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    Fed Officials Will Parse Jobs Numbers to Assess Economy’s Momentum

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    Federal Reserve officials are likely to closely watch employment numbers on Friday for further signs that the economy’s momentum is slowing, an important consideration for them in deciding whether to lift interest rates further.Fed policymakers have sharply increased borrowing costs over the past year and a half, to a range of 5.25 to 5.5 percent, from near-zero as recently as March 2022. Those moves were meant to slow the economy by making it more expensive to borrow to buy a house, purchase a car or expand a business.Now, central bankers are contemplating whether they need to raise interest rates one more time. Policymakers had previously forecast another move before the end of 2023.Most investors do not expect any increase to come at the Fed’s next meeting on Sept. 19-20, but officials have not ruled out a move. And even if central bankers leave rates unchanged in September as markets expect, policymakers will release a fresh set of economic projections showing how they expect the labor market, inflation and interest rates to shape up over coming months and years.That’s where incoming data reports — including the fresh jobs figures — could matter. Employers have been hiring at a surprisingly steady clip this year, given how much the Fed has raised interest rates. Policymakers will be gauging whether that trend continues to slow.And Fed officials will devote attention to how quickly wages are climbing.Central bankers have de-emphasized pay gains as a potential driver of inflation in recent months, suggesting instead that rapid wage growth probably signals that workers are trying to catch up with past inflation. Even so, many standard economic models suggest that if pay is climbing steeply, it could be hard to fully snuff out rapid inflation. Companies facing heftier labor costs will probably try to charge more to protect their profits, and workers who are earning more may find themselves capable of and willing to pay higher prices.Jerome H. Powell, the Fed chair, recently highlighted slowing jobs growth, stable hours worked and slowing pay gains across a range of measures as signs that the labor market is getting into a better balance.“We expect this labor market rebalancing to continue,” he said, speaking last week in Wyoming. But, he warned in the speech, the Fed is watching to make sure the economy doesn’t heat back up in spite of higher interest rates, a development that could mean that borrowing costs need to go higher.“Evidence that the tightness in the labor market is no longer easing could also call for a monetary policy response,” Mr. Powell said. More

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    The Fed’s Preferred Inflation Gauge Ticked Up in July

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    Overall inflation climbed to 3.3 percent, from 3 percent previously, underscoring the Fed’s long road back to 2 percent price increases.The Federal Reserve has warned for months that wrestling rapid inflation back to a normal pace was likely to be a bumpy process, a reality underscored by fresh data on Thursday that showed a closely watched inflation gauge picking back up in July.The Personal Consumption Expenditures index climbed 3.3 percent in the year through July, up from 3 percent in the previous reading. While that is down from a peak last summer of 7 percent, it is still well above the 2 percent growth rate that the Fed targets.Central bankers tend to more closely monitor a measure of core inflation that strips out volatile food and fuel prices to give a clearer sense of the underlying price trend. That measure also climbed, touching 4.2 percent after 4.1 percent the previous month.Inflation is expected to slow later this year and into 2024, so Thursday’s report marks a bump in the road rather than a reversal of recent progress toward cooler prices. But as inflation figures bounce around, Fed officials have been hesitant to declare victory.Their wariness has only been reinforced by other recent economic data, which has shown that the economy retains a surprising amount of momentum after a year and half in which Fed policymakers have ratcheted up interest rates. The Fed’s policy rate is now set at 5.25 to 5.5 percent, up from near-zero in March 2022, which is making it more expensive to borrow to buy a house or car or to expand a business.Despite that, the job market has remained strong and consumers continue to shop. An employment report set for release on Friday is expected to show that while businesses added fewer jobs in August, the unemployment rate remained very low at 3.5 percent. And fresh consumption data released Thursday showed that Americans continued to open their wallets: Personal spending climbed by 0.8 percent in July from the month before, more than economists expected and a solid pace. Even after adjusting for inflation, it was up 0.6 percent, a pop from 0.4 percent in the previous report.The tick higher in P.C.E. inflation was widely expected: Various data points that feed into the number, including the Consumer Price Index inflation report, come out earlier in the month. Even so, the measure remains a point of focus on Wall Street and in policy circles because it is the one the Fed uses to define its official inflation goal.Fed officials will be watching data over the next few weeks as they consider what to do with interest rates at their meeting on Sept. 20. Policymakers have said that the meeting is a “live” one, meaning that they could either lift interest rates or keep them on hold, but several have suggested that at this point they feel that they can be patient in making a move.“Given how far we have come, at upcoming meetings we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks,” Jerome H. Powell, the Fed chair, said in a high-profile speech last week.Many investors do anticipate a final rate increase later this year, but later on — perhaps at the central bank’s November gathering. And even if the Fed does not lift borrowing costs in a few weeks, policymakers will release a fresh set of economic projections that will show both whether they expect to nudge rates higher and by how much they expect inflation to slow both by the end of 2023 and into 2024. More

