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    Few Cars, Lots of Customers: Why Autos Are an Inflation Risk

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    Economists are betting that supply chains for all kinds of goods will heal, shortages will ease and price gains will slow. Cars are a wild card in those forecasts.Corina Diehl is eager for more sedans and pickup trucks to sell her customers in and around the Pittsburgh area, but as the pandemic enters its third year, cars remain in short supply and the squeeze on inventory shows no sign of abating.“If I could get 100 Toyotas today, I would sell 100 Toyotas today,” Ms. Diehl said. Instead, she said, she’s lucky to have three. “It’s the same with every brand I have.”Dealerships like Ms. Diehl’s are wrestling with inventory shortages — the result of a dearth of computer chips, production disruptions and other supply chain snarls. That’s not a problem just for car buyers, who are paying more; it’s also a problem for economic policymakers as they try to wrestle the fastest inflation in four decades under control.Car prices have helped push inflation sharply higher over the past year, and economists have been counting on them to level off and even decline in 2022, allowing the rising Consumer Price Index to moderate markedly.Rapid Car Inflation Year-over-year change in select automotive categories of the Consumer Price Index

    Source: Bureau of Labor Statistics, accessed via FREDBy The New York TimesBut it is increasingly unclear how much and how quickly car prices will slow their ascent, because of repeated setbacks that threaten to keep the market under pressure. While price increases are showing some early signs of slowing and used car costs, in particular, are unlikely to climb at the same breakneck pace as last year, continued shortfalls of new vehicles could keep prices elevated — even rising — longer than many economists expected.“We’ve stumbled into another pattern of a series of unfortunate events,” said Jonathan Smoke, the chief economist at Cox Automotive, an industry consulting firm. Shutdowns meant to contain the coronavirus in China, computer chip factory disruptions tied to a recent earthquake in Japan, the aftereffects of the trucker strike in Canada and the war in Ukraine are adding up to slow production.Mr. Smoke expects new car prices to keep rising this year — perhaps even at nearly the same pace as last year — and used cars to begin to depreciate again, but said the shortage of new cars could spill over to blunt that weakening. And used cars may not fall in price at all if rental companies begin to snap them up as they did in 2021.“If the supply situation gets worse, it’s still possible that we repeat some of what we had last year,” he said.Mr. Smoke’s predictions — and worries — are more grim than what many economists are penciling into their forecasts.Alan Detmeister, a senior economist at UBS and former chief of the Federal Reserve Board’s wages and prices section, said he expected a 15 percent decline in used car prices by the end of the year, with new car prices falling 2.5 to 3 percent.Those estimates are predicated on an increase in supply.“This is a huge wild card in the forecast,” Mr. Detmeister said. But even if production doesn’t pick up, “it is extremely unlikely that we’ll see the kind of increases we saw last year,” he added, referring to prices.Omair Sharif, founder of Inflation Insights, a research firm, said he was still expecting improved supply and slower demand to help the used car market come into balance. While used car prices may rise for a few months as households spend tax refunds on automobiles, he expects the increase to be modest in part because they already nearly match new car prices.“I would be shocked if the used car market really accelerated,” he said. New car prices are a more complicated story, he added: “There, we have legitimately serious inventory problems.”Automakers are struggling to ramp up production. Russia’s invasion of Ukraine has created shortages in electrical components needed for cars, prompting S&P Global Mobility to cut its 2022 and 2023 forecasts for U.S. production. More critically, the chips needed to power everything from dashboards to diagnostics remain in short supply. Ford Motor and General Motors temporarily shut down some U.S. factories last week because of supply issues, and the industry broadly cannot ship as many cars as customers want to buy.In cars, “production remains below prepandemic levels, and an expected sharp decline in prices has been repeatedly postponed,” Jerome H. Powell, the Fed chair, said during a speech last month. He noted that while supply chain relief in general seemed likely to come over time, the timing and scope were uncertain.Cars loaded in Kansas City, Kan., for transport to a dealership in Wichita, Kan. Automakers are struggling to ramp up production as repeated shocks rock the industry.Chase Castor for The New York TimesAnalysts had been hoping that chip shortages, in particular, would ease up, but “we’ve got at least another year, if not more,” for the supply chain to heal, said Chris Richard, a principal in the supply chain and network operations practice at the consulting firm Deloitte.While smaller electronics producers may be able to find enough semiconductors, he said, cars contain hundreds or even thousands of chips — often different kinds — and many auto companies do not have direct and close relationships with their providers.The earthquake in Japan temporarily shut down chip plants that supply the auto industry, costing a few weeks of production at one. Making chips requires neon, and much of it comes from Ukraine. Lockdowns in Shanghai may reduce chip production at some Chinese factories.At the same time, demand is booming. Ford reported record retail vehicle orders in March, including for its F-series trucks, which remained in demand even as gas prices jumped.Car buying could begin to slow as the Fed raises interest rates, making car loans more expensive, but so far there is little sign that is happening. In fact, demand has been so strong that automakers have been cracking down on dealers that charge above list price, threatening to withhold fresh inventory.