Fed gets more aggressive in inflation battle

The Federal Reserve on Wednesday pulled the trigger on its largest interest rate increase in nearly three decades and signaled that it would raise borrowing costs this year more than anticipated, with blistering-hot inflation showing no signs of abating.

The Fed’s aggressive actions have raised fears that the central bank might cause a recession in its bid to tamp down the worst price spikes in four decades, though the policymakers themselves are hoping to avoid that outcome. But they are predicting some economic pain regardless, expecting the unemployment rate, now near modern-era lows at 3.6 percent, to tick up over the next few years.

The Fed also projects the U.S. economy will grow 1.7 percent both in 2022 and 2023, a significant downgrade from the 2.8 percent and 2.2 percent rates they forecast for those years in March.

The Fed’s moves are expected to darken an already grim national mood and could lead to a more serious electoral throttling for Democrats in the midterms. But the central bank is betting that more assertive steps now will prevent even more economic pain later.

The policymakers had let it be known for weeks that they were planning to hike rates by half a percentage point, but after a widely watched inflation report on Friday came in worse than expected, they quickly pivoted to take more drastic action — a rare move by the central bank.

After hiking rates by three-quarters of a percentage point on Wednesday, the Fed’s main policy rate sits between 1.5 percent and 1.75 percent, still near historic lows.

Over the remaining four meetings this year, the policymakers expect to raise their key rate to between 3.25 percent and 3.5 percent — much higher than where they previously expected to go.

Despite laying out a steeper path for interest rates, Fed officials don’t expect to kill price spikes this year, as Russia’s invasion of Ukraine and Covid-related lockdowns in China further inflame the consumer price inflation that gathered momentum last year. They now expect prices, as measured by the personal consumption expenditures price index, to increase 5.2 percent in 2022, compared to their earlier hopes for 4.3 percent.

But they project inflation to drop to 2.6 percent in 2023. The Fed’s target rate is 2 percent.

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  • 1 неделя, 5 дней назад 15.06.2022Economy
    News The Buckshee

    The Federal Reserve is poised to send a message to the American people that it has the worst inflation in 40 years under control.

    But the signal that many investors and economists are taking from the central bank is less reassuring: A recession could come as early as this year.

    Fears of an economic slump are mounting as Fed officials gather in Washington to consider raising interest rates higher than expected to battle price spikes. Central bank policymakers had let it be known for weeks that they were planning to hike rates by half a percentage point; now, things are so dire that they might do three-quarters of a point, a move not taken in almost 30 years.

    What’s driven the Fed to consider cranking up borrowing costs was an inflation report that defied expectations by coming in hotter than expected, as well as surveys showing that consumers have raised their expectations for how much prices will surge over the next year.

    “They want to make sure inflation doesn’t get entrenched,” said Diane Swonk, chief economist at Grant Thornton, who says the Fed’s actions may trigger a recession. “The question is, when do you stop? They won’t know they’ve gone too far until they’ve already gotten there.”

    Consumer confidence has been sinking — one influential survey shows it has fallen to its lowest level on record — as faith in the Fed and the Biden administration has been shaken. Fed Chair Jerome Powell and President Joe Biden spent much of last year declaring that price spikes were “transitory” before retreating from that stance as inflation persisted, stoked by strong consumer spending, snarled supply chains and rising food and energy costs.

    The fear is that the Fed waited too long to squeeze borrowing costs, so it now has to compensate by jamming on the brakes too hard, risking a recession.

    “We’ve built ourselves a stagflationary kind of situation,” former Treasury Secretary Larry Summers said in a recent interview on Bloomberg TV, referring to an environment of both high inflation and stagnant growth. “A soft landing is not going to be easy.”

    Even if the country avoids a recession, the Fed’s efforts are likely to reduce the number of job openings, slow wage growth, increase debt burdens for corporations and continue to send mortgage rates soaring.

    And if the economy begins to contract before the end of the year, it could have far-reaching consequences for the makeup of Congress.

    “The dour national mood — only exacerbated by the worsening of inflation and now the selloff in the stock market — likely only confirms the conventional wisdom that Democrats are poised to lose the House,” said Libby Cantrill, head of public policy at asset manager PIMCO. “The real question will be by what margin.”

