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Price of Diesel, Which Powers the Economy, Is Still Climbing
Russia’s invasion of Ukraine is one reason that the fuel is scarce. Another is a series of yearslong, intertwined events that cover the globe.HOUSTON — Gasoline prices have dropped as much as a dollar a gallon since early summer, easing a financial strain on many people. But the price of diesel, the fuel that moves trucks, trains, barges, tractors and construction equipment, has remained stubbornly high, helping to prop up the prices of many goods and services.On Wednesday, a gallon of diesel fuel in the United States cost $5.357 on average, according to AAA. That was down from a record of $5.816 in June but well above the $3.642 it cost a year ago. (A gallon of regular gasoline now averages $3.805.)The surge in diesel costs has not garnered the attention from politicians and the public that the jump in gasoline prices did, because most of the cars in the United States run on gas. But diesel prices are a critical source of pain for the economy because they affect the cost of practically every product.“The economic impact is insidious because everything moves across the country powered by diesel,” said Tom Kloza, the global head of energy analysis at the Oil Price Information Service. “It’s an inflation accelerant, and the consumer ultimately has to pay for it.”Sherri Garner Brumbaugh, the president of Garner Trucking in Findlay, Ohio, said the weekly cost of fueling one of her heavy-duty trucks in September was $1,300, more than double the $600 she paid two years earlier. “A good portion gets passed onto my customers with a fuel surcharge,” she said.Both gasoline and diesel prices are tied to the price of oil, which is set on the global market. The price of each fuel immediately shot up after Russia invaded Ukraine in February. But their paths have diverged sharply. Over the last year, the cost of diesel has ballooned by over 40 percent, compared with 11 percent for gasoline.Diesel prices are high because the fuel is scarce worldwide, including in the United States, which in recent years became a net exporter of oil and petroleum products. Oil analysts said there were simply not enough refineries to meet the demand for diesel, especially after Russia’s energy exports fell when the United States, Britain and some other countries stopped buying them.Diesel inventories are always a bit low in the spring and fall, during agricultural planting and harvesting seasons, but this fall supplies are at their lowest level since 1982, when the government began reporting data on the fuel.The tightest market is in the Northeast, where oil refineries have closed in recent years and where the diesel crunch is complicated by winter demand for heating oil. The two fuels are virtually the same but are taxed differently. An especially cold winter could make the situation worse by increasing the demand for heating oil.In Massachusetts, for example, diesel is selling for more than $5.90 a gallon (about $2.33 more than it did a year earlier). In Texas, it costs $4.73 a gallon.Trucks, trains, barges, tractors and construction equipment all use diesel, and its price affects the cost of practically every product.Jim Watson/Agence France-Presse — Getty ImagesWhile Russia’s war in Ukraine sent diesel prices soaring, the current situation is partly the result of an interconnected, slow-building series of events that extends across the globe. Some analysts trace the roots of the U.S. diesel shortage to a fire at Philadelphia Energy Solutions in 2019, which forced the refinery to shut down, taking out one of the Northeast’s important diesel producers.But refineries have been closing elsewhere. Over the last several years, 5 percent of U.S. refinery capacity, and 6 percent of European refinery capacity, has been shut down. A few refineries closed or scaled back because of the collapse in energy demand in the early months of the coronavirus pandemic. Some older refineries were shut down because they were inefficient and their profits weren’t large enough for Wall Street investors. Other refineries were closed so that their owners could convert them to produce biofuels, which are made from plants, waste and other organic material.“Because we shut those refineries down, we don’t have enough capacity,” said Sarah Emerson, the president of ESAI Energy, a consulting firm.As much of the global economy recovered in 2021 and 2022, demand for diesel climbed quickly. But then, after Russia invaded Ukraine, the Biden administration banned Russian oil and petroleum imports, which amounted to 700,000 barrels of diesel and other fuels a day, much of it intended for the Northeast.Diesel prices have also soared so much higher than the cost of gasoline in part because of a decision by the International Maritime Organization several years ago to require most oceangoing ships to replace their high-sulfur bunker fuel with less polluting fuels starting in 2020. That has slowly increased demand for diesel over the last two years.“A substantial amount of diesel is needed in the new bunker blends, and that is a hidden demand for diesel molecules,” said Richard Joswick, the head of global oil analysis for S&P Global Platts. He estimated that the global shipping fleet was now consuming half a million barrels of diesel a day, or roughly 2 percent of the world’s supplies.At the same time, while American refiners are now making tidy profits, 30 percent of their production is being exported. Latin America has become a particularly profitable market, as American diesel replaces fuel from Venezuela, where the state-controlled oil sector has been hobbled by corruption, mismanagement and U.S. sanctions. Some American diesel also goes to Europe.The impact of exports on domestic prices has led some analysts to speculate that the Biden administration could eventually restrict exports to boost supplies at home. But energy experts said that might not have the desired effect because diesel had become a globally traded commodity. Denying Latin America fuel could also backfire because many countries in the region sell crude oil to the United States.