“I don’t see the prices subsiding. You don’t need them to subside,” said Joseph McCabe at AutoForecast Solutions, an industry analyst, explaining that dealer costs are increasing and companies want to protect their profits. “Prices will go up, and there will be less negotiating space for consumers, because there’s high demand and no availability.”Mr. McCabe does not think that car inventory will ever fully rebound: Dealers and automakers have learned that they make more money by effectively making cars to order and running with learner inventory. If that’s the case, the permanently restrained supply could have implications for the rental and used car markets.If car prices keep climbing briskly, it will be hard for inflation overall to moderate as much as economists expect — to around 4 to 4.5 percent as measured by the Consumer Price Index by the end of the year, according to a Bloomberg survey, down from 7.9 percent in February.That’s because prices for services, which make up 60 percent of the index, are also climbing robustly. They increased 4.8 percent in the 12 months through February, and could remain high or even continue to rise as labor shortages bite.Of the goods that make up the other 40 percent of the index, food and energy account for about half. Both have recently become markedly more expensive and, unless trends change, seem likely to contribute to high inflation this year. That puts the onus for cooling inflation on the products that make up the remainder of the index, like cars, clothing, appliances and furniture.While the Fed’s policy changes could tamp down demand and eventually slow prices, policymakers and economists had been hoping they would get some natural help as supply chains for cars and other goods worked themselves out.“We still expect some deflation in goods,” Laura Rosner-Warburton, an economist at MacroPolicy Perspectives, said of her forecast. She said that she expected fuel prices to moderate, and that her call included some “modest declines” in vehicle prices.It’s not just economists who are hoping that forecasts for a rebounding supply and more moderate car prices come true. Buyers and dealers are desperate for more vehicles. Ms. Diehl in Pittsburgh sells makes including Toyota, Volkswagen, Hyundai and Chevrolet, and companies have told her that inventory may begin to recover toward the end of the year — a reprieve that seems far away.Her customers are hungry for trucks, electric vehicles and whatever else she can get her hands on. When one of her dealerships lists a new car on its website in the evening, a buyer will show up first thing in the morning, she said. Her dealerships have a backlog of 400 to 500 parts to fix cars, up from 10 to 20 before the pandemic.“It’s absolute insanity at its finest,” Ms. Diehl said. “I don’t see an abundance of inventory before 2023 and 2024.” More

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    Rising Wages Are Good News for Workers but Keep Pressure on the Fed

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    Wages climbed at a rapid pace in the year through March and the unemployment rate dropped notably last month, signs of a hot labor market that could keep pressure on the Federal Reserve as it contemplates how much and how quickly to cool down the economy.The central bank is trying to slow demand to a more sustainable pace at a moment when inflation is running at its fastest pace in 40 years. Fed officials began raising interest rates in March and have suggested that they may increase rates by half a percentage point in May — twice as much as usual. Making money more expensive to borrow and spend can slow consumption and eventually hiring, tempering wage and price growth.Friday’s employment report could bolster the case for at least one half-point increase.Wages have picked up by 5.6 percent over the past year, the report showed, a far quicker pace than the 2 to 3 percent annual pay gains that were typical during the 2010s. At the same time, the jobless rate fell, to 3.6 percent in March from 3.8 percent in February. Unemployment is now just slightly above the half-century lows it had reached before the pandemic.The unemployment rate continued to fall in March.The share of people who have looked for work in the past four weeks or are temporarily laid off, which does not capture everyone who lost work because of the pandemic. More

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    Low Unemployment in Nebraska: Workers Thrive, Businesses Cope

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    Harry’s Wonder Bar is a trusted old dive in Nebraska’s capital, frequented by office clerks, construction workers and graduate students alike: the sort of wood-paneled place with a pool table in the back where phones generally stay in pockets, second fiddle to casual conversation, and beer mugs come frosted regardless of the season.As a half-dozen or so happy hour patrons gathered at the bar on a recent afternoon, most had something remarkable in common: Everybody seemed to know somebody who had earned a significant raise, or multiple raises, in the past year — and many, if not all, had received a jump in pay themselves.That included the bartender on the early-evening shift, Nikki Paulk, an easygoing woman with a flash of pink hair. “I’m in hot demand, baby,” she said, mentioning “desperate” employers with a burst of a grin. “I’ve worked at like six bars in the last six months because I just keep getting better offers I can’t turn down.”The unemployment rate in Nebraska was 2.1 percent in February, tied with Utah for the lowest in the nation and near the lowest on record for any state. In several counties, unemployment is below 1 percent. Even