    For now, investors and lenders are trying to figure out how high the Fed will ultimately decide to raise interest rates, a calculation that then immediately begins affecting their behavior even before the central bank follows through. Indeed, the rates on loans to businesses and on what the U.S. government borrows have shot up steeply since last week, while soaring mortgage rates are quickly cooling down the once-blistering-hot housing market.

    “Financial conditions have tightened to a shocking degree in the last four days,” said Jason Furman, a professor at Harvard University and former chief economist to President Barack Obama. “That might paradoxically mean that tomorrow marks the end” of market-driven increases in borrowing costs — unless the Fed signals it could hike even higher than markets expect.

    Those market moves will take time to feed into economic activity, but “when you move faster sooner” it speeds up how quickly a recession might ensue, Swonk said.

    Higher debt costs could also trigger a wave of bankruptcies from companies that have been able to keep making payments because interest rates have been so low for so long. In a worst-case scenario, lenders could pull back sharply.

    Whether the Fed will further increase market expectations for how high borrowing costs will go depends on incoming data; its contemplation of a bigger rate increase came after Friday’s Consumer Price Index suggested that prices aren’t slowing down. A key indicator on Tuesday also showed costs are soaring for companies, particularly energy, offering little hope for price relief in the short term.

    Meanwhile, activist organizations convened by the Fed Up Campaign gathered outside Fed headquarters on Tuesday to urge policymakers not to forget about the job market in their bid to bring down inflation.

    Lindsay Owens, executive director of progressive think tank Groundwork Collaborative, told the crowd that rate increases would do little to bring down inflation that is now being driven by factors outside the Fed’s control, like Russia’s invasion of Ukraine and factory lockdowns in China.

    “The only thing worse than high inflation and low unemployment is high inflation and high unemployment,” she said at a press conference. “If our monetary policy brings a massive slowdown of the economy, we’re all going to pay the price.”

  • 2 недели, 3 дня назад 10.06.2022Economy
    U.S. inflation hit a new 40-year high last month of 8.6 percent

    The costs of gas, food and other necessities jumped in May, raising inflation to a new four-decade high and giving American households no respite from rising costs.

    Consumer prices surged 8.6 percent last month from 12 months earlier, faster than April’s year-over-year surge of 8.3 percent, the Labor Department said Friday.

    On a month-to-month basis, prices jumped 1 percent from April to May, a steep rise from the 0.3 percent increase from March to April. Much higher gas prices were to blame for most of that increase.

    America’s rampant inflation is imposing severe pressures on families, forcing them to pay much more for food, gas and rent and reducing their ability to afford discretionary items, from haircuts to electronics. Lower-income and Black and Hispanic Americans, in particular, are struggling because, on average, a larger proportion of their income is consumed by necessities.

    Economists do expect inflation to ease this year, though not by very much. Some analysts have forecast that the inflation gauge the government reported Friday — the consumer price index — may drop below 7 percent by year’s end. In March, the year-over-year CPI reached 8.5 percent, the highest such rate since 1982.

    High inflation has also forced the Federal Reserve into what will likely be the fastest series of interest rate hikes in three decades. By raising borrowing costs aggressively, the Fed hopes to cool spending and growth enough to curb inflation without tipping the economy into a recession. For the central bank, it will be a difficult balancing act.

    Surveys show that Americans see high inflation as the nation’s top problem, and most disapprove of President Joe Biden’s handling of the economy. Congressional Republicans are hammering Democrats on the issue in the run-up to midterm elections this fall.

    Inflation has remained high even as the sources of rising prices have shifted. Initially, robust demand for goods from Americans who were stuck at home for months after Covid hit caused shortages and supply chain snarls and drove up prices for cars, furniture and appliances.

    Now, as Americans resume spending on services, including travel, entertainment and dining out, the costs of airline tickets, hotel rooms and restaurant meals have soared. Russia’s invasion of Ukraine has further accelerated the prices of oil and natural gas. And with China easing strict Covid lockdowns in Shanghai and elsewhere, more of its citizens are driving, thereby sending oil prices up even further.

