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Powell says the Fed is watching for ‘clear and convincing’ signs of inflation fading.

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Jerome H. Powell, the chair of the Federal Reserve, said that the central bank is focused on getting rapid inflation under control and that it is ready to intensify its efforts to tamp down price pressures if they do not begin to ease as policymakers expect.“What we need to see is clear and convincing evidence that inflation pressures are abating and inflation is coming down — and if we don’t see that, then we’ll have to consider moving more aggressively,” Mr. Powell said, speaking Tuesday afternoon on livestream hosted by The Wall Street Journal. “If we do see that, then we can consider moving to a slower pace.”Consumer prices climbed 8.3 percent in April from the prior year, and while inflation eased somewhat on an annual basis, the details of the report suggested that price pressures continue to run hot.The central bank has begun raising interest rates to try and cool the economy, announcing a quarter-point increase in March and a half-point increase earlier this month, which was the Fed’s largest increase since 2000. Mr. Powell and his colleagues have signaled that they will continue to push borrowing costs higher as they attempt to restrain spending and hiring, hoping to bring demand and supply into balance.They could raise rates by half-percentage-point increments at each of the Fed’s next two meetings, Mr. Powell suggested after the central bank’s May meeting. He repeated that message on Tuesday.Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.Interest Rates: As it seeks to curb inflation, the Federal Reserve began raising interest rates for the first time since 2018. Here is what that means for inflation.State Intervention: As inflation stays high, lawmakers across the country are turning to tax cuts to ease the pain, but the measures could make things worse. How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.“There was very broad support on the committee for having on the table the idea of doing additional rate increases of that magnitude at each of the next two meetings,” Mr. Powell said. “That’s short of a prediction.”While Mr. Powell emphasized the economic outlook is very uncertain, he and his colleagues have suggested that they want to push interest rates up to a neutral setting — a place where they are neither stoking nor slowing growth — “expeditiously.” But Mr. Powell suggested that officials are willing to raise rates beyond that if it is necessary to do so to control inflation.“We won’t hesitate at all to do that,” he said. “We will go until we feel like we’re at a place where we can say, ‘Yes, financial conditions are at an appropriate place, we see inflation coming down.’”The Fed chair said that the central bank can no longer simply hope that supply chain issues improve and help inflation to fade, and that it has to instead be proactive in trying to restrain prices by cooling down the economy.“We clearly have a job to do on demand — there is an imbalance in the economy broadly between demand and supply,” Mr. Powell said. He pointed in particular to the labor market, where workers are in short supply and wages are rising swiftly as employers compete to hire them.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Retail sales rise for the fourth straight month as prices keep climbing.

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    Retail sales rose 0.9 percent in April, increasing for the fourth consecutive month, as consumer prices continue to escalate at their fastest pace in four decades.The increase in spending in the United States last month follows a revised 1.4 percent month-over-month gain in March, when prices for gasoline soared amid Russia’s invasion of Ukraine. Gas prices cooled down slightly in April but were still at elevated levels, while oil prices remain volatile.Consumers pulled back on spending at gas stations, where sales fell 2.7 percent in April, the Commerce Department reported on Tuesday, and the report showed that shopping at grocery stores and building material stores dropped last month.Sales at restaurants and bars were up 2 percent in April, while spending at department stores was up 0.2 percent. Spending at car dealers, which has been hampered by supply chain disruptions and a global computer chip shortage, rose 2.2 percent last month.Economists are laser-focused on upcoming reports on spending because they serve as indicators of how consumers are grappling with inflation and higher interest rates.“Despite the surge in prices weighing on their purchasing power, the U.S. consumer now appears to be single-handedly keeping the global economy afloat,” Paul Ashworth, an economist at Capital Economics, wrote in a note.The Commerce Department’s new data, which isn’t adjusted for inflation, was an early estimate of spending during a month when prices rose 0.3 percent from the prior month. The rapid pace of inflation has led companies to raise prices for their goods to cover the higher costs of commodities, labor and transportation. Companies like PepsiCo and Coca-Cola have introduced higher prices for their products, and airfares are also climbing.To combat inflation, the Federal Reserve started lifting interest rates from near zero in March. Economists are worried that if interest rates are raised too fast, the move could lead the economy into a recession by slowing down consumer demand too much.“To the extent that markets are worried about a growth slowdown, this is good news,” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, wrote in a note, referring to Tuesday’s report. “But it is also a further catalyst for the Fed to raise rates even higher, in order to get inflation under control.” More

