’s next vice chair, said in a speech last month. Instead, Mr. Jefferson said, skipping would “allow the committee to see more data.”Tuesday’s inflation data probably kept officials on track to hold policy steady in June while teeing up a July increase, said Sarah Watt House, senior economist at Wells Fargo.“They are going to have to walk a very fine line,” she said. “The U.S. economy continues to carry some pretty formidable momentum.”Investors are on dot watch.Every three months, the Fed releases a set of projections — the “dot plot” — that shows where each official expects interest rates to land by the end of the next few years. (The predictions are anonymous and are demarcated by little blue spots, hence the name.)The dots come out alongside a set of projections for unemployment, inflation and growth. They will be released on Wednesday for the first time since March.Some economists are expecting the Fed to pencil in slightly higher growth for the economy, slightly higher core inflation, and a slightly lower unemployment rate by the end of 2023. One complication is that officials will have had barely any time to update their projections in the wake of Tuesday’s Consumer Price Index report. Officials had until Tuesday evening to change their forecasts, but that meant they had just hours to factor in the new figures.Investors are probably going to be most focused on how much higher interest rates are expected to rise this year. Many expect Fed officials to pencil in one more rate move — lifting the anticipated policy rate to a range of 5.25 percent to 5.5 percent at the end of 2023. But given the varied opinions on the central bank’s policy-setting committee, the predictions might be for even higher rates.All eyes are on Jerome Powell.Jerome H. Powell, the Fed chair, will give a news conference after the meeting. He may explain how central bankers are thinking about their path ahead for interest rates — and how officials will judge whether they have done enough to feel confident that inflation, now running at 4.4 percent by their preferred measure, is back on a path toward their 2 percent goal.“The main message will be: A pause does not necessarily mean the end of the rate hiking cycle,” said Michael Feroli, chief U.S. economist at J.P. Morgan. More

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    U.S. Economy’s Staying Power Poses Big Questions for the Fed

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    The Federal Reserve has been trying to slow growth without tanking it. Now, officials must ask if inflation can cool amid signs of resilience.Employers are hiring rapidly. Home prices are rising nationally after months of decline. Consumer spending climbed more than expected in a recent data release.America’s economy is not experiencing the drastic slowdown that many analysts had expected in light of the Federal Reserve’s 15-month, often aggressive campaign to hit the brakes on growth and bring rapid inflation under control. And that surprising resilience could be either good or bad news.The economy’s staying power could mean that the Fed will be able to wrangle inflation gently, slowing down price increases without tipping America into any sort of recession. But if companies can continue raising their prices without losing customers amid solid demand, it could keep inflation too hot — forcing consumers to pay more for hotels, food and child care and forcing the Fed to do even more to restrain growth.Policymakers may need time to figure out which scenario is more likely, so that they can avoid either overreacting and causing unnecessary economic pain or underreacting and allowing rapid inflation to become permanent.Given that, investors have been betting that Fed officials will skip a rate increase at their meeting on Tuesday and Wednesday before lifting them again in July, proceeding cautiously while emphasizing that pausing does not mean quitting — and that they remain determined to bring prices under control. But even that expectation is increasingly shaky: Markets have spent this week nudging up the probability that the Fed might raise rates at this month’s meeting.In short, the mixed economic signals could make Fed policy discussions fraught in the months ahead. Here’s where things stand.Interest rates are much higher.Interest rates are above 5 percent, their highest level since 2007.

    Source: Federal ReserveBy The New York TimesAfter sharply adjusting policy over the past 15 months, key officials including Jerome H. Powell, the Fed chair, and Philip Jefferson, President Biden’s pick to be the next Fed vice chair, have hinted that central bankers could pause to allow themselves time to judge how the increases are affecting the economy.But that assessment remains a complex one. Even some parts of the economy that typically slow when the Fed raises rates are demonstrating a surprising ability to withstand today’s interest rates.“It’s a very complicated, convoluted picture depending on which data points you are looking at,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank, noting that overall growth figures like gross domestic product have slowed — but other key numbers are holding up.House prices are wiggling.Higher interest rates can take months or even years to have their full effect, but they should theoretically work pretty quickly to begin to slow down the car and housing markets, both of which revolve around big purchases made with borrowed cash.That story has been complicated this time. Car buying has slowed since the Fed started raising rates, but the auto market has been so undersupplied in recent years — thanks in large part to pandemic-tied supply chain problems — that the cool-down has been a bumpy one. Housing has also perplexed some economists.