    Goods prices are expected to fall in the coming months. Many large retailers, including Target, Walmart and Macy’s, have reported that they’re now stuck with too much of the patio furniture, electronics and other goods that they ordered when those items were in heavier demand and will have to discount them.

    Even so, rising gas prices are eroding the finances of millions of Americans. Prices at the pump are averaging nearly $5 a gallon nationally and edging closer to the inflation-adjusted record of about $5.40 reached in 2008.

    Research by the Bank of America Institute, which uses anonymous data from millions of their customers’ credit and debit card accounts, shows spending on gas eating up a larger share of consumers’ budgets and crowding out their ability to buy other items.

    For lower-income households — defined as those with incomes below $50,000 — spending on gas reached nearly 10 percent of all spending on credit and debit cards in the last week of May, the institute said in a report this week. That’s up from about 7.5 percent in February, a steep increase in such a short period.

    Spending by all the bank’s customers on long-lasting goods, like furniture, electronics and home improvement, has plunged from a year ago, the institute found. But their spending on plane tickets, hotels and entertainment has continued to rise.

    Economists have pointed to that shift in spending from goods to services as a trend that should help lower inflation by year’s end. But with wages rising steadily for many workers, prices are rising in services as well.

  • 1 месяц назад 26.05.2022Economy
    RIP Davos Man, long live globalization

    DAVOS, Switzerland — Globalization isn’t over, it’s just outgrowing the World Economic Forum.

    Once upon a time globalization was mostly about economics: intensifying trade, falling tariffs, outsourcing and the rise of multinational brands.

    It was Western-led, financialized and championed by global institutions like the World Trade Organization — and assumed. In the glory days of the post-Cold War world, this was the good and natural order of things according to the CEOs and political leaders that mingle at the World Economic Forum.

    No longer. Today political risk is multiplying and power is decentralizing, changing globalization with it.

    These tensions were on full display in Davos this week.

    The town’s promenade was dominated by crypto businesses with little interest in the official conference program. Ukraine-themed spaces dotted the town, where a beamed-in President Volodymyr Zelenskyy was a bigger draw than any of the political minnows on WEF’s main stage. Governments may be struggling to pay down pandemic debt and buttress inflation pain, but good luck finding a WEF panel about equitable taxation policy, despite cries from NGOs.

    These multiple versions of Davos talked across each other instead of pulling in one free market direction.

    Where once it was manufacturing supply chains that were globalized, now it’s more often rules and regulations — from ending corporate tax loopholes to mandating a carbon-neutral future.

    “Our concept of risk has expanded,” said Arancha González, the former executive director of the U.N.’s International Trade Centre, and a former foreign minister of Spain. “The rules part will be as important as opening markets. It’s no longer a case of opening markets and thinking it will all work out. It will not.”

    Those risks stretch from the ongoing global pandemic that has set the world’s agenda for the last two years to a global food crisis that now threatens mass famine.

    And it is digital technologies more than finance that powers what is globalized today — everything from terror, hate and misinformation to the proliferation of new cryptocurrencies and streaming services.

    Sure, there’s fretting about cracks in the global economy induced by Covid lockdowns and Russia’s war in Ukraine: a new Accenture study found that supply chain disruption could cost Eurozone economies more than $1 trillion this year, up to 7.7 percent of GDP.

    There’s also a real risk that parts of globalization stall or go backwards long-term, delivering a world split into democratic and authoritarian political blocs, riven with sanctions and tariffs and powered by regional internets.

    González is confident that globalization, though changing, will continue because a world beset by global challenges needs cooperative frameworks. “I don’t see a reduction in interconnection. For me globalization is interconnection, and that is increasing, not reducing,” she said.

    Former Danish Prime Minister Helle Thorning Schmidt agrees. “We have to find a way to work with China. We [in democracies] have to find ways of working with countries that don’t fully share our values,” she said.

    While political fears about China are rising in democracies, there’s no widespread momentum to substantially alter trade relations based on human rights or intellectual property concerns.