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    What Higher Interest Rates Could Mean for Jobs

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    Layoffs are up only minimally, and employers may be averse to shedding workers after experiencing the challenges of rehiring.The past year has been a busy one for nearly every industry, as a reopening economy has ignited a war for talent. Unless, of course, your business is finding jobs for laid-off workers.“For outplacement, it’s been a very slow time,” said Andy Challenger, senior vice president of the career transition firm Challenger, Gray & Christmas. But lately, he has been getting more inquiries, in a sign that the market might be about to take a turn. “We’re starting to gear up for what we anticipate to be a normalization where companies start to let people go again.”Spurred by red-hot inflation fueled partly by competition for scarce labor, the Federal Reserve has begun raising interest rates in an effort to cool off the economy before it boils over. By design, that means slower job growth — ideally in the form of a steady moderation in the number of openings, but possibly in pink slips, too.It’s not yet clear what that adjustment will look like. But one thing does seem certain: Job losses would have to mount considerably before workers would have a hard time finding new positions, given the backlogged demand.So far, the labor market has revealed some clues about what might lie ahead.Challenger’s data, for example, shows that announced job cuts rose 6 percent in April over the same month in 2021. While still far below levels seen earlier in 2020, it was the first month in 2022 to have a year-over-year increase, and followed a 40 percent jump in March over the previous month. Some of those layoffs were idiosyncratic: More than half the layoffs in health care in the first third of this year resulted from workers’ refusal to obey vaccine mandates, with some of the rest stemming from the end of Covid-19-related programs.But other layoffs seem directly related to the Fed’s new direction. Nearly 8,700 people in the financial services sector lost jobs from January through April, Challenger found, mostly in mortgage banking. Rising rates for home loans have torpedoed demand for refinances, while prospective buyers are increasingly being priced out.Theoretically, a Fed-driven housing slowdown might in turn tamp down demand for construction workers. But builders bounced back strongly after a dip in 2020 and have only accelerated since. The National Association of Home Builders estimates that the industry needs to hire 740,000 people every year just to keep up with retirements and growth. Even if housing starts fell off, homeowners feeling flush as their equity has risen would snap up available workers to add third bedrooms or new cabinets.“A big national builder that’s concentrated in a high-cost market, and all they do is single-family exurban construction, yeah, they may have layoffs,” said the association’s chief economist, Robert Dietz. “But then remodelers would come along and say, ‘Oh, here’s some trained electricians and framers, let’s go get them.’”The National Association of Home Builders estimates that the industry needs to hire 740,000 people every year just to keep up with retirements and growth.Matt Rourke/Associated PressAnother sector that is typically sensitive to the cost of credit is commercial construction, which sustained deep losses as office development came to a screeching halt during the pandemic. Nevertheless, cash-rich clients have plowed ahead with industrial projects like power plants and factories, while federal investment in infrastructure has only begun to make its way into procurement processes.“I think that lending rates might be less important right now,” said Kenneth D. Simonson, chief economist for the Associated General Contractors of America. “An increase in either credit market or bank rates isn’t sufficient to choke off demand for many types of projects.”The tech sector, which feeds on venture capital that is more abundant in low-interest-rate environments, has drooped in recent months. Under pressure to burn less cash, some companies are looking to offshore jobs that before the pandemic they thought needed to be done on site, or at least in the country.