taking into account adults who have left the work force, the share of the population 16 and older employed in Nebraska is around 68 percent, the nation’s highest figure.After decades of wage and income stagnation, the seesaw of power between managers and their workers looks to at least temporarily be tilting in the direction of labor, with employers in competition for workers instead of the other way around. Unemployment in states including Indiana, Kansas, Montana and Oklahoma is almost as low as in Nebraska, testing the benefits and potential costs of an economy with exceptionally tight labor markets.Ms. Paulk, 35, graduated from college with a graphic design degree during the Great Recession, when jobs were scarce. She remembers working 60-hour weeks near minimum wage in Illinois, “being excited to find a quarter” that could go toward laundry. In 2013, she moved to Nebraska and took a job in medical data entry for $12 an hour.She started bartending in 2018, and since then, she says, her overall pay has more than doubled to $25 (and sometimes $30) an hour, including tips.The nationwide jobless rate in February was 3.8 percent, nearly back to prepandemic levels that were the lowest in a half-century. The particularly low unemployment in Nebraska is partly attributable to its higher-than-average high school graduation rate, and the dominant role of industries like manufacturing and agriculture that are less volatile than the service or energy sectors during downturns. Even at the peak of Covid-19 lockdowns in the spring of 2020, the state unemployment rate was 7.4 percent, half the national number.Yet the labor market in Nebraska may also be a harbinger for the country at large. Most economists expect overall unemployment to continue ticking downward this year. Job openings are near record highs, and jobless rates in January were lower than a year earlier in 388 of the 389 metropolitan areas evaluated by the Bureau of Labor Statistics.Many business analysts contend that if labor remains scarce, wages will grow too rapidly and employers will continually pass on that increased expense to consumers. At least for now, evidence of such a spiral is sparse: Federal Reserve data shows that median annual pay increases are well within the range — 3 to 7 percent — that prevailed from the 1980s until the 2007-9 recession.The State of Jobs in the United StatesJob openings and the number of workers voluntarily leaving their positions in the United States remained near record levels in March.March Jobs Report: U.S. employers added 431,000 jobs and the unemployment rate fell to 3.6 percent ​​in the third month of 2022.A Strong Job Market: Data from the Labor Department showed that job openings remained near record levels in February.Wages and Inflation: Economists hoped that as households shifted spending back to services, price gains would cool. Rapid wage growth could make that story more complicated.New Career Paths: For some, the Covid-19 crisis presented an opportunity to change course. Here is how these six people pivoted professionally.Return to the Office: Many companies are loosening Covid safety rules, leaving people to navigate social distancing on their own. Some workers are concerned.Unionization Efforts: The pandemic has fueled enthusiasm for organized labor. But the pushback has been brutal, especially in the private sector.The Fed, still concerned, has begun raising interest rates to cool off the economy and tame inflationary pressures. Supply chain challenges that arose during the pandemic have persisted, and the war in Ukraine is further complicating the outlook for inflation as well as overall economic growth. Consumer spending remains buoyant, yet surveys reflect dour economic sentiment among the public.In the meantime, even as price increases nag household budgets, burying the value of some new wage gains, a noticeable mass of employees and job seekers are gaining more leverage regarding benefits and conditions.Tony Goins was appointed by Gov. Pete Ricketts in 2019 as director of Nebraska’s Department of Economic Development.Terry Ratzlaff for The New York TimesDuring a virtual summit about the local economy held in February by the nonprofit group Leadership Lincoln, Eric Thompson, the director of the Bureau of Business Research at the University of Nebraska-Lincoln, argued that the labor market might be simply rebalancing.“Obviously, it’s still always better to be the employer than the worker, or at least usually it is,” he said. But the current environment does enable some employees to switch jobs or more easily vie for higher-level positions. Local employers are dropping degree requirements for a range of midlevel and entry roles.Many fast-food restaurants, struggling to staff locations near the $9 minimum wage in the state, have begun to offer starting wages of $14. Evidence of automation is just as rampant as Help Wanted signs: Some pharmacies dotting the main roads and highways appear to have more self-checkout kiosks than employees at a given hour.Mr. Thompson said such moves were not necessarily ominous for the working class but rather a reflection of the need for businesses to adapt while workers find jobs that can “maximize their skills and potential.”Tony Goins, a former senior vice president at JPMorgan Chase who was appointed by Gov. Pete Ricketts in 2019 as director of Nebraska’s Department of Economic Development, said the tight labor market could prompt managers to become more flexible and innovative.