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    Fed Chair Powell in Jackson Hole: Inflation Fight Isn’t Over

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    Jerome H. Powell, the head of the Federal Reserve, struck a resolute tone in a speech at the central bank’s most closely watched conference.Jerome H. Powell kept the door open to future interest rate increases during his speech at the Federal Reserve Bank of Kansas City’s annual Jackson Hole conference in Wyoming.Pete Marovich for The New York TimesJerome H. Powell, the chair of the Federal Reserve, pledged during a closely watched speech that his central bank would stick by its push to stamp out high inflation “until the job is done” and said that officials stood ready to raise interest rates further if needed.Mr. Powell, who was speaking Friday at the Federal Reserve Bank of Kansas City’s annual Jackson Hole conference in Wyoming, said that the Fed would “proceed carefully” as it decided whether to make further policy adjustments after a year and a half in which it had pushed interest rates up sharply.But even as Mr. Powell emphasized that the Fed was trying to balance the risk of doing too much and hurting the economy more than is necessary against the risk of doing too little, he was careful not to take a victory lap around a recent slowing in inflation. His speech hammered home one main point: Officials want to see more progress to convince them that they are truly bringing price increases under control.“The message is the same: It is the Fed’s job to bring inflation down to our 2 percent goal, and we will do so,” Mr. Powell said, comparing his speech to a stern set of remarks he delivered at last year’s Jackson Hole gathering.Central bankers have lifted interest rates to a range of 5.25 to 5.5 percent, up from near-zero as recently as March 2022, in a bid to cool the economy and wrestle inflation lower. They have been keeping the door open to the possibility of one more rate increase, and have been clear that they expect to leave interest rates elevated for some time.Mr. Powell kept that message alive on Friday.“We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” he said.But the Fed chair noted that “at upcoming meetings we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks,” and that officials would “decide whether to tighten further or, instead, to hold the policy rate constant and await further data.”That suggests that central bankers are not determined to raise interest rates at their upcoming meeting in September. Instead, they might wait until later in the year — they have meetings in November and December — before making a decision about whether borrowing costs need to climb further. Striking a patient stance would give officials more time to assess how the moves they have already made are affecting the economy.“I think this does pave the way for a pause at the September meeting, and leaves their options open after,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives. “We’re close to the top, we may be there, and they’re going to move carefully.”Mr. Powell made clear that the Fed was not in a rush to raise rates again, but he remained cautious about the risk of further inflation.Price increases have come down notably in recent months, to around 3 percent as measured by the Fed’s preferred gauge. That is still higher than the Fed’s 2 percent inflation goal, though it is down sharply from a 7 percent peak last summer.And there are signs of stubbornness lingering under the surface. After stripping out food and fuel for a look at the underlying trend, the central bank’s preferred inflation gauge is still running at about twice the Fed’s goal.“The process still has a long way to go, even with the more favorable recent readings,” Mr. Powell said. “We can’t yet know the extent to which these lower readings will continue or where underlying inflation will settle over coming quarters.”That is partly because the Fed is trying to assess how much its policy adjustments are really weighing on the economy and, through it, inflation.The Fed’s higher borrowing costs have been cutting into demand for cars and houses by making auto loans and mortgages more expensive, and they are probably discouraging business expansions and cooling the job market.But it is unclear just how severely the Fed’s current policy setting is weighing on the economy. Rates are much higher than the level that most economists think is necessary to keep the economy growing below its potential run rate, but such estimates are subject to error.“There is always uncertainty about the precise level of monetary policy restraint,” Mr. Powell acknowledged Friday.That is particularly relevant in the face of recent economic data, which has been surprisingly strong. Consumers continue to spend and companies continue to hire at a solid clip in the face of the Fed’s onslaught. The resilience has caused some economists to warn that there is a risk that the economy could speed back up, keeping inflation elevated.“We are attentive to signs that the economy may not be cooling as expected,” Mr. Powell said. “Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy.”Still, Mr. Powell also emphasized that the economy could be taking time to react to the policy moves already made, and that conditions are unusual in the wake of the pandemic: For instance, job openings have fallen by an unusual amount without pushing up unemployment.“This uncertainty underscores the need for agile policymaking,” he said.Mr. Powell’s counterpart, Christine Lagarde, who heads the European Central Bank, made a similar point about policy in the euro economy and globally during a separate speech at the Jackson Hole conference — though the uncertainties she emphasized were more long term.She underlined that the economy is changing fundamentally as labor shortages span many markets, technologies like artificial intelligence develop, and countries shift away from fossil fuels and toward green energy. And she said that in a changing world, overreliance on models and past data — or expressing too much confidence — would be a mistake.“There is no pre-existing playbook for the situation we are facing today — and so our task is to draw up a new one,” she said. “Policymaking in an age of shifts and breaks requires an open mind and a willingness to adjust our analytical frameworks in real-time to new developments.”But Ms. Lagarde emphasized that it was critical to remain committed to achieving price stability, at the central bank’s current 2 percent inflation target, even in an uncertain world.Mr. Powell seemed to agree. During his own speech, he shot down a growing round of speculation among economists that the Fed could — or should — raise its inflation goal, which would make it easier to hit.“Two percent is and will remain our inflation target,” he said.And he finished the talk with the same line that he used to conclude his speech at last year’s Jackson Hole gathering, which was roundly seen as an aggressive stance against inflation.“We will keep at it until the job is done,” he said.Eshe Nelson contributed reporting. More