“We’ve seen several of our clients in the high-growth technology space quickly shift their focus to reducing cost,” said Bryce Maddock, the chief executive of the outsourcing company TaskUs, discussing U.S. layoffs on an earnings call last week. “Across all verticals, the operating environment has led to an acceleration in our clients’ demand for growth in offshore work and a decrease in demand for onshore work.”In the broader economy, however, any near-term layoffs might occur on account of forces outside the Fed’s control: namely, the exhaustion of federal pandemic-relief spending, and a natural waning in demand for goods after a two-year national shopping spree. That could hit manufacturing and retail, as consumers contemplate their overfilled closets. Spending on long-lasting items has fallen for a couple months in a row, even before adjusting for inflation.If spending on durable goods declines sharply, “I could easily see that creating a recession, because suppliers would be stuck with a massive amount of inventory that they wish they didn’t have, and people employed that they wish they didn’t,” said Wendy Edelberg, director of the Hamilton Project, an economic policy arm of the Brookings Institution. “Even there, it’s going to be hard to know how much was that the Fed raised interest rates, and how much was the extraordinary surge in demand for goods unwinding.”In general, if the Fed’s path of tightening does prompt firms to downsize, that’s likely to be bad news for Black, Hispanic and female workers with less education. Research shows that while a hot labor market tends to bring in people who have less experience or barriers to employment, those workers are also the first to be let go as conditions worsen — across all industries, not just in sectors that might be hit harder by a recession.So far, initial claims for unemployment benefits remain near prepandemic lows, at around 200,000 per week. But some economists worry that they might not be as good a signal of impending trouble in the labor market as they used to be.The share of workers who claim unemployment, known as the “recipiency rate,” has declined in recent decades to only about a third of those who lose jobs. These days, any laid-off workers might be finding new jobs quickly enough that they don’t bother to file. And the pandemic may have further scrambled people’s understanding of whether they’re eligible.“One possibility is that people are going to think that because they haven’t worked long enough, because they switched employers or stopped working for a period of time, that this would make them ineligible, and they’re going to assume that they can’t get it again,” said Kathryn Anne Edwards, a labor economist at the RAND Corporation. (The other possibility is that the temporary supplements to unemployment insurance during the pandemic might have introduced more people to the system, leading to more claims rather than fewer.)One good sign: Employers may have learned from previous recessions that letting people go at the first sign of a downturn can wind up having a cost when they need to staff up again. For that reason, managers are trying harder to redeploy people within the company instead.John Morgan, president of the outplacement firm LHH, said that while he was getting more inquiries from companies preparing to downsize, he did not expect as large a surge as in past cycles.“Even if they’re driving down on profits, a lot of our customers are trying to avoid the ‘fire and rehire’ playbook of the past,” Mr. Morgan said. “How can they invest in upskilling and reskilling and move talent they have inside the organization? Because it’s just really hard to acquire new talent right now, and incredibly expensive.” More

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    Treasury Secretary Yellen Looks to Get Global Tax Deal Back on Track

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    The Treasury secretary is traveling to Warsaw, Brussels and Bonn, Germany, this week at an uncertain time for the global economy.WARSAW — Treasury Secretary Janet L. Yellen arrived in Europe this week to join U.S. allies in confronting multiple threats to the world economy: Russia’s war in Ukraine, soaring inflation and food shortages.But one of Ms. Yellen’s first orders of business during a stop in Poland will be trying to get the global tax deal that she brokered last year back on track after months of fledgling deliberations about how to enact it. The two-pronged pact among more than 130 countries that was reached last October aimed to eliminate corporate tax havens by enacting a 15 percent global minimum tax. It would also shift taxing rights among countries so that corporations pay taxes based on where their goods and services are sold rather than where their headquarters are.Turning the agreement into a reality is proving to be a steep challenge.The European Union has already delayed its timeline for putting the tax changes in place by a year and progress has been halted over objections by Poland, which last month vetoed a plan to enact the new tax rate by the end of next year. Despite initially signing on to the deal, Poland has voiced reservations, including whether the minimum tax will actually prevent big tech companies from seeking out lower-tax jurisdictions. Polish officials have also expressed concern that the two parts of the tax agreement are moving ahead at different paces, as well as trepidation about the impact that raising its tax rate will have on its economy at a time when the country is absorbing waves of Ukrainian refugees.In meetings in Warsaw on Monday, Ms. Yellen pressed top Polish officials to let the process move ahead, making clear that the tax deal continues to be a priority of the United States. She is meeting with Poland’s prime minister, Mateusz Morawiecki, and the finance minister, Magdalena Rzeczkowska.According to the Treasury Department, Ms Yellen told Mr. Morawiecki that international tax reform and the global minimum tax would raise crucial revenues to benefit the citizens of both Poland and the United States.The meetings come at the beginning of a weeklong trip that also includes stops in Brussels and Bonn, Germany, which is hosting the Group of 7 finance ministers’ summit. Ms. Yellen will be focusing on coordinating sanctions against Russia with European allies and addressing growing concerns about how disruptions to energy and food supplies could affect the global economy.Poland’s finance minister, Magdalena Rzeczkowska, former head of the country’s tax agency. Her country has raised concerns over potential loopholes and the impact of the global tax plan.Radek Pietruszka/EPA, via ShutterstockThe tax agreement has been one of Ms. Yellen’s top priories as Treasury secretary. Gaining Poland’s support is critical because the European Union requires consensus among its member states to enact the tax changes.