“At the end of the day, the market is dictating that I have to pay employees more money,” said Mr. Goins, a small-business owner himself with a cigar lounge in Lincoln. “So, I mean, how are you going to offset that?” To stay competitive in hiring, he said, managers need to improve culture, leadership, employee retention and recruiting.He spoke of his son, an assistant men’s basketball coach at Boston College — a position that he says requires continued outreach as well as the dual promise of “the chance to play for a winning program” and gaining personal development. “That’s not what C.E.O.s are used to,” he said.Businesses aiming to grow have begun to offer incentives beyond pay. The Japanese company Kawasaki Motors is spending $200 million to expand the 2.4-million-square-foot site in northern Lincoln where it makes Jet Skis, all-terrain vehicles and rail cars. It is increasing its 2,400-member work force by over 500 employees, with jobs primarily in fabrication, welding and assembly.The company is becoming more flexible about hiring and work styles in order to pull it off. “It used to take a couple of weeks to get hired at Kawasaki,” said Bryan Seck, its chief talent management strategist in Lincoln. “Now, it’s down to four hours.”With the knowledge that many parents remain on the sidelines of the work force because of child care duties, Kawasaki recently created a 9 a.m. to 2 p.m. shift tailored for those who need to retrieve children from school and day care in the early afternoon. Starting wages are $18.10 an hour, Mr. Seck said, with benefits including health care and a 401(k) plan.Todd Heyne, the chief construction officer at Allo Communications, a cable company based in Lincoln.Terry Ratzlaff for The New York TimesIn addition to increasing wages to retain employees, Todd Heyne, the chief construction officer at Allo Communications, a cable company based in Lincoln, said management decided that easing in-person work requirements could expand the pool of available workers. That led the company to allow many of its customer service representatives and technical support employees to train and work farther afield as it prepares to expand beyond Nebraska and Colorado.Not all problem-solving is easy. The added labor costs come on top of supply chain pressures that have increased the price of crucial materials like fiber optic cable by as much as 30 percent. Vendors are often charging 20 percent more for their contracted tasks. As a result, the company has taken steps like hiring its own trucking staff.In the end, “combined with some automation efficiencies, our team will see sizable wage increases with less rudimentary work,” Mr. Heyne said, reducing manual paperwork, centralizing back-end systems and doing more to fix customers’ network issues remotely. So despite the cost challenges, “I’ve never been more optimistic about where we’re sitting, our position in the market, how we compete against our competitors, and our technology,” he added. “Which is strange.”For many, the opportunity of this economic moment is tinged with worry. They include Ashlee Bridger, a 30-year-old student at the Lincoln campus of Southeast Community College who works in administration for the nearby firm Huffman Engineering after being recruited from a job fair.Ms. Bridger left her job as a nurse to pursue a career in human resources because she felt confident enough to bet on herself: “Of course, it was a risk. Leaving any career is.” But in the current job market, she said, “I knew I would be able to work my way up easier.”She has also had a series of life milestones fall into place. She will graduate in May with an associate degree and will start bachelor’s degree work in the fall at Nebraska Wesleyan University. The managers at Huffman have told her that she is welcome to continue working there when her schedule allows, and that they would like to hire her in a more senior role after she completes her studies.Last year, she got married in summer, then moved with her husband into a newly built house in Lincoln in August. Though they feel financially stable, she half-joked that they were lucky the home was mostly built before lumber prices soared. With prices up across the board now, “I’m more cautious about my spending,” she said.Ms. Paulk, the bartender at Harry’s thriving off better pay, has friends and customers who are upset about recent inflation. “But it’s something controlled out of our hands anyway,” she said with a shrug.“All I know,” she added, “is now I’m not broke anymore — it’s great. Life is good.” More

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    High Inflation Could Persist as Wages Continue to Rise

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    Economists have been waiting for Americans to shift from buying goods, like furniture and appliances, and toward spending on vacations, restaurant meals and other services as the pandemic fades, betting the transition would take pressure off supply chains and help inflation to moderate.Rapid wage growth could make that story more complicated. Demand for services is rising just as many employers are struggling to find workers, which could force them to continue raising wages. While positive for workers, that could keep overall inflation brisk as companies try to cover their labor costs, speeding up price increases for services even as they begin to moderate for goods.Heavy spending on goods during the pandemic has been a driver of the recent inflation burst. Consumers began snapping up items a few months after pandemic lockdowns began and have kept on buying. Spending on services also has recovered, but much more slowly. That shift in what people are purchasing has roiled supply chains, which were not built to produce, ship and deliver so many cars, treadmills and washing machines.Policymakers spent months betting that as the virus waned and consumers resumed more normal shopping patterns, prices of goods would slow their ascent or even fall. That would pull down inflation, which has been running at its fastest pace in 40 years.But that transition — assuming it happens — may do less to cool inflation than many had hoped. A big chunk of what the government defines as “services” inflation comes from rental housing costs, which often move up alongside wage growth, as households can afford more and bid up the cost of a limited supply of housing units. And when it comes to discretionary services, like salons and gyms, labor is a major cost of production. Rising pay likely means higher prices.Jason Furman, a Harvard economist who served as a top adviser to President Barack Obama, said the shortage of workers in many service industries means that if demand for services goes up, prices will too. That means a shift in spending back to services won’t necessarily result in an overall slowdown in the pace of price increases.