    U.K. Trade Secretary Anne-Marie Trevelyan told POLITICO she would continue to raise concerns, but said “we have a very substantial bilateral trade relationship with China, and our businesses want to continue to grow that.”

    While Western governments worry about energy supply chains and the rise of China, that’s not top of mind for the rest of the world, which often feels marginalized in Davos.

    “For most of Asia, China becoming number one is a given: a return to the natural state of 1,800 of the past 2,000 years,” said Kishore Mahbubani, a distinguished fellow at the National University of Singapore’s Asia Research Institute and an open admirer of the Chinese Communist Party. “Most of the region is trying to integrate with China,” he said.

    For Mahbubani, it’s clear that the “U.S. has decided to try to stop China becoming number one.” But the real risk from that is not that globalization will halt, but rather American self-sabotage. “If the U.S. tries to decouple from China, it will decouple from most of the region,” he said.

    Columbia University’s Adam Tooze rejected the idea that globalization is ending. “It’s B.S. Ending globalization? Life as we know it would cease to exist,” he told POLITICO. “When people say this, they’re either naive or apocalyptic,” he said, adding “it’s a bad way of thinking about the problem.”

    Tooze expects “a reconfiguration of globalization, a rearrangement, and politicization in certain respects of certain relationships.”

    Alexander Stubb, the peppy former prime minister of Finland who now leads the European University Institute’s School of Transnational Governance, warns of a complicated future. “It’s too simplistic to say we’re moving towards some kind of a new Cold War, with a liberal world order and an authoritarian world order,” he said. “I think we’ll have more regionalization of globalization, but it’s not going to go away.”

    Instead, the West will need to adjust: “If we want to work for a rules-based order, it’s not necessarily going to be us setting the rules anymore.”

    The bigger risk to globalization may come from the rising expectations that democratic governments and the businesses that call these countries home should cut ties with unsavory regimes.

    A special Edelman Trust Barometer report published Monday found that businesses are now subject to extensive geopolitical demands: 95 percent of respondents said that they expect companies to act in response to Russia’s unprovoked invasion by publicly speaking out, applying political and economic pressure or exiting the aggressor country’s market.

    “When businesses shut down in Russia they were not making that decision about Russia alone,” said Microsoft’s president, Brad Smith, who argues that withdrawal from Russia was a message to all authoritarian regimes, and an implicit acknowledgment that they may be forced to withdraw from other markets.

    The WEF itself was forced to freeze its relations with Russian organizations and executives in March, under political pressure and to avoid litigation over breaking sanctions.

    As with other large global businesses, WEF must now confront difficult questions about where it draws its moral lines. Traditionally, autocrats have been welcomed with open arms in Davos. This week, the love extended to Cambodia’s Hun Sen and Zimbabwe’s Emmerson Mnangagwa.

    But the days of believing that conversation and open markets lead to democratization are over.

    We know now that global economic ties don’t lead to political relaxation. And, like everyone else, the self-anointed high priests of globalization can’t avoid this redrawing of the global order.

    The real question isn’t whether globalization will carry on, but whether a markets-first and Western-centric WEF can evolve with it.

    Suzanne Lynch and Jamil Anderlini contributed to this report.

  • 1 месяц назад 26.05.2022Economy
    News The Buckshee

    What a difference five years makes. Davos has gone from debating China’s seemingly indomitable rise to fretting about its weakness.

    When Chinese President Xi Jinping took the stage at the World Economic Forum in 2017, he was the man of the moment.

    Standing at the podium in the exclusive Swiss resort town for the first time, Xi mapped out China’s muscular economic gameplan — just three days before Donald Trump was inaugurated as U.S. president, vowing to pursue an isolationist, America-First approach. In his speech, Xi paraded China’s supposed embrace of a globalizing, multilateral model. “One should not select or bend rules as he sees fit,” Xi said, winning applause from his audience of the super-powerful and super-rich, who knew exactly which rule-bender he was referring to.

    This time round, Xi, who has not left China since the coronavirus pandemic erupted two-and-a-half years ago, did not even dial in for a Zoom call.