“I think the reality of turning a political commitment into binding domestic legislation is a lot more complex,” said Manal Corwin, a Treasury official in the Obama administration who now heads the Washington national tax practice at KPMG. “The E.U. has moved and gotten over most of the objections, but they still have Poland and it’s not clear whether they’re going to be able to get the last vote.”With President Emmanuel Macron of France heading the European Union’s rotating presidency until June, his administration was eager to get a deal implemented. But at a meeting of European finance ministers in early April, Poland became the sole holdout, saying there were no ironclad guarantees that big multinational companies wouldn’t still be able to take advantage of low-tax jurisdictions if the two parts of the agreement did not move ahead in tandem, undercutting the global effort to avoid a race to the bottom when it comes to corporate taxation.Poland’s stance was sharply criticized by European officials, particularly France, whose finance minister, Bruno Le Maire, suggested that Warsaw was instead holding up a final accord in retaliation for a Europe-wide political dispute. Poland has threatened to veto measures requiring unanimous E.U. votes because of an earlier decision by Brussels to block pandemic recovery funds for Poland.The European Union had refused to disburse billions in aid to Poland since late last year, citing separate concerns over Warsaw’s interference with the independence of its judicial system. Last week, on the eve of Ms. Yellen’s visit to Poland, the European Commission came up with an 11th-hour deal unlocking 36 billion euros in pandemic recovery funds for Poland, which pledged to meet certain milestones such as judiciary and economic reforms, in return for the money.Negotiators from around the world have been working for months to resolve technical details of the agreement, such as what kinds of income would be subject to the new taxes and how the deal would be enforced. Failure to finalize the agreement would likely mean the further proliferation of the digital services taxes that European countries have imposed on American technology giants, much to the dismay of those firms and the Biden administration, which has threatened to impose tariffs on nations that adopt their own levies.“It’s fluid, it’s moving, it’s a moving target,” Pascal Saint-Amans, the director of the center for tax policy and administration at the Organization for Economic Cooperation and Development, said of the negotiations at the D.C. Bar’s annual tax conference this month. “There is an extremely ambitious timeline.”Countries like Ireland, with a historically low corporate tax rate, have been wary of increasing their rates if others do not follow suit, so it has been important to ensure that there is a common understanding of the new tax rules to avoid opening the door to new loopholes.“The idea of having multiple countries put the same rules in place is a new concept in tax,” said Barbara Angus, the global tax policy leader at Ernst & Young and a former chief tax counsel on the House Ways and Means Committee. She added that it was important to have a multilateral forum so countries could agree on how to interpret and apply the levies.Yet, while Ms. Yellen is pushing foreign nations to adopt the tax agreement, it remains unclear whether the United States will be able to pass its own legislation to come into compliance.An earlier effort by House Democrats to adopt a tax plan that would satisfy terms of the agreement fell apart in the Senate, where Democrats continue to disagree over the scope and cost of a tax and spending bill that President Biden has proposed.Rep. Kevin Brady of Texas, the ranking member on the House Ways and Means Committee, has led Republican opposition to an international tax agreement, saying it makes the United States “less competitive.”Anna Moneymaker/Getty ImagesRepublicans in Congress have made clear that they are unlikely to support any agreement that the Biden administration has brokered and called on the Treasury Department to consult with them before trying to move ahead.“As it is, there’s very little chance of a global minimum tax agreement — there is already resistance to approval at the E.U., which should be the easiest part of these discussions, and it will only get harder going forward,” said Representative Kevin Brady of Texas, the top Republican on the House Ways and Means Committee. “Meanwhile, here in the U.S., there’s little political support for an agreement that makes the U.S. less competitive and takes a big bite out of our tax base.”Ms. Yellen is expected to convey to her counterparts this week that the agreement is still a priority for the Biden administration and that she hopes that the United States can make the tax changes needed to comply with the agreement in a small spending package later this year, according to a person familiar with the negotiations. 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    Stocks Return to Earth, With the S&P 500 Nearing a Bear Market