    Note: Data is seasonally adjusted.Source: S&P CoreLogic Case-Shiller Index, via
    S&P Global IntelligenceBy The New York TimesThe housing market weakened markedly last year as mortgage rates soared. But rates have recently stabilized, and home prices have ticked back up amid low inventory. House prices do not count directly in inflation, but their turnaround is a sign that it’s taking a lot to sustainably cool a hot economy.Job signals are confusing.Fed officials are also watching for signs that their rate increases are trickling through the economy to slow the job market: As it costs more to fund expansions and as consumer demand slows, companies should pull back on hiring. Amid less competition for workers, wage growth should moderate and unemployment should rise.Some signs suggest that the chain reaction has begun. Initial claims for unemployment insurance jumped to the highest level since October 2021 last week, a report on Thursday showed. People are also working fewer hours per week at private employers, which suggests bosses aren’t trying to eke so much out of existing staff.

    Notes: Data is seasonally adjusted and includes hours worked by full- and part-time private sector employees.Source: Bureau of Labor StatisticsBy The New York TimesBut other signals have been more halting. Job openings had come down, but edged back up in April. Wages have been climbing less swiftly for lower-income workers, but gains remain abnormally rapid. The jobless rate climbed to 3.7 percent in May from 3.4 percent, but even that was still well shy of the 4.5 percent that Fed officials expected it to hit by the end of 2023 in their latest economic forecasts. Officials will release fresh projections next week.

    Source: Bureau of Labor StatisticsBy The New York TimesAnd by some measures, the labor market is still chugging. Hiring remains particularly strong.“Everyone talks as if the economy moves in one straight line,” said Nela Richardson, chief economist at ADP. “In actuality, it’s lumpy.”Price increases are stubborn.Still, inflation itself may be the biggest wild card that could shape the Fed’s plans this month and over this summer. Officials forecast in March that annual inflation as measured by the Personal Consumption Expenditures index would retreat to 3.3 percent by the end of the year.That pullback is gradually happening. Inflation stood at 4.4 percent as of April, down from 7 percent last summer but still more than double the Fed’s 2 percent goal.

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    Year-over-year percentage change in the Personal Consumption Expenditures index
    Source: Bureau of Economic AnalysisBy The New York TimesOfficials will receive a related and more up-to-date inflation reading for May — the Consumer Price Index — on the first day of their meeting next week.Economists expect substantial cooling, which could give officials confidence in pausing rates. But if those forecasts are foiled, it could make for an even more heated debate about what comes next. More

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    Wages Grow Steadily, Defying Fed’s Hopes as it Fights Inflation

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    Wage growth ticked up in April, good news for American workers but bad news for officials at the Federal Reserve, who have been hoping to see a steady moderation in pay gains as they try to wrestle inflation back under control.Average hourly earnings climbed by 4.4 percent in the year through April. That compared with 4.3 percent in the previous month, and was more than the 4.2 percent that economists had expected.The increase in wages compared with the previous month — at 0.5 percent — was the fastest since March 2022.The hourly earnings measure can bounce around from month to month, so it is possible that the April increase is a blip rather than a reversal in the trend toward cooler wage gains. Even so, the data underscored that the Fed faces a bumpy road as it tries to slow the economy and bring inflation under control.Fed officials are closely watching the pace of wage growth as they try to assess how quickly inflation is likely to fade. While officials regularly acknowledge that wage gains did not initially cause rapid price increases, they worry that it will prove difficult to return inflation to normal with pay gains rising so rapidly.Companies may charge more in order to cover their climbing labor costs. And when households are earning more, they are more capable of keeping up with higher expenses without pulling back their spending — enabling businesses to charge more for hotel rooms, child care and restaurant meals without scaring away consumers.The Fed has raised interest rates at the fastest pace since the 1980s starting from March 2022. Officials this week lifted borrowing costs to just about 5 percent and signaled that they might pause their rate moves as soon as their June meeting, depending on incoming economic data.Jerome H. Powell, the Fed chair, noted during his news conference this week that wage growth has remained strong. He suggested the solid job market was one reason the Fed would likely keep rates high to continue slowing the economy “for a while” as it tried to wrestle inflation, which remains above 4 percent, back to the central bank’s 2 percent goal.“Right now, you have a labor market that is still extraordinarily tight,” he said, noting that a more dated wage figure released last week was “a couple percentage points above what would be consistent with 2 percent inflation over time.”That measure, the Employment Cost Index, showed that wages and salaries for private-sector U.S. workers were up 5.1 percent in March from a year earlier. While that is somewhat faster than the gain reported by the overall average hourly earnings figures for April that were released Friday, it is roughly in line with a closely-watched measure within the monthly jobs report that tracks pay gains for rank and file workers.Pay for production and nonsupervisory workers — essentially, people who are not managers — climbed by 5 percent in the year through April, Friday’s report showed. That number has continued to gradually moderate, even as the slowdown in the overall index has stalled.Fed policymakers will have another month of job and wage data in hand before they make their next interest-rate decision on June 14, making Friday’s figures just one of many factors that are likely to inform whether they pause rate increases or press ahead with more policy adjustments. Officials will also have further evidence of how much the recent turmoil in the banking sector is slowing the economy before they next meet.A series of high-profile bank failures have spooked investors and could generate caution at lenders across the country, which could make it harder to access loans for construction projects and mortgages and help to cool growth — but it is unclear so far how large that effect will be.Perhaps most importantly, officials will receive fresh inflation data before their next decision.“They’ll need to see the inflation data and digest this holistically,” said Kathy Bostjancic, chief economist at Nationwide. She said that the strong jobs numbers were just one month of data, but that they were “jarring” to see at a moment when economists had been looking for a slowdown.“Assuming that the inflation numbers continue to trend lower gradually, I think they can go on hold in June,” she said of the Fed. “But it will depend in the inflation readings.” More

