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Powell Says Fed Is Prepared to Raise Rates to Tame Inflation

Powell Says Fed Is Prepared to Raise Rates to Tame Inflation



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Jerome H. Powell, the Federal Reserve chair, is nominated for a second term. He faces questions from the Senate Committee on Banking, Housing and Urban Affairs.CreditCredit…Sarahbeth Maney/The New York Times

Jerome H. Powell, the Federal Reserve chair, said that a rapidly-healing economy no longer needed as much help from the central bank and emphasized that controlling inflation — which he and his colleagues can do by raising interest rates — would be a critical part of setting the stage for a long and stable expansion that boosts workers.

Mr. Powell, who is testifying before members of the Senate Banking Committee on Tuesday as he seeks confirmation for a second term as chair, confronts a complicated economic moment as he moves toward another four-year stint as head of the world’s most powerful central bank.

The economy is growing swiftly, but it has been buffeted by repeated waves of virus and by a surge in inflation that has proved stronger and longer lasting than economists had expected. Workers are finding jobs and winning wage increases, but the rising costs of housing, gas, food and furniture are pinching shoppers and tanking consumers’s confidence.

The Fed is charged with maintaining price stability, and its officials have recently signaled that they could raise interest rates several times this year to try to cool the economy and prevent rapidly rising prices from becoming permanent. Mr. Powell — whom President Biden has nominated to a second term in his job — reiterated that commitment on Tuesday.

“If we see inflation persisting at high levels longer than expected, if we have to raise interest rates more over time, we will,” Mr. Powell said. “We will use our tools to get inflation back.”


Credit…Pool photo by Brendan Smialowski

But the central bank also has a second mandate: It is supposed to guide the economy toward full employment, a situation in which people who want to work and are able to do so can find jobs. Cooling off the economy can slow hiring, so trying to foster a strong labor market and trying to set the stage for a strong labor market can require a balancing act for policymakers.

Mr. Powell squared the two goals in his testimony, suggesting that keeping price gains under control will be critical for achieving a sustainably strong labor market.

“High inflation is a severe threat to the achievement of maximum employment,” Mr. Powell said.

If rapid price gains start to become “entrenched in our economy,” the Fed might have to react starkly to choke off runaway inflation and risk touching off a recession, Mr. Powell said. To avoid a painful policy response and to instead set the stage for a strong future labor market, it is important to control inflation, he indicated.

“That’s going to require us to use our tools, to the extent that they work on the demand side, while we also expect some help from the supply side,” Mr. Powell said.

“Supply” is how many goods and services companies are able to produce. Supply has been struggled to catch up with booming demand as the economy has reopened from the pandemic, as shipping routes are clogged, factories shut down amid virus outbreaks and employers struggle to hire to ramp up production. The “demand side” of the economy is how much people want to buy and is the part of the economy the Fed’s policies primarily impact in the near-term.

Economists increasingly expect Fed officials to make three or four interest rate increases in 2022, moves that would make borrowing expensive for households and businesses and slow down spending and growth. That could, in turn, slow hiring, keep wages from growing as swiftly, and hold down prices over time as people shop less.

The Fed’s rate increases would come on top of other moves the Fed is making to keep the economy from overheating: Officials are slowing down the big bond purchases they had been using to lower longer-term interest rates and stoke growth, and policymakers have signaled that they might begin to shrink their bond holdings this year.

If the Fed trims those balance sheet holdings, that will reinforce the move higher in interest rates, cooling off the economy further.

“The committee hasn’t made any decisions about the timing of any of that — I think we’re going to have to be both humble and a bit nimble,” Mr. Powell said.

He noted that while all members of the Fed’s policy-setting committee expect to raise interest rates this year, how many increases the central bank actually makes will depend on how the economy evolves at an uncertain moment.

The prospect that interest rates are likely to start rising soon has unnerved stock investors lately. Higher rates discourage risky investments like stocks, and can curb corporate profit growth. Wall Street’s major benchmarks moved lower again on Tuesday as Mr. Powell spoke. The S&P 500 dipped about half a percent.

The Fed’s recent and decisive move toward inflation-fighting mode could be shored up by an inflation report, slated for release on Wednesday, that is expected to show the fastest growth in consumer prices since June 1982.

Lawmakers emphasized that they hoped to see a continuation in the nation’s strong labor market recovery — which last month drove unemployment back below 4 percent.

But Republicans, including Senator Patrick J. Toomey of Pennsylvania, worried that the Fed might have moved too slowly to counteract price gains thanks in part to a new, employment-focused policy approach Mr. Powell ushered in.