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    How the Jackson Hole Conference Became an Economic Obsession

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    Investors and economists are watching the event this week closely. How did a remote Wyoming conference become so central?Filmmakers have Cannes. Billionaires have Davos. Economists? They have Jackson Hole.The world’s most exclusive economic get-together takes place this week in the valley at the base of the Teton mountains, in a lodge that is a scenic 34 miles from Jackson, Wyo.Here, in a western-chic hotel that was donated to the national park that surrounds it by a member of the Rockefeller family, about 120 economists descend late each August to discuss a set of curated papers centered on a policy-relevant theme. Top officials from around the world can often be found gazing out the lobby’s floor-to-ceiling windows — likely hoping for a moose sighting — or debating the merits of a given inflation model over huckleberry cocktails.This shindig, while a nerdy one, has become a key focus of Wall Street investors, academics and the press. The conference’s host, the Federal Reserve Bank of Kansas City, seems to know a thing or two about the laws of supply and demand: It invites way fewer people than would like to attend, which only serves to bid up its prestige. But even more critically, Jackson Hole tends to generate big news.The most hotly anticipated event is a speech by the Fed chair that typically takes place on Friday morning and is often used as a chance for the central bank to send a signal about policy. Jerome H. Powell, the current Fed head, has made headlines with each and every one of his Jackson Hole speeches, which has investors waiting anxiously for this year’s. It is the only part of the closed-door conference that is broadcast to the public.Mr. Powell will be speaking at a moment when the Fed’s next moves are uncertain as inflation moderates but the economy retains a surprising amount of momentum. Wall Street is trying to figure out whether Fed officials think that they need to raise interest rates more this year, and if so, whether that move is likely to come in September. So far, policymakers have given little clear signal about their plans. They have lifted interest rates to 5.25 to 5.5 percent from near zero in March 2022, and have left their options open to do more.People will pay close attention to Mr. Powell’s speech, but “I think it’s about the tone,” said Seth Carpenter, a former Fed economist who is now at Morgan Stanley. “What I don’t think he wants to do is signal or commit to any near-term policy moves.”For all of its modern renown, the Jackson Hole conference, set for Thursday night to Saturday, has not always been the talk of the town in Washington and New York. Here’s how it became what it is today.It’s set in the formerly wild West.Jackson used to play host to a very different cast of characters: The town was once so remote that it was a go-to hideaway for outlaws.In 1920, when Jackson’s population was about 300, The New York Times harked back to a not-so-distant era when “whenever a serious crime was committed between the Mississippi River and the Pacific Coast, it was pretty safe to guess that the man responsible for it was either headed for Jackson’s Hole or already had reached it.”Jackson’s seclusion also meant that the area’s towering, craggy mountains and rolling valley remained pristine, making it prime territory for conservationists. The financier and philanthropist John D. Rockefeller Jr. stealthily acquired and then donated much of the land that would eventually become the Jackson Hole section of Grand Teton National Park. And around 1950, he began to construct the Jackson Lake Lodge.The lodge’s modern architecture was not initially beloved by the locals. (“‘A slab-sided, concrete abomination’ is one of the milder epithets tossed at the massive structure,” The Times quipped in 1955.) Among other complaints, Rockefeller’s donation to the park lacked resort perks: no golf course, no spa.But by 1982, its ample space and sweeping vistas had caught the eye of the Kansas City Fed, which was looking for a new location for a conference it had begun to hold in 1978.The gathering has happened there since 1982.The Jackson Lake Lodge was built by the financier John D. Rockefeller Jr. on land he had donated to Grand Teton National Park.David Paul Morris/BloombergHigh on its list of charms, the Jackson Lake Lodge was close to excellent fly fishing — a surefire way to appeal to the Fed chair at the time, Paul A. Volcker. He came, and between the A-list attendees and the location’s natural beauty, Jackson Hole quickly became the Fed event of the year.“About one-half of the 137 people invited this year attended, a remarkably high response,” The Times reported in 1985.The size of the conference has not changed much since: It averages about 115 to 120 attendees per year, according to the Kansas City Fed. The response rate has gone up markedly since 1985, though the Fed branch declined to specify how much.But the local context has shifted.Teton County, home to Jackson (now a bustling town of 11,000) and Jackson Hole, hosts more millionaires than criminal cowboys these days. It has become the most unequal place in America by several measures, with gaping wealth and income divides. The event, billed as rustic, now struggles to pretend that its backdrop isn’t posh.And the Fed gathering itself has gained more and more cachet. Alan Greenspan delivered the opening speech at the conference in Jackson Hole in 1991, when he was Fed chair, and then kept up that tradition for 14 summers until he stepped down.His successors have mostly followed suit. Mr. Powell has used his speeches to caution against overreliance on hard-to-determine economic variables, to unveil an entirely new framework for monetary policy and to pledge that the Fed would do what it took to wrangle rapid inflation.But it’s changing.Attention to Jackson Hole also deepened because of the 2008 global financial crisis, when central banks rescued markets and propped up economies in ways that expanded their influence. In the years that followed, uninvited journalists, Wall Street analysts and protest groups began to camp out in the lodge’s lobby during proceedings. Speaking at or presiding over a Jackson Hole session increasingly marked an economist as an academic rock star.Esther George, president of the Kansas City Fed between 2011 and early 2023, was in charge as the event garnered more notice. She and her team responded to the intensified spotlight partly by shaking up who got to bask in it.Far fewer banking and finance industry economists have gotten invites to the event since 2014, partly in response to public attention to the Fed’s Wall Street connections after the financial crisis. The people who make the list tend to be current and former top economic officials and up-and-coming academics. Increasingly, they are women, people from racially diverse backgrounds and people with varying economic viewpoints.Ms. George started to hold an informal happy hour for female economists in 2012, when there were so few women that “we could all sit around a small table,” she recalled. It made her think: “Why aren’t these other voices here?”Last year, the happy hour included dozens of women.But the Jackson Hole conference could be entering a new era. Ms. George had to retire in 2023 per Fed rules, so while she helped to plan this conference, she’ll be passing the baton for future events to her successor, Jeffrey Schmid, a university administrator and former chief executive of Mutual of Omaha Bank. He started as Kansas City Fed president on Monday and will make his debut as a Fed official at the gathering this week. More