“We have a symbiotic relationship with Latin America on diesel and crude,” said Ms. Emerson of ESAI Energy. “We can disrupt that, but it doesn’t immediately fix the problem.”The global diesel shortage was also exacerbated by labor strikes at French refineries this fall. And utilities in Europe have been stockpiling diesel in case they cannot find enough natural gas to fuel their power plants.Russian diesel has continued to flow to Europe since the war began, but stricter sanctions that the European Union plans to impose on Russia in February could potentially cause havoc to the diesel business of traders, banks, insurance companies and shippers.Still, some energy experts said prices could soon begin to ease.Help may be on the way from an unlikely source: China. In recent months, China has been loosening export controls on diesel. Its exports rose from 200,000 barrels a day in August to 430,000 barrels a day in September, and the country has the capacity to sell even more, according to estimates by ESAI Energy.Nearly a third of Chinese diesel exports went to the Netherlands in recent months, taking some pressure off the European market. And oil refineries being built in Kuwait and China could come online as early as next year, further increasing supply.Demand for diesel and its price could also fall if much of the world slides into a recession next year, as some economists and policymakers are expecting.“A deep recession would certainly cut into diesel demand,” said Mr. Joswick of S&P Global Platts. “We don’t forecast a recession, but that is certainly a possibility.” More
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Inflation Plagues Democrats in Polling. Will It Crush Them at the Ballot Box?
Americans are extremely attuned to the cost of living, and as midterm election voters head to the polls, they are divided over whom to blame.Inflation has roared back onto the scene as a key issue ahead of the 2022 midterm elections, after five decades during which slow and steady price increases were a political nonissue.It was once a potent driver of politics in America, one that panicked former President Richard M. Nixon and his administration, and later helped to make Jimmy Carter a one-term president. As prices surge, inflation is again taking center stage, and could help decide who controls Congress.Household confidence has plummeted as inflation has climbed, and economic issues have shot to the top of what voters are worried about. A full 49 percent of voters overall said that the economy is an extremely important issue to them in an October Gallup survey, notably outranking abortion, crime and relations with Russia. That’s the highest level of economic concern headed into a midterm election since 2010, when the economy was coming out of the worst downturn since the Great Depression.Inflation is almost certainly the issue pushing the economy to its current prominence. Consumer prices picked up by 8.2 percent in the year through September, far faster than the roughly 2 percent annual gains that were normal in the years leading up to the pandemic. That has left many families feeling like they are falling behind, even as unemployment lingers near a 50-year low, employers hire at a solid clip and job openings abound.The disconnect between the strength of the economy and the way that voters feel about it illustrates why Democrats are barreling into the midterms on the defensive. Elected politicians have a limited role to play in fighting inflation, a job that falls mostly to the Federal Reserve. That has made talking about price increases all the more challenging.Survey data suggest that while voters disagree over whom to blame for today’s rapid price increases, a larger share of independent voters believe that Republicans would be better for the economy and their finances. And irritation over the state of the economy could be enough to prompt some people to vote for change even if the other party doesn’t offer clearly better solutions, according to political scientists. The question is less whether inflation will be a factor driving votes — and more whether it will be a decisive one.“It matters enormously to the election this week,” said Elaine Kamarck, a senior fellow in the Governance Studies program at the Brookings Institution, noting that gas and grocery prices are omnipresent realities for most families. “It is obvious what is happening in inflation every single day: Voters don’t get to forget it.”Across the political spectrum, many Americans are feeling less positive about their personal finances: An AP-NORC Center for Public Affairs Research poll from October found that 36 percent of Democrats now say their finances are in bad shape, up from 28 percent in March. Among Republicans, that number was 53 percent, up from 41 percent. Independents were fairly unchanged, with 53 percent feeling negative.That could be particularly bad for Democrats, because they are often seen as less strong on the economy.Which Party Is Better for the National Economy?Independents and Republicans both tend to rank Republicans ahead of Democrats economically, based on University of Michigan data.