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    Powell Bets the Fed Can Slow Inflation Despite Recession Fears

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    Jerome H. Powell, the Federal Reserve chair, thinks his central bank can defy history to clinch slower inflation and a soft economic landing.The Federal Reserve’s push to slow the economy and bring inflation under control is often compared to an airplane descent, one that could end in a soft landing, a bumpy one or an outright crash.Jerome H. Powell, the Fed chair, is betting on something more akin to the Miracle on the Hudson: a touchdown that is gentle, all things considered, and unlike anything the nation has seen before.The Fed has raised rates sharply over the past year, pushing them just above 5 percent on Wednesday, in a bid to cool the economy to bring inflation under control. Staff economists at the central bank have begun to forecast that America is likely to tip into a recession later this year as the Fed’s substantial policy moves combine with turmoil in the banking sector to snuff out growth.But Mr. Powell made it clear during a news conference on Wednesday that he does not agree.“That’s not my own most likely case,” he said, explaining that he expects modest growth this year. That sunnier forecast has hinged, in part, on trends in the labor market.America’s job market is still very strong — with rapid job growth and unemployment hovering near a 50-year low — but it has shown signs of cooling. Job openings have dropped sharply in recent months, falling to 9.6 million in March from a peak of more than 12 million a year earlier. Historically, such a massive decline in the number of available positions would have come alongside layoffs and rising joblessness, and prominent economists had predicted a painful economic landing for exactly that reason.But so far, unemployment has not budged.Relationship Status: It’s ComplicatedJoblessness usually increases when job openings fall. But that relationship is in question now as job openings drop while unemployment remains low.