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    Is Good News Finally Good News Again?

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    Economists had been wary of strong economic data, worried that it meant inflation might stay high. Now they are starting to embrace it.Good news is bad news: It had been the mantra in economic circles ever since inflation took off in early 2021. A strong job market and rapid consumer spending risked fueling further price increases and evoking a more aggressive response from the Federal Reserve. So every positive report was widely interpreted as a negative development.But suddenly, good news is starting to feel good again.Inflation has finally begun to moderate in earnest, even as economic growth has remained positive and the labor market has continued to chug along. But instead of interpreting that solid momentum as a sign that conditions are too hot, top economists are increasingly seeing it as evidence that America’s economy is resilient. It is capable of making it through rapidly changing conditions and higher Fed interest rates, allowing inflation to cool gradually without inflicting widespread job losses.A soft economic landing is not guaranteed. The economy could still be in for a big slowdown as the full impact of the Fed’s higher borrowing costs is felt. But recent data have been encouraging, suggesting that consumers remain ready to spend and employers ready to hire at the same time as price increases for used cars, gas, groceries and a range of other products and services slow or stop altogether — a recipe for a gentle cool-down.“If you go back six months, we were in the ‘good news is bad news’ kind of camp because it didn’t look like inflation was going to come down,” said Jay Bryson, chief economist at Wells Fargo. Now, he said, inflation is cooling faster than some economists expected — and good news is increasingly, well, positive.