“An awful lot of services are incredibly constrained,” he said. “As we shift back to services, we’ll get more services inflation and less goods inflation, and I don’t think it’s at all obvious that the result of that is less inflation.”While America has gotten used to thinking about shortages in products — couches are out of stock, shoes are back-ordered — labor shortfalls could mean that services will also end up oversubscribed, allowing providers to charge more.MaidPro, a home-cleaning firm, has seen a surge in demand from professionals who are spending more time at home. But it is having trouble finding workers to keep up, said Tom Manchester, the company’s president.“Our demand right now outstrips our supply of being able to service that demand,” he said. “Demand has just continued to be strong — like double-digit strong. And if we could find qualified pros to meet the demand, we’d be even more ahead than we are today.”An Amazon employee delivering packages in Manhattan. Americans have continued to buy goods even as services have rebounded.Gabby Jones for The New York TimesMr. Manchester said hourly wages were up $1 to $3, adding to costs at a time when cleaning products have gotten pricier and higher gas prices have made travel reimbursements more expensive. MaidPro franchisees have been able to pass those costs on to their customers, both via fuel surcharges and outright price increases that have more or less kept up with inflation.So far, they have lost few customers — in part because few competitors have capacity to take on new customers.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: Times readers sent us their questions about rising prices. Top experts and economists weighed in.Interest Rates: As it seeks to curb inflation, the Federal Reserve announced that it was raising interest rates for the first time since 2018.How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.“If someone has someone that they really like coming in to clean their home, they don’t want to lose them,” he said. “They don’t want to risk saying, ‘I want to move away from MaidPro and try to find someone else,’ because in nine out of 10 instances, that someone else isn’t available.”Some economists argue that if goods inflation slows, that could still help price gains overall to moderate, even amid rising wages. Prices for products that last a long time rose 11.6 percent in the year through January, and prices for shorter-lived products like cosmetics and clothing were up 7.2 percent, still much stronger than services inflation.“We have in mind a big decline in goods prices,” said Roberto Perli, the head of global policy research at the investment bank Piper Sandler. “It would take a lot of increase in service prices to actually offset that.”Outright declines in goods prices are not guaranteed. Take cars: Rapid price growth in new and used autos was a big driver of inflation last year, and many economists expect those prices to dip in 2022. But Jonathan Smoke, the chief economist at Cox Automotive, said continued shortages mean prices for new cars are likely to continue rising, and issues with new car supply could spill over to blunt the expected decline in used car costs.And services inflation is now also coming in fast. It ran at 4.6 percent in the year through January, the quickest pace since 1989, and it has been posting large monthly gains since autumn. That is enough to keep inflation above the Federal Reserve’s 2 percent goal even if product prices stop accelerating.While goods have taken up a bigger chunk of household budgets in recent months than they did before the pandemic, Americans still spend nearly twice as much on services as on goods overall.“You don’t need a lot of extra services inflation to make up for your lost goods inflation,” Mr. Furman said.Restaurants, hotels and other discretionary services aren’t the only places where persistent demand could run up against limited supply, Mr. Furman argued. Many nonurgent health care services saw a decline in demand during the pandemic and are now experiencing a rebound amid a shortage of nurses and other skilled workers.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Workers Are Still in High Demand, Department of Labor Reports

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    Job openings last month remained near record levels, and the number of workers voluntarily leaving their positions increased, the Labor Department said on Tuesday.The data, released as part of the agency’s monthly report on job openings, layoffs and quitting, serve as indicators of how much demand there is for workers in the U.S. economy and the extent to which employers are still struggling with labor shortages months after the economy began recovering from the pandemic’s worst damage.There were about 11.3 million job openings in February, essentially the same as the month before and down a little from a record in December, though the number of hires overall edged up by 263,000 last month, to about 6.7 million.After falling during the peak of Covid-19 lockdowns in 2020, the rates at which so-called prime-age workers — those aged 25 to 54 — are working or seeking work has rallied back to prepandemic levels. Yet with the economy growing faster than in decades, demand for labor has outpaced the availability of workers — at least at the wages and benefits employers are offering.There are still roughly three million or so people who have not returned to the work force, according to the government data.