Note: Survey from September and October 2022.Source: University of MichiganBy The New York TimesNew survey data from the University of Michigan showed that 41 percent of voters felt neither party had an advantage when it came to helping their personal finances. But of those who did think there was a difference, 35 percent thought Republicans would be better — versus 20 percent for Democrats. Consumers also expected Republicans to win in national races.“By and large, respondents expect Republicans to gain control of both the House and the Senate,” Joanne Hsu, director of the University of Michigan’s consumer surveys, wrote in the Nov. 4 release.Which Party Is Better for Your Personal Finances? Republicans and Independents tend to rank Republicans higher on issues of personal finance, though many see no difference.
Note: Survey from September and October 2022.Source: University of MichiganBy The New York TimesWhether they are right could hinge on whether inflation proves as salient for actual votes as it is in sentiment surveys.Prices may be rising quickly — annoying consumers and occupying their attention — but unemployment is very low, which Ms. Kamarck said might alleviate the angst. Plus, she said, critical groups of voters — most notably women — may focus on other issues including a Supreme Court ruling from earlier this year that overturned Roe v. Wade and ended the constitutional right to abortion.Hally Simpson Wilk, 36, from Broadview Heights, Ohio, is feeling inflation at the grocery store, but she does not think that Republicans would necessarily be better at solving the problem than Democrats. Plus, she said, the abortion ruling had “lit a fire under” her. She expects to vote Democrat.It is hard to guess whether unhappiness over rising prices will drive actual votes in part because there isn’t much recent precedent. While inflation has a history of driving politics in America, it hasn’t been a major issue in 50 years.Back in the 1970s and 1980s, inflation was even faster, touching peaks as high as 12 and 14 percent. Those price increases, and the nation’s response to them, played a big role in driving the national conversation and deciding elections during that era. Mr. Nixon in 1971 instituted wage and price caps to try to temporarily keep prices under control ahead of the 1972 election, for instance.“Inflation robs every American, every one of you,” Mr. Nixon said during his surprise announcement, which included other major economic policy changes. “Homemakers find it harder than ever to balance the family budget. And 80 million American wage earners have been on a treadmill.”.css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}Our needle is back. The needle is an innovative forecasting tool that was created by The Times and debuted in 2016. It is intended to help you understand what the votes tallied so far suggest about possible winners in key contests, before the election is called. Look for one needle on which party will control the House and one on which party will control the Senate.Here’s a deeper dive into how it works.Those wage and price caps may have been politically astute, but research since has showed they just delayed price jumps — they didn’t stop them. When Mr. Carter became president in 1977, inflation was still raging. The Fed wrestled it under control with super-high interest rates that sent unemployment soaring, a campaign that is widely credited with helping to cost Mr. Carter a second term.America’s experience during the 1970s also illustrates a harsh reality: Even if inflation drives the nation’s politics, there is relatively little politicians can do to address it, aside from trying to avoid making the problem worse by stimulating the economy. Taxing and spending policies to offset price increases mostly have comparatively small effects.The country’s main tool for fighting rapid price increases is Fed policy — and that is a painful solution. When the central bank lifts interest rates, it slows economic demand, cools hiring, moderates wage growth and eventually drags prices lower as shoppers pull back and companies find that they can no longer charge more.“There is not an easy fix for inflation — the fix is a recession,” Ms. Kamarck said. For Democrats, “it is very hard to have an economic message.”Economists typically attribute today’s rapid price increases partially to government spending, including a package that Democrats passed in 2021 that helped to fuel consumer demand. But they are also global in nature, tied partly to lingering supply issues amid the pandemic, and food and fuel market disruptions caused by Russia’s invasion of Ukraine.Many voters believe that today’s price increases are not wholly — even principally — the Democratic administration’s fault. But that assessment divides along party lines.About 87 percent of Democrats attribute inflation to factors outside of President Biden’s control, versus 48 percent of independents and 21 percent of Republicans, based on AP-NORC polling data from last month.What Is to Blame for Rapid Inflation?A poll asked voters what was to blame for higher-than usual prices: President Biden’s policies, or factors outside of his control.