    Note: Data is seasonally adjustedSource: Bureau of Labor StatisticsBy The New York Times“It wasn’t supposed to be possible for job openings to decline by as much as they have declined without unemployment going up,” Mr. Powell said this week. While America will get the latest update on unemployment when a job market report is released Friday, unemployment has yet to rise meaningfully. Mr. Powell added that “there are no promises in this, but it just seems to me that it is possible that we can continue to have a cooling in the labor market without having the big increases in unemployment that have gone with many prior episodes.”America’s economic fate rests on whether Mr. Powell’s optimism is correct. If the Fed can pull it off — defying history to wrangle rapid inflation by sharply cooling the labor market without causing a big and painful jump in joblessness — the legacy of the post-pandemic economy could be a tumultuous but ultimately positive one. If it can’t, taming price increases could come at a painful cost to America’s employees.The Fed has raised rates sharply over the past year, pushing them just above 5 percent as of their meeting this week, in a bid to cool the economy in order to wrestle inflation under control.Hiroko Masuike/The New York TimesSome economists are skeptical that the good times can last.“We haven’t seen this trade-off, which is fantastic,” said Aysegul Sahin, an economist at the University of Texas at Austin. But she noted that productivity data appeared glum, which suggests that companies got burned by years of pandemic labor shortages and are now hanging onto workers even when they do not necessarily need them to produce goods and services.“This time was different, but now we are getting back to the state where it is a more normal labor market,” she said. “This is going to start playing out the way it always plays out.”The Fed is in charge of fostering both maximum employment and stable inflation. But those goals can come into conflict, as is the case now.Inflation has been running above the Fed’s 2 percent goal for two full years. While the strong labor market did not initially cause the price spikes, it could help to perpetuate them. Employers are paying higher wages to try to hang onto workers. As they do that, they are raising prices to cover their costs. Workers who are earning a bit more are able to afford rising rents, child care costs and restaurant checks without pulling back.In situations like this, the Fed raises interest rates to cool the economy and job market. Higher borrowing costs slow down the housing market, discourage big consumer purchases like cars and home improvement projects, and deter businesses from expanding. As people spend less, companies cannot keep raising prices without losing customers.But setting policy correctly is an economic tightrope act.Policymakers think that it is paramount to act decisively enough to quickly bring inflation under control — if it is allowed to persist too long, families and businesses could come to expect steadily rising prices. They might then adjust their behavior, asking for bigger raises and normalizing regular price increases. That would make inflation even harder to stamp out.On the other hand, officials do not want to cool the economy too much, causing a painful recession that proves more punishing than was necessary to return inflation to normal.Striking that balance is a dicey proposition. It is not clear exactly how much the economy needs to slow to fully control inflation. And the Fed’s interest rate policy is blunt, imprecise and takes time to work: It is hard to guess how much the increases so far will ultimately weigh on growth.That is why the Fed has slowed its policy changes in recent months — and why it appears poised to pause them altogether. After a string of three-quarter point rate moves last year, the Fed has recently adjusted borrowing costs a quarter point at a time. Officials signaled this week that they could stop raising rates altogether as soon as their mid-June meeting, depending on incoming economic data.Hitting pause would give central bankers a chance to see whether their rate adjustments so far might be sufficient.It would also give them time to assess the fallout from turmoil in the banking industry — upheaval that could make a soft economic landing even more difficult.Three large banks have collapsed and required government intervention since mid-March, and jitters continue to course through midsize lenders, with several regional bank stocks plummeting on Wednesday and Thursday. Banking troubles can quickly translate into economic problems as lenders pull back, leaving businesses less able to grow and families less able to finance their consumption.The labor market could be in for a more dramatic slowdown, given the bank tumult and the Fed’s rate moves so far, said Nick Bunker, the director of North American economic research at the job site Indeed.He said that while job openings have been coming down swiftly, some of that might reflect a shift back to normal conditions after a bout of pandemic-inspired weirdness, not necessarily as a result of Fed policy.For instance, job openings in leisure and hospitality industries had spiked as restaurants and hotels reopened from lockdowns. Those were now disappearing, but that might be more about a return to business as usual.“A soft landing is happening, but how much of that is gravity and how much of it is what the pilot is doing with the plane?” Mr. Bunker said. Going forward, it could be that the normal historical relationship between declining job openings and rising joblessness will kick in as policy begins to bite.Or this time truly could be unique — as Mr. Powell is hoping. But whether the Fed and the American economy get to test his thesis could depend on whether the banking system issues clear up, Mr. Bunker said.“We might not get the answer if the financial sector comes and tips the table over,” he said. More

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    Fed Expected to Raise Interest Rates: What to Know

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    Federal Reserve officials will release a rate decision at 2 p.m. The key question is what will come next.Federal Reserve officials are set to release an interest rate decision on Wednesday afternoon, and while investors widely expect policymakers to lift borrowing costs by a quarter-point, they will be watching carefully for any hint at what might come next.This would be the central bank’s 10th consecutive interest rate increase — capping the fastest series of rate increases in four decades. But it could also be the central bank’s last one, for now.Fed officials signaled in their last set of economic projections that they might stop raising interest rates once they reached a range of 5 percent to 5.25 percent, the level they are expected to hit on Wednesday. Officials will not release fresh economic projections after this meeting, which will leave economists carefully parsing both the central bank’s 2 p.m. policy decision statement and a 2:30 p.m. news conference with Jerome H. Powell, the Fed chair, for hints at what comes next.Central bankers will be balancing conflicting signals. They have already done a lot to slow growth and wrestle rapid inflation under control, recent tumult in the banking industry could curb demand even more, and a looming fight over the debt ceiling poses a fresh source of risk to the economy. All of those are reasons for caution. But the economy has been fairly resilient and inflation is showing staying power, which could make some Fed officials feel that they still have work to do.Here’s what to know going into Fed day.Inflation has prompted the Fed to get aggressiveFed policymakers are raising interest rates for a simple reason: Inflation has been painfully high for two years, and making money more expensive to borrow is the main tool government officials have to get it down.When the Fed raises interest rates, it makes it more expensive and often more difficult for families to take out loans to buy houses or cars or for businesses to raise money for expansions. That slows both consumer spending and hiring. As wage growth sags and unemployment rises, people become more cautious and the economy slows further.If that chain reaction sounds unpleasant, it’s because it can be: When Paul Volcker’s Fed raised interest rates to nearly 20 percent in the early 1980s, it helped to push joblessness above 10 percent.But by cooling demand across the economy, a widespread slowdown can help to wrestle inflation under control. Companies find it harder to charge more without losing customers in a world where families are spending cautiously.And getting inflation under wraps is a big priority for the Fed: Price increases have been unusually rapid since early 2021, and while they have cooled off notably from a peak of about 9 percent last summer, they are increasingly driven by service industries like travel and child care. Such price increases could prove stubborn and difficult to fully stamp out.Higher Prices for Services Are Now Driving InflationBreakdown of the inflation rate, by category