“Looking at how poorly our labor force has grown so far this year, if companies want to win the war for talent they need to engage the people who may not be actively seeking work right now, or be the first option people see when they do return,” Ron Hetrick, a senior economist at Emsi Burning Glass, a data and research company, wrote in a note.That echoes the sentiment of many unions and labor activists, who have been saying that even though wage growth has picked up, people aren’t feeling valued enough by employers. It’s led to fresh questions about how bosses might get to know the “love language” of their hires and find sometimes unconventional ways to show them that they care. There are also more straightforward requests: Several progressive economists have noted that employers could, for instance, take some jobs generally expected to be low-wage — such as fast food service and cashiers — and entice workers by offering higher pay and better benefits.Large public companies and small businesses alike often say that they have already substantially raised pay from before the pandemic and that with inflation raging at highs unseen since the early 1980s, raw material and other costs have made business more difficult. An expensive surge in commodity markets suggests that price increases for food and energy could worsen, especially if firms raise prices further.Still, despite widespread frustration with inflation and shortages of some products and materials, some surveys suggest businesses are becoming more optimistic about the future. The MetLife and U.S. Chamber of Commerce Small Business Index recently reached a pandemic-era high, with about three in five of the small business owners surveyed saying their business is in good health. More

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    Powell Says Fed Could Raise Rates More Quickly to Tame Inflation

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    Jerome H. Powell, the Federal Reserve chair, said on Monday that the central bank was prepared to more quickly withdraw support from the economy if doing so proved necessary to bring rapid inflation under control.Mr. Powell signaled that the Fed could make big interest rate increases and push rates to relatively high levels in its quest to cool off demand and temper inflation, which is running at its fastest pace in 40 years. His comments were the clearest statement yet that the central bank was ready to forcefully attack rapid price increases to make sure that they do not become a permanent feature of the American economy.“There is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level, and then to move to more restrictive levels if that is what is required to restore price stability,” Mr. Powell said during remarks to a conference of business economists.Policymakers raised interest rates by a quarter point last week and forecast six more similarly sized increases this year. On Monday, Mr. Powell foreshadowed a potentially more aggressive path. A restrictive rate setting would squeeze the economy, slowing consumer spending and the labor market — a move akin to the Fed’s hitting the brakes rather than just taking its foot off the accelerator.“If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so,” Mr. Powell said. “And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”Asked what would keep the Fed from raising interest rates by half a percentage point at its next meeting in May, Mr. Powell replied, “Nothing.” He said the Fed had not yet made a decision on its next rate increase but noted that officials would make a supersized move if they thought one was appropriate.“The expectation going into this year was that we would basically see inflation peaking in the first quarter, then maybe leveling out,” Mr. Powell said. “That story has already fallen apart. To the extent that it continues to fall apart, my colleagues and I may well reach the conclusion that we’ll need to move more quickly.”Stocks fell in response to Mr. Powell’s comments and were down 0.6 percent by the time he finished speaking in the early afternoon; the S&P 500 index closed the day down 0.4 percent. Higher interest rates can push down stock prices as they pull money away from riskier assets — like shares in companies — and toward safer havens, like bonds, and as they make money more expensive to borrow for businesses. The yield on the benchmark 10-year Treasury note rose as high as 2.3 percent as Mr. Powell was speaking, and the yield on two-year Treasurys rose above 2 percent for the first time since 2019.Rising rates can especially hurt share prices if they tank economic growth or cause the economy to contract.While the Fed has often caused recessions by raising interest rates in a bid to slow down demand and cool off price increases, Mr. Powell voiced optimism that the central bank could avoid such an outcome this time, in part because the economy is starting from a strong place. Even so, he acknowledged that guiding inflation down without severely hurting the economy would be a challenge.“No one expects that bringing about a soft landing will be straightforward in the current context,” Mr. Powell said.But getting price gains under control is the Fed’s priority, and while the central bank had been hoping for inflation to fade as pandemic disruptions abate, Mr. Powell was adamant that it could no longer watch and wait for that to happen.In addition to raising rates, the Fed plans to reduce its large bond holdings by allowing securities to expire, which would push up longer-term borrowing costs, including mortgage rates, helping to take steam out of the economy. Mr. Powell emphasized that the balance sheet shrinking could begin imminently.Action on the balance sheet “could come as soon as our next meeting in May, though that is not a decision that we have made,” Mr. Powell said.The Fed is preparing to pull back support even as Russia’s invasion of Ukraine stokes economic uncertainty. The conflict has pushed energy prices higher, something that the Fed would typically discount, since it is likely to fade eventually. But Mr. Powell said it could not ignore the increase when inflation was already high.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    How the War in Ukraine Could Slow the Sales of Electric Cars