Note: Survey from October 6-10, 2022Source: AP-NORCBy The New York Times People who were already on the fence could have their minds swayed by inflation — especially in places where it is particularly painful. Price increases are reported at a metro level, and some cities in key battleground states are facing particularly rapid price increases: Inflation was at 11.7 percent in Atlanta; 13 percent in Phoenix; and 9 percent in the Seattle metro area as of the latest available data.And even if inflation is hovering near the national average in some places, it is still the fastest pace in decades.Pennsylvania’s Senate race is closely contested, and Christopher Borick, director of the Muhlenberg College Institute of Public Opinion in Allentown, Pa., thinks that rapid price increases could be one factor that is helping the Republican candidate Mehmet Oz run a competitive race despite very low favorability ratings.“We often see in midterm races that if people aren’t happy, a price is paid by the incumbent party,” Mr. Borick said. Inflation “places people in a mood that really does open up the door to alternatives that might not otherwise be acceptable.” More
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Corporate America Has a Message for the Fed About Inflation
If the Federal Reserve’s chair, Jerome H. Powell, and his colleagues look at company earnings reports, these themes might catch their eye.Federal Reserve officials are battling the fastest inflation in four decades, and as they do they are parsing a wide variety of data sources to see what might happen next. If they check in on how executives are describing their companies’ latest financial results, they might have reasons to worry.It’s not because the corporate chiefs are overly gloomy about their prospects as the Fed aggressively raises interest rates to control rapid inflation. Quite the opposite: Many executives across a range of industries over the last few weeks have said they expect to see sustained demand. In many cases, they plan to continue raising prices in the months ahead.That is good for investors — the S&P 500 index gained 8 percent last month as companies began reporting quarterly profits — but not necessarily welcome news for the Fed, which has been trying hard to slow consumer spending. The central bank has already raised rates five times this year and is expected to do so again on Wednesday as part of its campaign to cool off the economy. Although companies have warned that the economy may slow and often talk about a tough environment, many are not seeing customers crack yet.“While we are seeing signs of economic slowing, consumers and corporates remain healthy,” Jane Fraser, the chief executive of Citigroup, told investors recently. “So it is all a question of what it takes to truly tame persistently high core inflation.”If companies continue to charge more and consumers are still willing to pay, inflation will be harder to stamp out. That could push the Fed to keep up its push to curb momentum — and if officials must do more to wrestle prices down, it could increase the risk of financial turmoil, higher unemployment or other bad outcomes. Although some companies are reporting a nascent slowdown, the signs are far from conclusive.Demand remains strong despite higher prices.McDonald’s expects to raise prices 10 percent at its restaurants in the United States this year, its leaders said when reporting better-than-expected sales and profits for the third quarter.“I think because of the strength of the brand and the proposition as evidenced by the results, the consumers are willing to tolerate it,” said Chris Kempczinski, the fast-food giant’s chief executive.Inflation F.A.Q.Card 1 of 5What is inflation? More
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Food Prices Soar, and So Do Companies’ Profits
Some companies and restaurants have continued to raise prices on consumers even after their own inflation-related costs have been covered.A year ago, a bag of potato chips at the grocery store cost an average of $5.05. These days, that bag costs $6.05. A dozen eggs that could have been picked up for $1.83 now average $2.90. A two-liter bottle of soda that cost $1.78 will now set you back $2.17.Something else is also much higher: corporate profits.In mid-October, PepsiCo, whose prices for its drinks and chips were up 17 percent in the latest quarter from year-earlier levels, reported that its third-quarter profit grew more than 20 percent. Likewise, Coca-Cola reported profit up 14 percent from a year earlier, thanks in large part to price increases. Restaurants keep getting more expensive, too. Chipotle Mexican Grill, which said prices by the end of the year would be nearly 15 percent higher than a year earlier, reported $257.1 million in profit in the latest quarter, up nearly 26 percent from a year earlier.For years, food companies and restaurants generally raised prices in small, incremental steps, worried that big increases would frighten consumers and send them looking for cheaper options. But over the last year, as wages increased and the cost of the raw ingredients used to make treats like cookies, chips, sodas and the materials to package them soared, food companies and restaurants started passing along those expenses to customers.But amid growing concerns that the economy could be headed for a recession, some food companies and restaurants are continuing to raise prices even if their own inflation-driven costs have been covered. Critics say the moves are all about increasing profits, not covering expenses. Coca-Cola, PepsiCo and Chipotle did not respond to requests for comment.“The recent earnings calls have only reinforced the familiar and unwelcome theme that corporations did not need to raise their prices so high on struggling families,” said Kyle Herrig, the president of Accountable.Us, an advocacy organization. “The calls tell us corporations have used inflation, the pandemic and supply chain challenges as an excuse to exaggerate their own costs and then nickel and dime consumers.”So far, food companies and restaurants have been able to raise prices because the majority of consumers, while annoyed that the trip to the grocery store or drive-through for takeout costs more than it did a year ago, have been willing to pay. But there are plenty of shoppers, including those with lower incomes or retirees on fixed budgets, who say the higher prices have led to changes in their routines.Inflation F.A.Q.Card 1 of 5What is inflation? More