    Note: The services category excludes energy services, and the goods category excludes food and energy goods.Sources: Bureau of Labor Statistics; New York Times analysisBy The New York TimesRates haven’t been this high in more than 15 yearsTo get price increases back in line, the Fed has raised rates to nearly 5 percent — and they are expected to cross that threshold on Wednesday. The last time rates eclipsed 5 percent was the summer of 2007, before the global financial crisis.What does it mean to have interest rates this high? More expensive mortgages have translated into a meaningful slowdown in the housing market, for one thing. There are also some signs that the labor market, while still very strong, is beginning to weaken — hiring is gradually slowing, and fewer jobs are going unfilled. But perhaps most visibly, the higher interest rates are starting to cause financial stress.Three big U.S. banks have failed — and required responses from the government — since early March, culminating in a government-enabled shotgun wedding between First Republic and JPMorgan Chase early Monday morning.Many of the banks under stress in recent weeks have suffered because they did not adequately protect themselves against rising interest rates, which have reduced the market value of their older mortgages and securities holdings.Fed officials will need to consider two issues related to the recent turmoil: Will there be further drama as other banks and financial companies struggle with higher rates, and will the bank trouble so far significantly slow the economy?Mr. Powell could give the world a sense of their thinking at his news conference.Economists are on pause patrolBetween the banking upheaval and how much the Fed has lifted interest rates already, investors expect policymakers to pause after this move. But don’t assume that means the slowdown is over.Higher Fed rates are like delayed reaction medicine: They start to kick in quickly, but their full effects take a while to play out. Last year’s moves are still trickling through the economy, and by leaving rates on hold at a high level, officials could continue to weigh down the economy for months to come.And it could be that central bankers will not actually pause: Some have suggested that if inflation remains rapid and growth keeps its momentum, they could raise interest rates more. But it seems possible — even likely — that the bar for future rate moves will be higher.America is on recession watchAs high rates and bank problems bite, many economists think the country could be in for an economic downturn. Economists on the Fed’s staff even said at the central bank’s March meeting that they thought a mild recession was likely later this year in the aftermath of the banking crisis, based on minutes from the Fed’s last meeting.Mr. Powell is sure to get asked about that at this news conference — and he may have to explain how the Fed hopes to keep a slight recession from turning into a big one.A gentle slowdown would probably feel a lot different for people on the ground than a major recession. One would involve slightly fewer job opportunities, milder wage growth and less boisterous business. The other could involve job loss and insecurity, slashed hours and earnings, and a pervading sense of glumness among American consumers.That’s why Wednesday’s Fed meeting matters: It’s not just technical policy tweaks Mr. Powell will be talking about, but decisions that will shape America’s economic future. More

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    Fed Will Decide Next Rate Move After Bank Jitters