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    Year-over-year percentage change in the Personal Consumption Expenditures index
    Source: Bureau of Economic AnalysisBy The New York TimesMarkets seem to agree. Stocks climbed on Friday, for instance, when a spate of strong economic data showed that consumers continued to spend as wages and price increases moderated — suggesting that the economy retains strength despite cooling around the edges. Even the Fed chair, Jerome H. Powell, has suggested that evidence of consumer resilience is welcome as long as it does not get out of hand.“The overall resilience of the economy, the fact that we’ve been able to achieve disinflation so far without any meaningful negative impact on the labor market, the strength of the economy overall, that’s a good thing,” Mr. Powell said during a news conference last week. But he said the Fed was closely watching to make sure that stronger growth did not lead to higher inflation, which “would require an appropriate response for monetary policy.”Mr. Powell’s comments underline the fundamental tension in the economy right now. Signs of an economy that is growing modestly are welcome. Signs of rip-roaring growth are not.In other words, economists and investors are no longer rooting for bad news, but they aren’t precisely rooting for good news either. What they are really rooting for is normalization, for signs that the economy is moving past pandemic disruptions and returning to something that looks more like the prepandemic economy, when the labor market was strong and inflation was low.As the economy reopened from its pandemic shutdown, demand — for goods and services, and for workers — outstripped supply by so much that even many progressive economists were hoping for a slowdown. Job openings shot up, with too few unemployed workers to fill them.

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    Monthly job openings per unemployed worker
    Note: Data is up to June 2023 and is seasonally adjusted.Source: Bureau of Labor StatisticsBy The New York TimesBut now the economy is coming into better balance, even though growth hasn’t ground to a standstill.“There’s a difference between things decelerating and normalizing versus actually crashing,” said Mike Konczal, director of macroeconomic analysis at the Roosevelt Institute, a liberal research organization. “You could cheer for a normalization coming out of these crazy past couple years without going the next step and cheering for a crash.”That is why many economists seem to be happy as employers continue to hire, consumers splurge on Taylor Swift and Beyoncé concert tickets, and vacationers pay for expensive overseas trips — resilience is not universally seen as inflationary.Still, Kristin Forbes, an economist at the Massachusetts Institute of Technology, said it was too simple to argue that all signs of strength were welcome. “It depends on what the good news is,” she said.For instance, sustained rapid wage growth would still be a problem, because it could make it hard for the Fed to lower inflation completely. That’s because companies that are still paying more are likely to try to charge customers more to cover their growing labor bills.And if consumer demand springs back strongly and in a sustained way, that could also make it hard for the Fed to fully stamp out inflation. While price increases have moderated notably, they remain more than twice the central bank’s target growth rate after stripping out food and fuel prices, which bounce around for reasons that have little to do with economic policy.“We are closer to normal now,” said Michael Strain, director of economic policy studies at the American Enterprise Institute. “It makes it seem like good news is good news again — and that’s certainly how investors feel. But the more that good news becomes good news, the higher the likelihood of a recession.”Mr. Strain explained that if stocks and other markets responded positively to signs of economic strength, those more growth-stoking financial conditions could keep prices rising. That could prod the Fed to react more aggressively by raising rates higher down the road. And the higher borrowing costs go, the bigger the chance that the economy stalls out sharply instead of settling gently into a slower growth path.Jan Hatzius, the chief economist at Goldman Sachs, thinks the United States will pull off a soft landing — perhaps one so soft that the Fed might be able to lower inflation over time without unemployment having to rise.But he also thinks that growth needs to remain below its typical rate, and that wage growth must slow from well above 4 percent to something more like 3.5 percent to guarantee that inflation fully fades.“The room for above-trend growth is quite limited,” Mr. Hatzius said, explaining that if growth does come in strong he could see a scenario in which the Fed might lift interest rates further. Officials raised rates to a range of 5.25 to 5.5 percent at their meeting last month, and investors are watching to see whether they will follow through on the one final rate move that they had earlier forecast for 2023.Mr. Hatzius said he and his colleagues weren’t expecting any further rate moves this year, “but it wouldn’t take that much to put November back on the table.”One reason economists have become more optimistic in recent months is that they see signs that the supply side of the supply-demand equation has improved. Supply chains have returned mostly to normal. Business investment, especially factory construction, has boomed. The labor force is growing, thanks to both increased immigration and the return of workers who were sidelined during the pandemic.Increased supply — of workers and the goods and services they produce — is helpful because it means the economy can come back into balance without the Fed having to do as much to reduce demand. If there are more workers, companies can keep hiring without raising wages. If more cars are available, dealers can sell more without raising prices. The economy can grow faster without causing inflation.And that, by any definition, would be good news. More

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    Soft Landing Optimism Is Everywhere. That’s Happened Before.