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Eurozone Inflation Reaches 10.7 Percent as Economies Slow Down
The rise in consumer prices hit another record in October, with more than half of the countries that use the euro registering double-digit increases.Consumer prices in the countries that use the euro as their currency rose at a stunning annual rate of 10.7 percent in October, the European Commission reported on Monday, while economic growth across the continent grew by 0.2 percent over the quarter that spanned July, August and September.Prices have been on an relentless upward march since last year, as painfully high energy and food prices continued to push inflation to record levels. Over the past 12 months, energy prices rose by 41.9 percent while food prices increased by 13.1 percent.More than half of the 19 countries in the eurozone recorded double-digit inflation rates in the year through October, including Germany (11.6 percent), the Netherlands (16.8 percent), Italy (12.8 percent) and Slovakia (14.5 percent), with the Baltic countries at the highest end of the spectrum with rates over 21 percent.In September, the inflation rate across the eurozone was 9.9 percent. Twelve months ago, it was 4.1 percent.“This is a significant acceleration,” said Lucrezia Reichlin, an economist at the London Business School. “Inflation is becoming broad-based.”Although economic growth overall slowed from 0.8 percent in the second quarter — April, May and June — some countries registered bigger expansions than analysts anticipated. Germany, Europe’s largest economy, grew by 0.3 percent during the third quarter, driven in part by consumer spending. Italy’s economy grew by 0.5 percent and Sweden’s by 0.7 percent. Elsewhere, growth slowed. In France and Spain, growth increased by just 0.2 percent. Austria and Belgium saw their economies shrink by 0.1 percent.In the larger bloc of 27 countries that make up the European Union, third-quarter growth also increased by 0.2 percent.The International Monetary Fund has warned that “European policymakers face severe trade-offs and tough policy choices as they address a toxic mix of weak growth and high inflation that could worsen.”Inflation is vexing many of the world’s economies and may worsen, particularly in the wake of Russia’s withdrawal from an agreement that allowed grain exports from Ukraine that is likely to push up food prices.Last week, the United States announced that consumer prices rose by 6.2 percent in the year through September, by one measure. Britain’s inflation rate was 8.8 percent over the same period.Central banks appear resolutely determined to halt the rise. “Inflation remains far too high and will stay above the target for an extended period,” Christine Lagarde, the president of the European Central Bank, said last week after announcing the bank was raising interest rates by three-quarters of a percentage point for the second time in a row.The International Monetary Fund has also urged central bankers to stay the course possibly through next year. It noted that “almost half the recent surge in European core inflation remains unexplained by its usual drivers,” suggesting that the war in Ukraine and aftershocks of the coronavirus pandemic were contributing to a new inflationary dynamic.The Federal Reserve is expected to raise interest rates by three-quarters of a percentage point when policymakers meet on Wednesday. It would be the sixth increase this year. The Bank of England, meeting on Thursday, is also expected to raise rates by the same amount.However painful higher interest rates may be for consumers and borrowers in the United States, the sting is even sharper in other regions around the world. Higher interest rates attract investors, which pushes up the value of the dollar. For emerging nations with high debt bills denominated in dollars, though, their already heavy burden grows even larger. At the same time, nations that have to import American goods or essentials like energy and food that are often priced in dollars, get much more expensive. Those countries get poorer.While most economists have urged a hard line on inflation, there are an increasing number of voices questioning whether central bankers are going too far, too fast. Higher interest rates are not going to suddenly increase the supply of oil, wheat and microchips, and may even exacerbate shortages by stunting investment.There is also fear that efforts to corral inflation will accelerate countries’ slide into recession by choking off investment and raising unemployment. Several analysts said on Monday that they expected growth in the final three months of the year to deteriorate.Andrew Kenningham, the chief Europe economist at Capital Economics, warned in a report that the eurozone “is heading for a deeper recession and higher inflation than most expect.” More
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Jerome Powell Is Popular. His War on Inflation Could Change That.