    For the cohorts of corporate titans and policymakers traveling to Davos to read the runes on whether the next recession is just about to break, his absence was ominous. The conversation has shifted dramatically from wary appraisals of China’s strength to borderline panic about its fragility.

    Xi’s heavy-handed “Zero COVID” strategy has triggered serious discomfort among Western businesses. The Economist Intelligence Unit estimates the lockdown stands to chomp an annualized aggregate of 6 percent off Shanghai’s economic output, plunging China’s leading port city into recession and causing Beijing to undershoot its overall gross domestic product target.

    Those kinds of numbers are setting off tremors worldwide.

    It fell to philanthropist George Soros — the ultimate Davos stalwart — to sum up the scale of what he slammed as “Xi’s worst mistake.”

    “The lockdowns had disastrous consequences,” he said. “They pushed the Chinese economy into a free fall. It started in March, and it will continue to gather momentum until Xi reverses course — which he will never do because he can’t admit a mistake. Coming on top of the real estate crisis, the damage will be so great that it will affect the global economy. With the disruption of supply chains, global inflation is liable to turn into global depression.”

    In another sign of souring sentiment, David Rubenstein, co-founder of the private equity Carlyle Group, told POLITICO in Davos that “India has been more attractive [to buy assets] of late than China.”

    China admittedly has reasons beyond the coronavirus to keep its head down this year. Beijing knows full well it is no longer the flavor of the month because of Russia’s invasion of Ukraine. Indeed, Davos assumed an unusual “War and Peace” vibe this year, with a keynote speech from Ukraine’s President Volodymyr Zelenskyy. Thanks to China’s logically tortured position of “pro-Russia neutrality,” which won little support in the crowd, Xi’s hardly the most welcome guest anymore.

    Playing to perhaps its only strength given the current mood, Beijing’s official delegation was headed by the most apolitical figure imaginable: the veteran climate envoy Xie Zhenhua. The message is clear: Let’s set aside disputes over coronavirus and security for the time being, and focus on the only issue on which the West is still genuinely interested to engage with China.

    For Soros, though, Russian President Vladimir Putin and Xi Jinping were now united by stubbornly clinging to their errors. “They rule by intimidation, and as a consequence they make mind-boggling mistakes. Putin expected to be welcomed in Ukraine as a liberator; Xi Jinping is sticking to a Zero Covid policy that can’t possibly be sustained.”

    From China, the economic signals are dire. Just as the chief executives and ministers were clinking glasses by the Alps, China’s Prime Minister Li Keqiang was in emergency mode. Fears in the West are shifting from annoyance over subsidy-fuelled overproduction of everything from plastic toys to steel, to a more basic concern that supply chains are ruptured and the world’s factory is off the grid.

    On Wednesday, China’s State Council, headed by Li, organized an “unprecedented” phone conference with 100,000 participants from across the country, at all levels of the bureaucracy.

    There’s a single focus: To stabilize the economy. At the meeting, Li stressed the need for stability in “market entities, employment and people’s livelihood” and to keep the economy afloat wherever possible, state media reported.

    “Since March, and especially April. some economic indices are particularly worsening. In some ways, and to a certain extent, the difficulty [we are facing] is bigger than that during the serious hit during the 2020 pandemic,” Li said, a day after the State Council rolled out a 33-point plan to get the economy back on track.

    Stephen A. Orlins, president of the New York-based National Committee on U.S.-China Relations, noted: “The Chinese economy is in considerable difficulty. Nobody has a crystal ball but if the zero-tolerance COVID policy stays in effect, and if COVID continues to pop up, the Chinese economy may contract in 2022. For a country that’s experienced 40-plus years of growth, this is a shock.”

    Li’s say on economics is unusual. For much of his presidency, Xi has taken on most of the economic powers traditionally accorded to the prime minister, rolling out nationalistic policies that focused on clamping down the Big Tech and other innovative sectors. When the crisis hit, however, he took a step back and put Li upfront as the fixer, while the Communist Party prepares for the once-every-five-year congress that is likely to see Xi take the helm for the third time.

    Foreign businesses are unsure about how to cope without a market that used to be their irreplaceable profit engine.