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    The Federal Reserve will release a policy decision on Wednesday on the heels of another bank collapse.WASHINGTON — Federal Reserve officials are widely expected to lift borrowing costs by a quarter of a percentage point on Wednesday, the 10th consecutive rate increase since March 2022. But investors and economists think that this could be the central bank’s last move before it pauses.Fed officials face a complicated backdrop going into this week’s meeting: Risks to the financial system loom large, but inflation also remains stubborn.The banking system has been in turmoil since the collapse of Silicon Valley Bank on March 10. Government officials spent this past weekend racing to find a buyer for First Republic, which had been struggling for weeks and was sold to JPMorgan Chase in a deal announced early Monday morning.Some of the banking sector tumult stems from the Fed’s rapid interest rate increases over the past year. Central bankers are expected to lift rates to just above 5 percent this week, up from near-zero as recently as March 2022. After that quick series of adjustments, many lenders are facing losses on older securities and loans, which pay relatively low interest rates compared with newer securities issued in a higher-rate world.Despite the Fed’s moves — which were meant to rein in quick inflation by slowing the economy — the job market has maintained some momentum and price increases have shown concerning staying power. Companies continue to hire at a solid clip, and data released last week showed that wages continued to climb quickly at the start of the year. While inflation has been slowing, it is increasingly driven by service price increases that have shown little sign of cooling off — which could make it difficult to wrestle price increases the whole way back to the Fed’s slow and steady goal.Policymakers will give the public a sense of how they are thinking about the fraught economic moment on Wednesday in their post-meeting statement at 2 p.m. Because the Fed will not release fresh economic projections at this meeting — those come out just once a quarter — investors will look to a news conference with the Fed chair, Jerome H. Powell, at 2:30 p.m. for clues about what comes next.The Fed could hint at a pauseWhen Fed policymakers released their economic estimates in March, they expected to raise interest rates to a range of 5 to 5.25 percent in 2023.If officials adjust policy as expected this week, they will have lifted rates to that level. The question now is whether they deem that sufficient, or whether policymakers think that the economy and inflation are resilient enough that they will need to adjust borrowing costs more to cool things down and lower inflation fully.Mr. Powell could offer some signal during his news conference, or he could opt to leave the Fed’s options open — which is what some economists expect.“They don’t need to rule anything out,” said Blerina Uruci, chief U.S. economist at T. Rowe Price. “The worst scenario for them would be to signal that they’re done, then have the data force them to do a U-turn.”Investors expect Fed officials to stop after this week, hold rates steady for a few months and then begin to lower them — perhaps substantially, to a range of 4.5 to 4.75 percent by the end of the year.Fed policymakers, however, have been adamant that they do not expect to lower rates imminently. And some have hinted that more increases might be warranted if inflation and economic strength show staying power.“Monetary policy needs to be tightened further,” Christopher Waller, a Fed governor and one of the central bank’s more inflation-focused members, said in an April 14 speech. “How much further will depend on incoming data on inflation, the real economy and the extent of tightening credit conditions.”Bank turmoil will influence policyFed officials have been clear that the upheaval in the banking system could slow the economy — but policymakers do not know by how much.Banking trouble is different from other types of business distress, because banks are like the yeast in the sourdough starter of the economy: If they aren’t working, nothing else grows. They lend out money to would-be home buyers, people who want to buy new cars or garage additions, and businesses that want to expand and hire.It is pretty clear that banks are going to pull back their lending at least somewhat in response to the recent turmoil. Anecdotal signs are already surfacing around the country. The question is how acute that shift will be.“If the response to recent banking problems leads to financial tightening, monetary policy has to do less,” Austan Goolsbee, the president of the Federal Reserve Bank of Chicago, said in an April 11 speech. “It’s not clear by how much less.”He noted that private-sector estimates suggested that the hit to growth from the banking turmoil could be equivalent to one to three quarter-point rate increases. That estimate came well before First Republic’s demise, but after its troubles started.The economy’s resilience will be criticalOne big question for the Fed — and which will matter for everyone — is whether the U.S. economy will squeak through this episode without plunging into a painful recession.Fed staff members said at the central bank’s March meeting that they expected the economy to experience a “mild recession” in the wake of the recent banking turmoil. And Fed officials — including Mr. Powell — have suggested that a recession is possible as officials try to slow the economy enough to bring inflation under control.But if a recession hits, it is not obvious how painful it will be. Some economists warn that downturns usually build on themselves, as people respond to a little bit of economic weakness by pulling back on spending a lot: It may be hard to push the unemployment rate up just a little bit without pushing it significantly.Others point out that the post-pandemic economy is a weird one, characterized by unusually strong corporate profits and lots of job openings. Because there may be room to squeeze margins and cut unfilled positions, the economy may be able to cool down more gently than in the past — a so-called “soft landing.”Mr. Powell will get a chance to weigh in on which outcome he thinks is most likely on Wednesday. More

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    Russian Pranksters Trick the Fed Chair, Based on Internet Videos