Jerome H. Powell, who is well liked across the political spectrum, is presiding over the fastest interest rate increases in generations, with another one expected this week.Jerome H. Powell has for years enjoyed something rare in a politically divided Washington: widespread popularity.While officially a Republican, Mr. Powell, the Federal Reserve chair, is a political centrist who has been nominated to prominent jobs at the central bank by President Biden as well as Presidents Barack Obama and Donald J. Trump. When Mr. Trump attacked Mr. Powell on Twitter in 2018 and 2019, criticizing him for not doing enough to stimulate the economy, liberal and conservative commentators rushed to his defense. When he was up for renomination, people across the political spectrum argued his case.The acclaim has extended beyond the capital. After delivering an economics-heavy speech on the labor market to a crowd of businesspeople in Rhode Island in 2019, Mr. Powell received a standing ovation — not a typical response to central bank oration.But the applause could soon stop.That is because Mr. Powell, who is in his fifth year of leading the world’s most important central bank, is presiding over the fastest interest rate increases in generations as the Fed tries to wrestle rapid inflation under control. The Fed is expected to raise rates by another three-quarters of a percentage point on Wednesday. And by next year, borrowing costs are expected to climb to nearly 5 percent, up from near zero as recently as March.The last time the central bank adjusted policy that quickly, in the 1980s, it inflicted economic pain that inspired intense backlash against the sitting chair, Paul A. Volcker. And while the rate increases were more extreme back then, the Fed’s moves were under far less public scrutiny than they are today, when global financial markets hang on every word coming from the central bank.Mr. Powell, 69, is acutely aware of his own reputation and that of the institution he leads. He reads four newspapers every morning, along with a set of news clips about the Fed that his staff sends him by 6 a.m. He keeps a careful eye on the debate economists are having on central bank policy, including the recent back-and-forth on Twitter between Lawrence H. Summers, a former Treasury secretary, and Paul Krugman, a New York Times columnist, about whether inflation is poised to subside so much that the Fed risks overdoing it.His consciousness of how the Fed’s moves are being received has at times prompted Mr. Powell to adjust course. He pivoted toward a gentler policy stance in early 2019 after markets reacted sharply to his Dec. 19, 2018, news conference, at which the Fed forecast that it would keep removing its support from the economy. And his awareness has shaped his communication style: Mr. Powell has tried to reach ordinary Americans, delivering plain-spoken remarks that acknowledge how economic developments shape their lives.Mr. Powell’s responsiveness has often been viewed as one of his strengths — but it is now prompting some economists and investors to question whether he will be able to stick by the central bank’s plan to wrangle inflation.Once today’s rate increases translate into palpable financial or economic pain, criticism is likely to come in hard and fast as recession risks intensify and as everyday Americans find their jobs at risk and their wage growth slowing. Already, some lawmakers and progressive economists are urging Mr. Powell to stop his rate campaign for the good of the American worker.Fed policy is made by committee, but the chair is the central bank’s most visible and powerful policymaker, and complaints are likely to be lobbed at Mr. Powell personally. As markets and the public react, some Fed watchers think he will back off before inflation is well and truly stamped out of the system.Inflation F.A.Q.Card 1 of 5What is inflation? More
- in Economy
With So Much Riding on the Fed’s Moves, It’s Hard to Know How to Invest
Where the markets go from here depends on whether and how deftly the Federal Reserve pivots from its hawkish stance.Making money was easy for investors when they could still plausibly believe that the Federal Reserve might back down on its aggressive campaign to subdue inflation at any cost. But harsh words from the Fed chairman, Jerome H. Powell, backed by a string of large interest rate increases, finally convinced markets that the central bank meant business, sending stock and bond prices tumbling.A nervous confidence returned as October began, with stocks experiencing a big two-day rally, but then prices sank anew. Investors at first seemed more confident that the Fed would reverse course, but anxiety returned as they worried about how much damage would be inflicted before that happened. Where the markets go from here, and how to position an investment portfolio, depends on whether and how deftly the Fed changes its strategy.“A crescendo of factors is coming together that makes me think we’re going to have another few weeks of pain before the Fed capitulates,” said Marko Papic, chief strategist at the Clocktower Group.Mr. Papic thinks a dovish turn may come soon, as the Fed signals that it would settle for inflation two or three percentage points above its 2 percent target.Others think more pain lies ahead, maybe a lot more. A prerequisite for a pivot might be a “credit event,” said Komal Sri-Kumar, president of Sri-Kumar Global Strategies, meaning a default by a large investment firm or corporate or government borrower, often with severe consequences. Mutual FundsA glance at mutual fund performance in the third quarter. More