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    The price of nickel, an essential ingredient in most batteries, has soared because of fear that Russian supplies could be cut off.Russia’s invasion of Ukraine has shaken the global market for nickel just as the metal gains importance as an ingredient in electric car batteries, raising fears that high prices could slow the transition away from fossil fuels.The price of nickel doubled in one day last week, prompting the London Metal Exchange to freeze trading and effectively bring the global nickel market to a standstill. After two years of supply chain chaos caused by the pandemic, the episode provided more evidence of how geopolitical tensions are destroying trading relationships that companies once took for granted, forcing them to rethink where they get the parts and metals they use to make cars and many other products.Automakers and other companies that need nickel, as well as other battery raw materials like lithium or cobalt, have begun looking for ways to shield themselves against future shocks.Volkswagen, for example, has begun to explore buying nickel directly from mining companies, Markus Duesmann, chief executive of the carmaker’s Audi division, said in an interview on Thursday. “Raw materials are going to be an issue for years to come,” he said.The prospect of prolonged geopolitical tensions is likely to accelerate attempts by the United States and Europe to develop domestic supplies of commodities that often come from Russia. There are nickel deposits, for example, in Canada, Greenland and even Minnesota.“Nickel, cobalt, platinum, palladium, even copper — we already realized we need those metals for the green transition, for mitigating climate change,” said Bo Stensgaard, chief executive of Bluejay Mining, which is working on extracting nickel from a site in western Greenland in a venture with KoBold Metals, whose backers include Jeff Bezos and Bill Gates. “When you see the geopolitical developments with Ukraine and Russia, it’s even more obvious that there are supply risks with these metals.”But establishing new mining operations is likely to take years, even decades, because of the time needed to acquire permits and financing. In the meantime, companies using nickel — a group that also includes steel makers — will need to contend with higher prices, which will eventually be felt by consumers.An average electric-car battery contains about 80 pounds of nickel. The surge in prices in March would more than double the cost of that nickel to $1,750 a car, according to estimates by the trading firm Cantor Fitzgerald.Russia accounts for a relatively small proportion of world nickel production, and most of it is used to make stainless steel, not car batteries. But Russia plays an outsize role in nickel markets. Norilsk Nickel, also known as Nornickel, is the world’s largest nickel producer, with vast operations in Siberia. Its owner, Vladimir Potanin, is one of Russia’s wealthiest people. Norilsk is among a limited number of companies authorized to sell a specialized form of nickel on the London Metal Exchange, which handles all nickel trading.Unlike other oligarchs, Mr. Potanin has not been a target of sanctions, and the United States and Europe have not tried to block nickel exports, a step that would hurt their economies as well as Russia’s. The prospect that Russian nickel could be cut off from world markets was enough to cause panic.Analysts expect prices to come down from their recent peaks but remain much higher than they were a year ago. “The trend would be to come down to a level close to where we last left off,” around $25,000 a metric ton compared to the peak of $100,000 a ton, said Adrian Gardner, a principal analyst specializing in nickel at Wood Mackenzie, a research firm.A plant owned by Nornickel, the world’s leading producer of nickel and palladium, in Norilsk, Russia.Tatyana Makeyeva/ReutersNickel was on a tear even before the Russian invasion as hedge funds and other investors bet on rising demand for electric vehicles. The price topped $20,000 a ton this year after hovering between $10,000 and $15,000 a ton for much of the past five years. At the same time, less nickel was being produced because of the pandemic.After Russia invaded Ukraine in late February, the price rose above $30,000 in a little over a week. Then came March 8. Word spread on the trading desks of brokerage firms and hedge funds in London that a company, which turned out to be the Tsingshan Holding Group of China, had made a huge bet that the price of nickel would drop. When the price rose, Tsingshan owed billions of dollars, a situation known on Wall Street as a short squeeze.The price shot up to a little over $100,000 a ton, threatening the existence of many other companies that had bet wrong and prompting the London Metal Exchange to halt trading.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Ukrainian Invasion Adds to Chaos for Global Supply Chains