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    Until very recently, the stock market seemed to defy gravity, producing double-digit returns that provided many Americans with financial comfort even as everything else crumbled around them.When the pandemic began upending society, the market sank for a few weeks and then recorded one of the greatest rallies in history. Stock prices rose the day rioters breached the U.S. Capitol, and they were up during the week that protests roiled many American cities after the murder of George Floyd. During this time of great upheaval, the market seemed to flash a contrarian signal that things were going to be OK — economically, at least.But real world problems have finally crashed the stock market’s party. Soaring inflation, fueled by rising food prices and the war in Ukraine, has prompted the Federal Reserve to raise interest rates significantly for the first time in many years, which has sent stock prices plummeting to earth.Stocks rose 2.4 percent on Friday, but not enough to make up for a week of declines. It was the sixth consecutive week of losses for the stock market, the first time that has happened since 2011. The S&P 500, which has been flirting with a bear market, or a drop of 20 percent, is down more than 16 percent since its peak in January. It may fall further as inflation persists and a recession looms.Even after the bleeding stops, stock market investors, who include more than 50 percent of Americans, could face years of relatively meager returns that will leave them with substantially less money to pay for their children’s college education and support themselves in retirement.This reckoning comes just months before the midterm elections, deepening problems for Democrats who are already struggling to convince voters that their party and President Joseph R. Biden are steering the economy on the right track.Former President Donald J. Trump often took credit for the stock market’s meteoric rise. Now, Mr. Biden and his party will almost certainly take some of the blame for its recent fall.In reality, the stock market is not a perfect measure of the real economy. Unemployment is low and consumer spending is still holding up, but more than a month of punishing losses can damage the country’s financial psyche.“People look at the stock market as a barometer of the economy and how they are faring financially,” said Mark Zandi, chief economist at Moody’s Analytics. “They feel good when they see green on the screen and crummy when they see red.”Years of low rates have been rocket fuel for stock prices, partly because other investments, like bonds, that are pegged to interest rates produce such minimal returns. The stock market became one of the few places where investors could make big money.Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.Interest Rates: As it seeks to curb inflation, the Federal Reserve began raising interest rates for the first time since 2018. Here is what the increases mean for consumers.State Intervention: As inflation stays high, lawmakers across the country are turning to tax cuts to ease the pain, but the measures could make things worse. How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.During the pandemic, rates went even lower, as policymakers sought to support businesses and consumers through the shutdowns — and it worked. Investors piled into companies’ stocks and kept them flush with capital, which allowed them to keep hiring, paying rent, ramping up production and, of course, rewarding shareholders with ample dividends and stock buybacks.But inflation, which puts a heavy burden on families trying to make ends meet, also helped kill the market’s mood. Steadily rising food costs and record high gasoline prices prompted the Fed to raise rates and try to slow the economy.The stock price of Alphabet, Google’s parent, is down about 20 percent since the start of the year.Laura Morton for The New York TimesWall Street has been expecting this moment to come for a long time. But the market’s reaction — which some refer to as a “reset” and others call a necessary “comeuppance” for stock investors — is painful nonetheless.“I don’t think people recognized how fragile of a foundation the stock market was resting on,” said Emily Bowersock Hill, founder of Bowersock Capital Partners and chairwoman of the investment committee of the Kansas Public Employees Retirement System, a pension fund with more than $20 billion.Ms. Hill said some of the declines were probably good for the market because it was clearing out the froth that created the conditions for “meme stocks”: companies with dubious business prospects like AMC Theatres, BlackBerry and Bed Bath & Beyond, whose share prices were driven up by speculators.But the downdraft has sunk the share prices of companies that represent innovation and the future, too; Amazon is down more than 30 percent since the start of the year and Alphabet, Google’s parent, is off about 20 percent, as investors rethink those companies’ real value.Virtually no stocks have been spared from losses. The market decline has “gone on and on, and it’s depressing,” Ms. Hill said.Perhaps no one understood that emotional symbolism of the market better than Mr. Trump.