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    People are often sure that the economy is going to settle down gently right before it plunges into recession, a reason for caution and humility.In late 1989, an economic commentary newsletter from the Federal Reserve Bank of Cleveland asked the question that was on everyone’s mind after a series of Federal Reserve rate increases: “How Soft a Landing?” Analysts were pretty sure growth was going to cool gently and without a painful downturn — the question was how gently.In late 2000, a column in The New York Times was titled “Making a Soft Landing Even Softer.” And in late 2007, forecasters at the Federal Reserve Bank of Dallas concluded that the United States should manage to make it through the subprime mortgage crisis without a downturn.Within weeks or months of all three declarations, the economy had plunged into recession. Unemployment shot up. Businesses closed. Growth contracted.It is a point of historical caution that is relevant today, when soft-landing optimism is, again, surging.Inflation has begun to cool meaningfully, but unemployment remains historically low at 3.6 percent and hiring has been robust. Consumers continue to spend at a solid pace and are helping to boost overall growth, based on strong gross domestic product data released on Thursday.Given all that momentum, Fed staff economists in Washington, who had been predicting a mild recession late this year, no longer expect one, said Jerome H. Powell, the central bank’s chair, during a news conference on Wednesday. Mr. Powell said that while he was not yet ready to use the term “optimism,” he saw a possible pathway to a relatively painless slowdown.But it can be difficult to tell in real time whether the economy is smoothly decelerating or whether it is creeping toward the edge of a cliff — one reason that officials like Mr. Powell are being careful not to declare victory. On Wednesday, policymakers lifted rates to a range of 5.25 to 5.5 percent, the highest level in 22 years and up sharply from near zero as recently as early 2022. Those rate moves are trickling through the economy, making it more expensive to buy cars and houses on borrowed money and making it pricier for businesses to take out loans.Such lags and uncertainties mean that while data today are unquestionably looking sunnier, risks still cloud the outlook.“The prevailing consensus right before things went downhill in 2007, 2000 and 1990 was for a soft landing,” said Gennadiy Goldberg, a rates strategist at TD Securities. “Markets have trouble seeing exactly where the cracks are.”The term “soft landing” first made its way into the economic lexicon in the early 1970s, when America was fresh from a successful moon landing in 1969. Setting a spaceship gently on the lunar surface had been difficult, and yet it had touched down.By the late 1980s, the term was in widespread use as an expression of hope for the economy. Fed policymakers had raised rates to towering heights to crush double-digit inflation in the early 1980s, costing millions of workers their jobs. America was hoping that a policy tightening from 1988 to 1989 would not have the same effect.The recession that stretched from mid-1990 to early 1991 was much shorter and less painful than the one that had plagued the nation less than a decade earlier — but it was still a downturn. Unemployment began to creep up in July 1990 and peaked at 7.8 percent.The 2000s recession was also relatively mild, but the 2008 downturn was not: It plunged America into the deepest and most painful downturn since the Great Depression. In that instance, higher interest rates had helped to prick a housing bubble — the deflation of which set off a chain reaction of financial explosions that blew through global financial markets. Unemployment jumped to 10 percent and did not fall back to its pre-crisis low for roughly a decade.Higher Rates Often Precede RecessionsUnemployment often jumps after big moves in the Fed’s policy interest rate

    Note: Data is as of June 2023.Sources: Bureau of Labor Statistics; Business Cycle Dating Committee; Federal ReserveBy The New York TimesThe episodes all illustrate a central point. It is hard to predict what might happen with the economy when rates have risen substantially.Interest rates are like a slow-release medicine given to a patient who may or may not have an allergy. They take time to have their full effect, and they can have some really nasty and unpredictable side effects if they end up prompting a wave of bankruptcies or defaults that sets off a financial crisis.In fact, that is why the Fed is keeping its options open when it comes to future policy. Mr. Powell was clear on Wednesday that central bankers did not want to commit to how much, when or even whether they would raise rates again. They want to watch the data and see if they need to do more to cool the economy and ensure that inflation is coming under control, or whether they can afford to hold off on further interest rate increases.“We don’t know what the next shoe to drop is,” said Subadra Rajappa, head of U.S. rates strategy at the French bank Société Générale, explaining that she thought Mr. Powell took a cautious tone while talking about the future of the economy on Wednesday in light of looming risks — credit has been getting harder to come by, and that could still hit the brakes on the economy.“It looks like we’re headed toward a soft landing, but we don’t know the unknowns,” Ms. Rajappa said.That is not to say there isn’t good reason for hope, of course. Growth does look resilient, and there is some historical precedent for comfortable cool-downs.In 1994 and 1995, the Fed managed to slow the economy gently without plunging it into a downturn in what is perhaps its most famous successful soft landing. Ironically, commentators quoted then in The Times weren’t convinced that policymakers were going to pull it off.And the historical record may not be particularly instructive in 2023, said Michael Feroli, the chief U.S. economist at J.P. Morgan. This has not been a typical business cycle, in which the economy grew headily, fell into recession and then clawed its way back.Instead, growth was abruptly halted by coronavirus shutdowns and then rocketed back with the help of widespread government stimulus, leading to shortages, bottlenecks and unusually strong demand in unexpected parts of the economy. All of the weirdness contributed to inflation, and the slow return to normal is now helping it fade.That could make the Fed’s task — slowing inflation without causing a contraction — different this time.“There’s so much that has been unusual about this inflation episode,” Mr. Feroli said. “Just as we don’t want to overlearn the lessons of this episode, I don’t think we should over-apply the lessons of the past.” More