    “While our surveys find that there is broad pessimism among CEOs across the regions of the U.S., China and Europe, CEOs of Western multinationals in China are recorded as being the most pessimistic about current business conditions,” said David Hoffman, senior vice president of The Conference Board, an international economic-research body financed by donations from large corporations.

    “Unexpected, sporadic and widespread COVID-19 lockdowns across numerous Chinese cities, most prolifically Shanghai, and the logistics, people and production havoc these so-called Zero COVID policies have wreaked across the commercial sphere have clearly taken their toll on business sentiment in the region,” Hoffman said.

    Whether the future looks rosier or gloomier depends on whom you ask. For Hoffman, the CEO survey shows that there’s a general sense of long-term optimism, with “only 17 percent of the China group say they’re diversifying away from Chinese suppliers,” suggesting “there’s more coupling than decoupling happening.”

    Siva Yam, president of the Chicago-based U.S.-China Chamber of Commerce, also noted a divergence in sentiment between different sectors.

    “You do see negative sentiment because of the supply chain interruptions. For big business … you are not going to see a lot of new investment because China is not as competitive and you have increasing regulation. For small to medium sized companies that have a niche product that they can sell to China, they continue to be bullish … [because] they are not so impacted by [new] regulations,” he said.

    But Jeremy Farrar, director of the Wellcome Trust, a foundation, was more broadly skeptical of China’s outlook because of the pandemic management.

    Calling China “a great unknown,” Farrar told POLITICO: “I don’t believe a Zero COVID policy is sustainable, and at some point, China will go through a big epidemic. And the population in China has a very different immunity to the rest of the world.”

    “So that’s a big concern.”

    Speaking at a panel co-sponsored by POLITICO, Stéphane Bancel, chief executive of vaccine-maker Moderna, added: “Like Jeremy, I worry a lot about China. Because I think as the virus becomes more and more infectious it is less controllable with techniques that were wonderful in 2020 to prevent a lot of deaths.”

    Xi’s absence and his Zero COVID strategy are all the more galling given his no-holds-barred commitment to globalization back in his 2017 script in Davos.

    “Whether you like it or not,” the Chinese leader said back then, “the global economy is the big ocean that you cannot escape from. Any attempt to cut off the flow of capital, technologies, products, industries and people between economies and channel the waters in the ocean back into isolated lakes and creeks is simply not possible.”

    Lofty sentiments, perhaps, but China itself is now the one seeking to be the island, jutting clear of that big ocean.

    Sarah Wheaton, Matt Kaminski and Jamil Anderlini contributed reporting.

  • 1 месяц назад 22.05.2022Economy
    U.S. economy is in a ‘period of transition,’ White House economic adviser says

    National Economic Council Director Brian Deese said Sunday that the high inflation rates across the country are a result of the economy’s “period of transition” in recovering from the pandemic.

    “We’re moving from the strongest economic recovery in modern history to what can be a period of more stable and resilient growth,” he said on “Fox News Sunday.”

    And although talk of a recession gained traction in recent weeks, Deese said that Americans hit with higher costs — at the pump or at the grocery store or elsewhere — should “take confidence that [the U.S. is] better positioned than any other country to navigate through this and keep our recovery going.”

    Ongoing inflation — the highest America has seen since the 1980s — has not only hit many American consumers hard but also put a damper on the political fortunes of President Joe Biden, whom some have portrayed as tone-deaf on economic issues. A CBS News poll released Sunday, in which 69 percent of those surveyed thought the economy was either “fairly bad” or “very bad,” put Biden’s disapproval rate at 56 percent.

    Deese also outlined some of the steps in the White House’s playbook to tackle inflation.

    “We need to give the Federal Reserve the independence to do what it does. It has the tools to combat inflation,” he said.

    “Second, we need to reduce costs and make things more affordable for families during this period. Steps that we can take to reduce the cost of the internet bills that families pay or the prescription drug prices that they pay are really important right now.”

    Another part of the plan is working to bring down the federal deficit, he said.

    “If we can do all of those things, then we can build on the historic strengths we have here in the U.S. economy and we can navigate through to more stable growth that will generate better outcomes for families,” he said.