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    Russia’s military incursion is severing key supply chains and setting off a scramble among global companies to comply with new sanctions.WASHINGTON — The Russian invasion of Ukraine has rattled global supply chains that are still in disarray from the pandemic, adding to surging costs, prolonged deliveries and other challenges for companies trying to move goods around the world.The clash in Ukraine, a large country at the nexus of Europe and Asia, has caused some flights to be canceled or rerouted, putting pressure on cargo capacity and raising concerns about further supply chain disruptions. It is putting at risk global supplies of products like platinum, aluminum, sunflower oil and steel, and shuttering factories in Europe, Ukraine and Russia. And it has sent energy prices soaring, further raising shipping costs.The conflict is also setting off a scramble among global companies as they cut off trade with Russia to comply with the most far-reaching sanctions imposed on a major economic power since the end of the Cold War.The new challenges follow more than two years of disruptions, delays and higher prices for beleaguered companies that use global supply chains to move products around the world. And while the economic implications of the war and sweeping sanctions on Russia are not yet clear, many industries are bracing for a bad situation to get worse.“Global supply chains are already hurting and stressed because of the pandemic,” said Laura Rabinowitz, a trade lawyer at Greenberg Traurig. She said the effects would vary for specific industries and depend on the length of the invasion, but the impacts would be magnified because of an already-vulnerable supply chain.“There’s still tremendous port congestion in the United States. Freight costs are very high. Factory closures in Asia are still an issue,” she said.Companies with complex global supply chains, like automakers, are already feeling the effects. Volkswagen, which had already announced it was suspending production at its main factory for electric cars, said Tuesday that it would also be forced to shut down production at several other factories, including its main factory in Wolfsburg, Germany, in coming weeks because of parts shortages.Automakers could see shortages of other key materials. Ukraine and Russia are both substantial sources for palladium and platinum, used in catalytic converters, as well as aluminum, steel and chrome.Semiconductor manufacturers are warily eyeing global stocks of neon, xenon and palladium, necessary to manufacture their products. Makers of potato chips and cosmetics could face shortages of sunflower oil, the bulk of which is produced in Russia and Ukraine.And if the conflict is prolonged, it could threaten the summer wheat harvest, which flows into bread, pasta and packaged food for vast numbers of people, especially in Europe, North Africa and the Middle East. Food prices have already skyrocketed because of disruptions in the global supply chain, increasing the risk of social unrest in poorer countries.On Tuesday, the global shipping giant Maersk announced that it would temporarily suspend all shipments to and from Russia by ocean, air and rail, with the exception of food and medicine. Ocean Network Express, Hapag-Lloyd and MSC, the world’s other major ocean carriers, have announced similar suspensions.“The war just makes the worldwide situation for commodities more dire,” said Christopher F. Graham, a partner at White and Williams.Jennifer McKeown, the head of global economics service at Capital Economics, said the global economy appeared relatively insulated from the conflict. But she said shortages of materials like palladium and xenon, used in semiconductor and auto production, could add to current difficulties for those industries. Semiconductor shortages have halted production at car plants and other facilities, fueling price increases and weighing on sales.“That could add to the shortages that we’re already seeing, exacerbate those shortages, and end up causing further damage to global growth,” she said.International companies are also trying to comply with sweeping financial sanctions and export controls imposed by Europe, the United States and a number of other countries that have clamped down on flows of goods and money in and out of Russia.In just a few days, Western governments moved to exclude certain Russian banks from using the SWIFT messaging system, limit the Russian central bank’s ability to prop up the ruble, cut off shipments of high-tech goods and freeze the global assets of Russian oligarchs.The Biden administration said the technology restrictions alone would stop about a fifth of Russian imports. But the impact on trade from the financial curbs is likely to be even larger, cutting off Russia’s imports from and exports to nearly all of its major trading partners, said Eswar Prasad, a professor of trade policy at Cornell University.“Even when trade flows may take place directly between Russia and its trading partners, the reality is that payments often have to go through a Western-dominated financial system, and usually have to go through a Western currency,” he said.In a statement on Saturday, the president of the European Commission, Ursula von der Leyen, said that Europe and its allies were “resolved to continue imposing massive costs on Russia” and that disconnecting Russian banks from SWIFT would also halt Russian trade.“Cutting banks off will stop them from conducting most of their financial transactions worldwide and effectively block Russian exports and imports,” she said.The economic consequences of these moves are not yet entirely clear. Russia accounts for less than 2 percent of global domestic product, so the implications for other countries may be somewhat limited.The departures board displayed flight cancellations at Sheremetyevo Airport in Moscow on Monday.Sergey Ponomarev for The New York TimesBut for the Russian government and the economy, both of which are heavily dependent on trade to generate revenue, the impact could be catastrophic. Capitol Economics has estimated Russian gross domestic product could contract by 5 percent this year, a change that in isolation would knock just 0.2 percentage points off global growth.Caroline Bain, chief commodities economist at Capitol Economics, said financial sanctions were halting the trade of metals and agricultural commodities, likely exacerbating strains in global supply chains.Credit Suisse and Société Generale have suspended financing for commodity trading with Russia, as has the Industrial and Commercial Bank of China, she said.Russia’s Attack on Ukraine and the Global EconomyCard 1 of 6A rising concern. More