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    Videos circulating online show Jerome H. Powell, the Federal Reserve chair, answering basic questions about the American and global economy.WASHINGTON — Pranksters posing as Ukraine’s president tricked Jerome H. Powell, the Federal Reserve chair, into a conversation in January about the U.S. and global economy, based on video clips covered on Russian state television and posted online.The footage shows Mr. Powell answering an interviewer’s questions on a video call, apparently thinking that he is talking to Volodymyr Zelensky, Ukraine’s leader. The ruse appears to have been carried out by Vladimir Kuznetsov and Alexei Stolyarov, pranksters who are supporters of President Vladimir V. Putin of Russia.The clips — now circulating on the internet — were earlier reported on by Bloomberg News. They show Mr. Powell answering questions about central banking and inflation. His comments appear to be in line with what he regularly expresses in public.A Fed spokesperson said Mr. Powell participated in a conversation in January with someone who misrepresented himself as the Ukrainian president, noting that the discussion took place in the context of the central bank’s support for the Ukrainian people. The spokesperson said no sensitive or confidential information was discussed.The video appears to have been edited, and the Fed said it could not confirm its accuracy. The matter has been referred to law enforcement, the spokesperson said.The two men who carried out the prank have also tricked other global leaders, including Christine Lagarde, the president of the European Central Bank, and Angela Merkel, Germany’s former chancellor.An E.C.B. spokesperson said Ms. Lagarde had agreed to the conversation in good faith, and to show support for Ukraine and its people.The Fed-related video was posted on Rutube, a Russian video hosting platform, and covered by Russian state-run television and news agencies. Mr. Kuznetsov and Mr. Stolyarov posted excerpts from the call on their social media page, and dedicated a special episode of a show that they host to it.The clips show Mr. Powell discussing a number of challenges facing the American economy — including rapid inflation and the possibility of a recession. In the clips, he acknowledges that an economic downturn is possible or even likely, but that it is necessary to cool the economy and slow price increases. That is consistent with what the Fed chair has said in testimony and speeches.Fed officials are now in their pre-meeting quiet period, during which officials avoid speaking publicly in the run-up to an interest rate decision. They will meet next week and release a rate decision on Wednesday, after which Mr. Powell will hold a news conference.Oleg Matsnev More

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    Why Ron DeSantis Is Taking Aim at the Federal Reserve