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    The Fed’s Difficult Choice

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    The Federal Reserve has raised interest rates again. When should it stop?After raising interest rates again yesterday, the Federal Reserve now faces a tough decision.Some economists believe that the Fed has raised its benchmark rate — and, by extension, the cost of many loans across the U.S. economy — enough to have solved the severe inflation of the past couple years. Any further increases in that benchmark rate, which is now at its highest level in 22 years, would heighten the risk of a recession, according to these economists. In the parlance of economics, they are known as doves.But other experts — the hawks — point out that annual inflation remains at 3 percent, above the level the Fed prefers. Unless Fed officials add at least one more interest rate increase in coming months, consumers and business may become accustomed to high inflation, making it all the harder to eliminate.For now, Jerome Powell, the Fed chair, and his colleagues are choosing not to take a side. They will watch the economic data and make a decision at their next meeting, on Sept. 20. “We’ve come a long way,” Powell said during a news conference yesterday, after the announcement that the benchmark rate would rise another quarter of a percentage point, to as much as 5.5 percent. “We can afford to be a little patient.”The charts below, by our colleague Ashley Wu, capture the recent trends. Inflation is both way down and still somewhat elevated, while economic growth has slowed but remains above zero.Sources: Bureau of Labor Statistics; Bureau of Economic Analysis | By The New York TimesToday’s newsletter walks through the dove-vs.-hawk debate as a way of helping you understand the current condition of the U.S. economy.The doves’ caseThe doves emphasize both the steep recent decline in inflation and the forces that may cause it to continue falling. Supply chain snarls have eased, and the strong labor market, which helped drive up prices, seems to be cooling. “A happy outcome that not long ago seemed like wishful thinking now looks more likely than not,” the economist Paul Krugman wrote in Times Opinion this month.Economists refer to this happy outcome — reduced inflation without a recession — as a soft landing. The doves worry that a September rate hike could imperil that soft landing. (Already, corporate defaults have risen.)“It’s crystal clear that low inflation and low unemployment are compatible,” Rakeen Mabud, an economist at the Groundwork Collaborative, a progressive think tank, told our colleague Talmon Joseph Smith. “It’s time for the Fed to stop raising rates.”A recession would be particularly damaging to vulnerable Americans, including low-income and disabled people. The tight labor market has drawn more of them into work and helped them earn raises.The hawks’ caseThe hawks see the risks differently. They point to some signs that the official inflation rate of 3 percent is artificially low. Annual core inflation — a measure that omits food and fuel costs, which are both volatile — remains closer to 5 percent.“The Fed should not stop raising rates until there is clear evidence that core inflation is on a path to its 2 percent target,” Michael Strain of the American Enterprise Institute writes. “That evidence does not exist today, and it probably will not exist by the time the Fed meets in September.” (Adding to the hawks’ case is the fact that big consumer companies like Unilever keep raising their prices, J. Edward Moreno of The Times explains.)Fed officials themselves have argued that it’s important to tame inflation quickly to keep Americans from becoming used to rising prices — and demanding larger raises to keep up with prices, which could in turn become another force causing prices to rise.At root, the hawk case revolves around the notion that reversing high inflation is extremely difficult. When in doubt, hawks say, the Fed should err on the side of vigilance, to keep the U.S. from falling into an extended and damaging period of inflation as it did in the 1970s.And where do Fed officials come down? They have the advantage of not needing to pick a side, at least not yet. Between now and September, two more months of data will be available on prices, employment and more. Powell yesterday called a September rate increase “certainly possible,” but added, “I would also say it’s possible that we would choose to hold steady.”As our colleague Jeanna Smialek, who covers the Fed, says, “They have every incentive to give themselves wiggle room.”More on the FedThe Fed’s economists are no longer forecasting a recession this year.Powell noted that the labor force has been growing. “That’s good news for the Fed, because it helps ease the labor shortage without driving up unemployment,” Ben Casselman wrote.Responding to a question from Jeanna, Powell said it was good that consumer demand for the “Barbie” movie was so high — but that persistently high spending could be a reason