“The reason our stock market is so successful is because of me,” Mr. Trump said in November 2017 — one of many statements in which he boasted about rising stock prices or publicly pressured the Fed to further lower interest rates to juice the economy.Early in the pandemic, in April 2020 — with stores, offices and churches shut, children marooned at home attempting remote school, and morgues running out of space for virus victims — Mr. Trump tweeted that the United States had “the biggest Stock Market increase since 1974.”While a majority of Americans have some money invested in the stock market, it remains a rich person’s game. According to an analysis by the New York University economics Professor Edward Wolff, the top 5 percent of American wealth holders own 72 percent of all stocks.But the stock market’s symbolic value matters. “It’s the one story that makes the news every night,” said Richard Sylla, a professor emeritus of economics at New York University’s Stern School of Business.Is the market up or down? Are we winning or losing today, this week, this year, this presidency?On Friday, the University of Michigan’s consumer sentiment index fell lower than expected, a drop that some economists attribute partly to stock market losses. The index is now 13 points below the low when Covid first hit, noted Ian Shepherdson, chief U.S. economist at Pantheon Macroeconomics. Such deep pessimism “suggests that people have short memories,” Mr. Shepherdson wrote in a research note.It also suggests trouble for the Biden administration. Not only is the stock market party ending under President Biden’s watch, it could be a while before another one gets going.“Now nobody is going to be getting much richer from stocks,” one market historian predicts.Gili Benita for The New York TimesMr. Sylla, who co-wrote a book about the history of interest rates and tracked two centuries of stock market returns, correctly predicted in September 2011 that the coming decade would produce high returns.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Cryptocurrencies Melt Down in a ‘Perfect Storm’ of Fear and Panic

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    A steep sell-off that gained momentum this week starkly illustrated the risks of the experimental and unregulated digital currencies.SAN FRANCISCO — The price of Bitcoin plunged to its lowest point since 2020. Coinbase, the large cryptocurrency exchange, tanked in value. A cryptocurrency that promoted itself as a stable means of exchange collapsed. And more than $300 billion was wiped out by a crash in cryptocurrency prices since Monday.The crypto world went into a full meltdown this week in a sell-off that graphically illustrated the risks of the experimental and unregulated digital currencies. Even as celebrities such as Kim Kardashian and tech moguls like Elon Musk have talked up crypto, the accelerating declines of virtual currencies like Bitcoin and Ether show that, in some cases, two years of financial gains can disappear overnight.The moment of panic amounted to the worst reset in cryptocurrencies since Bitcoin plummeted 80 percent in 2018. But this time, the falling prices have broader impact because more people and institutions hold the currencies. Critics said the collapse was long overdue, while some traders compared the alarm and fear to the start of the 2008 financial crisis.“This is like the perfect storm,” said Dan Dolev, an analyst who covers crypto companies and financial technology at the Mizuho Group.During the coronavirus pandemic, people have flooded into virtual currencies, with 16 percent of Americans now owning some, up from 1 percent in 2015, according to a Pew Research Center survey. Big banks like Northern Trust and Bank of America also streamed in, along with hedge funds, some using debt to further juice their crypto bets.Early investors are still probably in a comfortable position. But the rapid declines this week have been especially acute for investors who bought cryptocurrencies when prices surged last year.The fall in cryptocurrencies is part of a broader pullback from risky assets, spurred by rising interest rates, inflation and economic uncertainty caused by Russia’s invasion of Ukraine. Those factors have compounded a so-called pandemic hangover that began as life started returning to normal in the United States, hurting the stock prices of companies like Zoom and Netflix that thrived during lockdowns.But crypto’s decline is more severe than the broader plunge in the stock market. While the S&P 500 is down 18 percent so far this year, Bitcoin’s price has dropped 40 percent in the same period. In the last five days alone, Bitcoin has tumbled 20 percent, compared to a 5 percent decline in the S&P 500.Crypto Experiences a Broad Collapse1-year change in the value of cryptocurrencies