  • 1 месяц, 2 недели назад 11.05.2022Economy
    U.S. inflation hit 8.3% last month but slows from 40-year high

    Inflation slowed in April after seven months of relentless gains, a tentative sign that price increases may be peaking while still imposing a financial strain on American households.

    Consumer prices jumped 8.3% last month from 12 months earlier, the Labor Department said Wednesday. That was below the 8.5% year-over-year surge in March, which was the highest rate since 1981.

    On a month-to-month basis, prices rose 0.3% from March to April, a still-elevated rate but the smallest increase in eight months. Consumer prices had spiked 1.2% from February to March, mostly because of a sudden jump in gas prices triggered by Russia’s invasion of Ukraine.

    Nationally, the price of a gallon of regular gas has reached a record $4.40, according to AAA, though that figure isn’t adjusted for inflation. The high price of oil is the main factor. A barrel of U.S. benchmark crude sold for around $100 a barrel Tuesday. Gas had fallen to about $4.10 a gallon in April, after reaching $4.32 in March.

    Beyond the financial strain for households, inflation is posing a serious political problem for President Joe Biden and congressional Democrats in the midterm election season, with Republicans arguing that Biden’s $1.9 trillion financial support package last March overheated the economy by flooding it with stimulus checks, enhanced unemployment aid and child tax credit payments.

    On Tuesday, Biden sought to take the initiative and declared inflation “the No. 1 problem facing families today” and “my top domestic priority.”

    Biden blamed chronic supply chain snarls related to the swift economic rebound from the pandemic, as well as Russia’s invasion of Ukraine, for igniting inflation. He said his administration will help ease price increases by shrinking the government’s budget deficit and by fostering competition in industries, like meatpacking, that are dominated by a few industry giants.

    Still, new disruptions overseas or other unforeseen problems could always send U.S. inflation back up to new highs. If the European Union decides, for example, to cut off Russian oil, gas prices in the United States would likely accelerate. China’s Covid lockdowns are worsening supply problems and hurting growth in the world’s second-biggest economy.

    Previous signs that U.S. inflation might be peaking didn’t last. Price increases decelerated last August and September, suggesting at the time that higher inflation might be temporary, as many economists — and officials at the Federal Reserve — had suggested. But prices shot up again in October, prompting Fed Chair Jerome Powell to start shifting policy toward higher rates.

    This time, though, several factors are pointing to an inflation peak. Natural gas prices, which soared in March after Russia’s invasion of Ukraine, fell on average in April and likely slowed inflation. Used car prices are also expected to have dropped last month. Automakers’ supply chains have unraveled a bit, and new car sales have risen.

    While food and energy have endured some the worst price spikes of the past year, analysts often monitor the core figure to get a sense of underlying inflation. Core inflation also typically rises more slowly than the overall price increases and can take longer to decline. Rents, for example, are rising at a historically fast pace, and there is little sign of that trend reversing anytime soon.

    The unexpected persistence of high inflation has caused the Fed to embark on what may become its fastest series of interest rate increases in 33 years. Last week, the Fed raised its benchmark short-term rate by a half-point, its steepest increase in two decades. And Powell signaled that more such sharp rate hikes are coming.

    The Powell Fed is seeking to pull off the notoriously difficult — and risky — task of cooling the economy enough to slow inflation without causing a recession. Economists say such an outcome is possible but unlikely with inflation this high.

    In the meantime, by some measures Americans’ wages are rising at the fastest pace in 20 years. Their higher pay enables more people to at least partly keep up with higher prices. But employers typically respond by charging customers more to cover their higher labor costs, which, in turn, heightens inflationary pressures.

    Last Friday’s jobs report for April included data on hourly pay that suggested that wage gains were slowing, which, if it continues, could help ease inflation this year.

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Fed gets more aggressive in inflation battle
The Federal Reserve on Wednesday pulled the trigger on its largest interest rate increase in nearly three decades and signaled…
U.S. inflation hit a new 40-year high last month of 8.6 percent
The costs of gas, food and other necessities jumped in May, raising inflation to a new four-decade high and giving…

Economy Fed gets more aggressive in inflation battle