for a future rate increase.Stock indexes rose after the Fed announced the increase, but fell after Powell delivered his economic outlook.THE LATEST NEWSWar in UkraineA Ukrainian soldier on the front line in eastern Ukraine.Tyler Hicks/The New York TimesUkraine appears to be intensifying its counteroffensive. Reinforcements are pouring into the fight, many trained and equipped by the West.The attack looks to be focused in the southern region of Zaporizhzhia, with the aim of severing Russian-occupied territories in Ukraine.U.S. officials said the assault was timed to take advantage of turmoil in the Russian military.PoliticsA judge halted Hunter Biden’s plea deal on tax charges after the two sides disagreed over how much immunity it granted him.In her first Supreme Court term, Ketanji Brown Jackson secured a book deal worth about $3 million, the latest justice to parlay fame into a big book contract.Mitch McConnell, the 81-year-old Senate Republican leader, abruptly stopped speaking during a Capitol news conference and was escorted away. He spoke in public again later.A former intelligence officer told Congress that the U.S. government had retrieved materials from U.F.O.s. The Pentagon denied his claim.Rudy Giuliani admitted to lying about two Georgia election workers he accused of mishandling ballots in 2020.Representative George Santos used his candidacy and ties to Republican donors to seek moneymaking opportunities.Other Big StoriesGetty ImagesSinead O’Connor, the Irish singer who had a No. 1 hit with “Nothing Compares 2 U,” died at 56. She drew a firestorm when she ripped up a photo of the pope on live TV.The heat wave that has scorched the southern U.S. is bringing 100-degree heat to the Midwest. The East Coast is probably next.Israel’s Supreme Court agreed to hear petitions challenging the new law limiting its power.Soldiers in Niger ousted the president and announced a coup.Gap hired Richard Dickson, the Mattel president who helped revitalize Barbie, as its chief executive.The messaging platform Slack was having an outage this morning.OpinionsCongress should create an agency to curtail Big Tech, Senators Lindsey Graham, a Republican, and Elizabeth Warren, a Democrat, argue.Thousands of Americans drown every year. More public pools would help, Mara Gay writes.Here are columns by Nicholas Kristof on affirmative action and Pamela Paul on the so-called Citi Bike Karen.MORNING READSEternally cool: Fans keep you dry on a hot day. They let you channel Beyoncé. They say, “I love you.” Can an air-conditioner do that?The yips: A star pitcher lost her ability to throw to first base. Now, she helps young athletes with the same problem.Spillover: Could the next pandemic start at the county fair?Lives Lived: Bo Goldman was one of Hollywood’s most admired screenwriters, winning Oscars for “One Flew Over the Cuckoo’s Nest” and “Melvin and Howard.” He died at 90.WOMEN’S WORLD CUPThe Dutch midfielder Jill Roord, left, and Lindsey Horan of the U.S. team.Grant Down/Agence France-Presse — Getty ImagesA second-half goal from the co-captain Lindsey Horan gave the U.S. a 1-1 tie against the Netherlands, in an evenly matched game.Spain’s star midfielder Alexia Putellas returned to the starting lineup for the first time in more than a year after a knee injury.OTHER SPORTS NEWSOff the market: The Angels are reportedly withdrawing the superstar Shohei Ohtani from trade talks.Honeymoon phase: Aaron Rodgers agreed to a reworked contract with the Jets, which saves the team money and likely ensures he plays multiple seasons in New York.ARTS AND IDEAS Alfonso Duran for The New York TimesA growing dialect: What is Miami English? The linguist Phillip Carter calls it “probably the most important bilingual situation in the Americas today,” but it’s not Spanglish, in which a sentence bounces between English and Spanish. Instead, Miamians — even those who are not bilingual — have adopted literal translations of Spanish phrases in their English speech. Some examples: “get down from the car” (from “bajarse del carro”) instead of “get out of the car,” and “make the line” (from “hacer la fila”) instead of “join the line.”More on cultureKevin Spacey was found not guilty in Britain of sexual assault.The Japanese pop star Shinjiro Atae came out as gay, a rare announcement in a country where same-sex marriage isn’t legal.THE MORNING RECOMMENDS …Armando Rafael for The New York TimesBrighten up grilled chicken with Tajín, the Mexican seasoning made with red chiles and lime.Preserve vintage clothes in wearable condition.Calculate your life expectancy to guide health care choices.Consider a body pillow.Reduce exposure to forever chemicals in tap water.GAMESHere is today’s Spelling Bee. Yesterday’s pangram was thrilling.And here are today’s Mini Crossword, Wordle and Sudoku.Thanks for spending part of your morning with The Times. See you tomorrow.P.S. David is on “The Daily” to talk about how the wealthy get an advantage in college admissions.Sign up here to get this newsletter in your inbox. Reach our team at themorning@nytimes.com. More