    Prices are through 6 p.m. Eastern time on May 12.Source: CoinMarketCapBy The New York TimesHow long crypto’s collapse might last is unclear. Cryptocurrency prices have typically rebounded from major losses, though in some cases it took several years to reach new heights.“It’s hard to say, ‘Is this Lehman Brothers?’” said Charles Cascarilla, a founder of the blockchain company Paxos, referring to the financial services firm that went bankrupt at the start of the 2008 financial crisis. “We’re going to need some more time to figure it out. You can’t respond at this type of speed.”The origins of cryptocurrencies trace back to 2008, when a shadowy figure calling himself Satoshi Nakamoto created Bitcoin. The virtual currency was portrayed as a decentralized alternative to the traditional financial system. Rather than relying on gatekeepers like banks to facilitate commerce, Bitcoin proponents preferred to conduct transactions among themselves, recording each one on a shared ledger called a blockchain.Prominent tech leaders including Mr. Musk, Jack Dorsey, a founder of Twitter, and Marc Andreessen, an investor, embraced the technology as it grew from a novel curiosity into a cultlike movement. The value of cryptocurrencies exploded, minting a new class of crypto billionaires. Other forms of cryptocurrency, including Ether and Dogecoin, captured the public’s attention, particularly in the pandemic, when excess cash in the financial system led people to day trade for entertainment.Cryptocurrency prices reached a peak late last year and have since slid as fears over the economy grew. But the meltdown gathered momentum this week when TerraUSD, a stablecoin, imploded. Stablecoins, which are meant to be a more reliable means of exchange, are typically pegged to a stable asset such as the U.S. dollar and are intended not to fluctuate in value. Many traders use them to buy other cryptocurrencies.TerraUSD had the backing of credible venture capital firms, including Arrington Capital and Lightspeed Venture Partners, which invested tens of millions of dollars to fund crypto projects built on the currency. That gave “a false sense of security to people who might not otherwise know about these things,” said Kathleen Breitman, one of the founders of Tezos, a crypto platform.But TerraUSD was not backed by cash, treasuries or other traditional assets. Instead, it derived its supposed stability from algorithms that linked its value to a sister cryptocurrency called Luna.This week, Luna lost almost its entire value. That immediately had a knock-on effect on TerraUSD, which fell to a low of 23 cents on Wednesday. As investors panicked, Tether, the most popular stablecoin and a linchpin of crypto trading, also wavered from its own $1 peg. Tether fell as low as $0.95 before recovering. (Tether is backed by cash and other traditional assets.)The volatility quickly drew attention in Washington, where stablecoins have been on regulators’ radar. Last fall, the Treasury Department issued a report calling on Congress to devise rules for the stablecoin ecosystem.“We really need a regulatory framework,” Treasury Secretary Janet Yellen said at a congressional hearing on Thursday. “In the last couple of days, we’ve had a real-life demonstration of the risks.”Stablecoins “present the same kinds of risks that we have known for centuries in connection with bank runs,” she added.Workers installing a cryptocurrency mining data center in Medley, Fla.Rose Marie Cromwell for The New York TimesOther parts of the crypto ecosystem soured at the same time. On Tuesday, Coinbase, one of the largest cryptocurrency exchanges, reported a $430 million quarterly loss and said it had lost more than two million active users. The company’s stock price has plunged 82 percent since its triumphant market debut in April 2021.A Guide to CryptocurrencyCard 1 of 9A glossary. More

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    Jerome Powell Confirmed for a Second Term as Fed Chair

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    Jerome Powell, whom the Senate confirmed to a second term on Thursday, said allowing rapid inflation to persist would be more painful.Jerome H. Powell, the Federal Reserve chair, said in an interview on Thursday that lowering inflation is likely to be painful but that allowing price gains to persist would be the bigger problem — squaring off with the major challenge facing his central bank as he officially starts his second term at its helm.Mr. Powell, whom Senators confirmed to a second four-year term at the head of the central bank in an 80-19 vote on Thursday, holds one of most consequential jobs in the United States and the world economy at a moment of rapid inflation and deep uncertainty.Consumer prices climbed 8.3 percent in April from the previous year, according to data reported on Wednesday. And while inflation eased slightly on an annual basis, it remained near the fastest pace in 40 years, and the details of the release suggested that price pressures continue to run hot.The Fed has already begun raising interest rates to try and cool the economy, making its largest increase since 2000 when it lifted borrowing costs by half a percentage point this month. Mr. Powell and his colleagues have signaled that they will continue to push rates higher as they try to restrain spending and hiring, hoping to bring demand and supply into balance and drive inflation lower.Mr. Powell suggested Thursday in an interview with Marketplace that an even bigger 0.75 percentage point interest rate increase, though not under consideration at the moment, could be appropriate if economic data come in worse than officials expect.