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    Florida’s governor has been blasting Jerome H. Powell, the Fed chair, while spreading misinformation about central bank digital currency.WASHINGTON — Gov. Ron DeSantis of Florida, who is preparing to take a widely anticipated leap into a 2024 presidential campaign, appears to have discovered something that populists throughout history have found to be true: Bashing the Federal Reserve is good politics.Mr. DeSantis has begun to criticize Jerome H. Powell, the Fed chair, in speeches and news conferences. He has alleged without evidence that the Biden administration is about to introduce a central bank digital currency — which neither the White House nor the politically independent Fed has decided to do — in a bid to surveil Americans and control their spending on gas. He has quoted the Fed’s Twitter posts disparagingly.His critiques echo a familiar playbook from the Trump administration. Former President Donald J. Trump often blasted the central bank during the 2016 campaign and while he was in office, as policymakers lifted interest rates and slowed economic growth. Mr. Trump at one point called Mr. Powell — his own pick for Fed chair — an “enemy,” comparing him to President Xi Jinping of China.Because the central bank is responsible for controlling inflation, it is often blamed both for periods of rapid price increases and for the economic damage it inflicts when it raises rates to bring that inflation under control. That can make it an easy political target.And populist skepticism of government control of money dates back centuries in America. The nation’s first and second attempts at creating a central bank failed partly because of such concerns. The Fed, set up in 1913, was designed as a decentralized institution with quasi-private branches dotted around the country in part to avoid concentrating too much power in one place. It has been the subject of conspiracy theories and political attacks ever since.“In many ways, it is not surprising at all,” said Sarah Binder, a political scientist at George Washington University who has studied politics and the Fed. Mr. DeSantis is placing himself to Mr. Trump’s right, she said, “and it sounds like many populist right-side critiques of the Fed, of monetary control, that we’ve heard throughout history.”Mr. Powell has stated that the Fed “would not proceed” on a digital currency “without support from Congress.”T.J. Kirkpatrick for The New York TimesWhile Mr. DeSantis’s Fed-bashing is not new, some of his remarks have strayed into misinformation, said Peter Conti-Brown, a lawyer and Fed historian at the University of Pennsylvania.“The Fed can and should take this seriously,” Mr. Conti-Brown said.While the Fed is independent of and largely insulated from the White House, it does ultimately answer to Congress. And a lack of popular support could curb the Fed’s room to maneuver: If the government decided that pursuing a digital currency was a good idea, for instance, the backlash could make it more difficult to do so.Mr. DeSantis’s tone could also offer hints about the future. Starting from the early 1990s, presidential administrations have largely respected the Fed’s independence, avoiding commenting on monetary policy. Mr. Trump upended that tradition. President Biden has returned to a hands-off approach, but the recent criticism offers an early hint that the détente may not last if a Republican wins in 2024.Mr. DeSantis has faulted Mr. Powell’s policies for failing to control inflation, recently calling the Fed chair a “complete disaster.”In Mr. Powell, the potential presidential candidate has a rare opportunity to criticize Mr. Trump and Mr. Biden simultaneously: The Fed leader was first nominated to the central bank by President Barack Obama, then made chair by Mr. Trump and renominated as chair by Mr. Biden.Mr. DeSantis has focused much of his attention on a central bank digital currency, or C.B.D.C., which would operate like electronic cash but with backing from the federal government. The Fed has been researching both the potential uses and technical feasibility of a digital currency, but has not yet decided to issue one. Mr. Powell has made clear that the Fed “would not proceed with this without support from Congress.”The digital money that Americans use today — whether they are swiping a credit card or completing a Venmo transaction — is issued by banks. Physical cash, by contrast, comes directly from the Fed. A central bank digital currency would effectively be the digital version of a dollar bill.Many people who think the Fed should seriously consider issuing a central bank digital currency suggest that it could help improve access to banking services. Some have argued that it is important to develop the technology: America’s global competitors, including China, are researching and issuing digital money, so there is a risk of falling behind.Yet critics have worried about the privacy concerns of a centralized digital dollar. And the dollar is the most important reserve currency in the world, so any technological issues with a digital offering could be catastrophic. That is why the Fed has pledged to proceed carefully — and why the idea of issuing a digital currency in America is only in its formative research stages.Though there is no plan to issue a digital currency, Mr. DeSantis on March 20 proposed state legislation to “protect Floridians from the Biden administration’s weaponization of the financial sector through a central bank digital currency.”He then warned during an April 1 speech, with no factual basis, that Democrats wanted to use a digital currency to “impose an E.S.G. agenda,” referring to environmental and social goals like curbing consumption of fossil fuels or tightening gun control.Mr. DeSantis “is heading off any attempt to control people’s behavior through centralized digital currency,” his press secretary, Bryan Griffin, said in response to a request for comment.Mr. DeSantis’s claims echo those on right-wing social media, and they are in line with the interests of important Republican donors: Many banks and cryptocurrency firms are adamantly opposed to the idea of a central bank digital currency, worried that it would take away business.Florida, in particular, has been friendly to the digital currency industry, with lawmakers passing favorable legislation.And people with stakes in cryptocurrency are among Mr. DeSantis’s top political donors. Kenneth Griffin, the billionaire hedge fund executive and crypto skeptic turned advocate, gave $5 million to a political action committee that supported Mr. DeSantis’s 2022 re-election. Paul Tudor Jones, a billionaire investor who had significant shares in the now-bankrupt crypto trading platform FTX, contributed $850,000 to the group, according to campaign finance filings.Nor is it just Mr. DeSantis who is expressing opposition to the idea of a central bank digital currency: Prominent Republicans like Senator Ted Cruz of Texas and Representative Marjorie Taylor Greene of Georgia have joined in.Mr. Cruz and Representative Tom Emmer of Minnesota, the Republican whip, have introduced legislation to block the Fed from creating such a currency. Gov. Kristi Noem of South Dakota, another potential Republican presidential contender in 2024, recently vetoed a state bill that she claimed would have opened the door for a C.B.D.C.Some political figures are also incorrectly conflating a possible central bank digital currency with the central bank’s FedNow initiative, a separate effort to modernize America’s payment system to make transactions quicker and more efficient. A Fed spokesperson underlined that FedNow and the research into a possible digital currency were entirely different.Robert F. Kennedy Jr., a prominent figure in the anti-vaccine movement who recently announced his intention to run for president as a Democrat in 2024, wrongly conflated FedNow and the digital currency, claiming that it would “grease the slippery slope to financial slavery and political tyranny.”Tulsi Gabbard, a former Democratic presidential candidate and representative from Hawaii who is now independent, echoed warnings that a digital currency would undermine freedom, incorrectly stating that the government “has just begun implementing” such a currency.Incorrect statements about FedNow and digital currency have proliferated on social media, spread by influential political figures as well as conspiracy theorists.The Fed has tried to push back on the swirling misinformation.“The FedNow Service is neither a form of currency nor a step toward eliminating any form of payment, including cash,” the central bank posted on Twitter on Friday. Its six-tweet F.A.Q. made no mention of politics, but nevertheless read like a rare public rebuke from an institution that diligently avoids wading into political commentary.“The Federal Reserve has made no decision on issuing a central bank digital currency (CBDC) & would not do so without clear support from Congress and executive branch, ideally in the form of a specific authorizing law,” the Fed said — in a tweet that Mr. DeSantis quoted.“It is not merely ‘ideal’ that major changes in policy receive specific authorization from Congress,” Mr. DeSantis said in a reply.By Tuesday afternoon, the Fed had updated its F.A.Q. online to be even more explicit: The central bank “would only proceed with the issuance of a CBDC with an authorizing law.” More