“The process of getting inflation down to 2 percent will also include some pain, but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched in the economy at high levels,” Mr. Powell also said. “That’s just people losing the value of their paycheck to high inflation and, ultimately, we’d have to go through a much deeper downturn.”Mr. Powell, who was chosen as a Fed governor by former President Barack Obama and then elevated to chair by former President Donald J. Trump, was renominated by President Biden late last year.Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.Interest Rates: As it seeks to curb inflation, the Federal Reserve began raising interest rates for the first time since 2018. Here is what the increases mean for consumers.State Intervention: As inflation stays high, lawmakers across the country are turning to tax cuts to ease the pain, but the measures could make things worse. How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.Though he has been popular among lawmakers for much of his tenure, several Republicans and Democrats voted against the nomination. Senator Robert Menendez, Democrat from New Jersey, cited the central bank’s failure to promote Latino leaders. Senator Richard Shelby, Republican of Alabama, cited high inflation in opposing Mr. Powell, posting on Twitter that “we should not reward failure.”Inflation is likely to be the defining challenge of Mr. Powell’s second term. As Mr. Shelby’s comments suggest, the Fed has been criticized for responding too slowly to rapid price gains last year. Mr. Powell has emphasized that policymakers did the best they could with the data in hand.“If you had perfect hindsight, you’d go back and it probably would have been better for us to have raised rates a little sooner,” Mr. Powell said in his interview with Marketplace. “I’m not sure how much difference it would have made, but we have to make decisions in real time, based on what we know then, and we did the best we could.”With Mr. Powell’s confirmation, Mr. Biden has now appointed four of the Fed’s seven governors in Washington, putting his imprimatur on the central bank at a crucial moment.The Senate last month confirmed Lael Brainard, formerly a Fed governor, as Mr. Biden’s choice for the Fed’s vice chair, an influential position within the central bank.This week, the Senate confirmed two other new Fed governors — Lisa D. Cook and Philip N. Jefferson. Mr. Biden has also nominated Michael S. Barr as the new vice chair for supervision, and his confirmation hearing before the Senate Banking Committee is scheduled for next week.Ms. Brainard and Mr. Powell have long been aligned on policy, and the Fed’s newest governors — Ms. Cook and Mr. Jefferson — indicated during their confirmation hearings that they, too, are focused on fighting inflation. Fed officials view stable prices as a crucial building block for sustainable economic growth.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Senate Confirms Philip Jefferson as a Fed Governor

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    Philip N. Jefferson, a college administrator and academic economist, was confirmed to the Federal Reserve’s Board of Governors on Wednesday.Senators approved him for the job in an overwhelming bipartisan 91-7 vote. He is the third of President Biden’s nominees to secure a spot on the Fed’s seven-person board: Lisa D. Cook was confirmed as a governor on Tuesday, and Lael Brainard was confirmed as vice chair last month.Mr. Jefferson, who was most recently vice president for academic affairs at Davidson College, was born in Washington, D.C., and holds a Ph.D. in economics from the University of Virginia. He has been an economist at the Fed board, and has written about poverty and monetary policy’s effect on the labor market, among other topics.The White House has also renominated Jerome H. Powell as Fed chair, though Mr. Powell is still awaiting a final confirmation vote. Senators said that vote was expected as soon as Thursday.The administration’s nominee for the final open Fed job — the vice chair for supervision — has yet to have a committee hearing and vote. Mr. Biden’s initial nominee for the position, Sarah Bloom Raskin, withdrew from consideration after it became clear that she would not pass the Senate. Michael S. Barr was put up for the job more recently.If those picks are confirmed, Mr. Biden will have nominated or renominated five of the Fed’s seven governors. The Fed is independent of politics, so those appointments are the main way that the White House can shape the future of monetary policy, which is used to keep inflation stable and employment high.Governors at the Fed’s board in Washington hold constant votes on monetary policy and oversee the nation’s largest banks. They set interest rates to guide the economy alongside 12 regional reserve bank presidents, five of whom hold a vote on monetary policy at any given time.Mr. Jefferson and Ms. Cook are likely to support the Fed’s current project: reining in rapid inflation. Consumer prices climbed 8.3 percent in the year through April, data released Wednesday showed, an uncomfortably rapid pace of increase. Fed officials are raising rates at the fastest pace in decades as they try to tamp down price pressures and bring the situation under control.“The spike in inflation we are seeing today threatens to heighten expectations of future inflation,” Mr. Jefferson said during his confirmation hearing. “The Federal Reserve must remain attentive to this risk and ensure that inflation declines to levels consistent with its goals.” More