“I worry that the Fed’s new monetary policy framework has caused it to be behind the curve,” Mr. Toomey said. But he then praised the Fed for adjusting its stance as conditions have evolved, and inflation has shown signs of sticking around.

The Fed had initially forecast that inflation would fade, but it — like many private sector forecasters — got that wrong.

“We’re not really seeing, yet, the kind of progress essentially all forecasters really thought we’d be seeing by now,” Mr. Powell said, at least when it comes to snarled supply chains.

“People want to buy cars — carmakers can’t make any more cars, because there are no semiconductors,” he said, emphasizing what an unusual period the pandemic has been. “That’s never happened.”


Credit…Elaine Thompson/Associated Press

By The New York Times

With inflation in the United States climbing at the highest rate in nearly 40 years, New York Times reporters want to answer your questions about what to expect and how inflation might affect your life in 2022.

Ask your questions below and help Times reporters decide what to dig into. If you have a personal experience with inflation to share, we would love to hear that, too.

A Times reporter may contact you for more information. We won’t publish any part of your submission without contacting you first.


Credit…Chris Helgren/Reuters

In a single day over the holidays, nearly one in three United Airlines employees called in sick at Newark Liberty International Airport, a major hub for the airline, the company’s chief executive said on Tuesday.

The revelation, which came in a memo to staff from the airline’s chief executive, Scott Kirby, helps explain why U.S. airlines have had to cancel more than more than 27,000 flights, or about 8 percent of all scheduled trips, over two weeks starting the day before Christmas, according to FlightAware, a data tracking service. Employees calling in sick and storms that delivered strong winds, rains and in some cases record snowfall at airports nationwide wreaked havoc on United and other companies and stranded many travelers.

Overall, about 3,000 United Airlines employees — more than 4 percent of its work force — have recently tested positive for the coronavirus, Mr. Kirby said in his memo. The vast majority are not working, and United is cutting its flight schedule to manage the shortage.

“Our frontline teams continue to put in a tremendous effort during what I know is an incredibly challenging and stressful time — the Omicron surge has put a strain on our operation, resulting in customer disruptions during a busy holiday season,” he said.

In the two-week period starting just before Christmas, United canceled more than 2,500 flights. SkyWest Airlines, which operates shorter flights for major carriers including United, canceled more than 4,600 trips over that period, more than any other airline. Southwest Airlines was close behind with more than 4,000 flights.

United was one of the first major companies in the United States to impose a vaccine mandate, with nearly all of its workers now vaccinated. Mr. Kirby said that the policy was working.

No vaccinated employees are hospitalized and the hospitalization rate among United employees since the mandate went into effect in the fall has been far lower than that of the general population, he said. Before the requirement, more than one United employee died each week from the virus, on average, Mr. Kirby said. The airline has gone eight weeks without a single virus-related death among vaccinated employees.

“In dealing with Covid, zero is the word that matters — zero deaths and zero hospitalizations for vaccinated employees,” he said. “And while I know that some people still disagree with our policy, United is proving that requiring the vaccine is the right thing to do because it saves lives.”

The flight cancellations have continued into this week as airlines preemptively adjust schedules to manage fallout from the holiday disruptions and staffing problems, though the number has fallen steadily in recent days. More than 650 flights on Tuesday were canceled, about 150 of them operated by United.


Credit…Jim Lo Scalzo/EPA, via Shutterstock

WASHINGTON — The World Bank said on Tuesday that the pace of global economic growth was expected to slow in 2022, as new waves of the pandemic collide with rising prices and snarled supply chains, blunting the momentum of last year’s recovery.

This projection underscores the stubborn nature of the public health crisis, which is widening inequality around the world. The pandemic is taking an especially brutal toll on developing countries, largely owing to rickety health care infrastructure and low vaccination rates.

“The Covid-19 crisis wiped out years of progress in poverty reduction,” David Malpass, the World Bank president, wrote in an introduction to the report. “As government’s fiscal space has narrowed, many households in developing countries have suffered severe employment and earning losses — with women, the unskilled and informal workers hit the hardest.”

Global growth is expected to slow to 4.1 percent this year, from 5.5 percent in 2021, according to the World Bank. Output is expected to be weaker, and inflation is likely to be hotter than previously thought.

The World Bank said growth rates in most emerging markets and developing economies outside East Asia and the Pacific would return to their prepandemic levels, still falling short of what would be needed to recoup losses during the pandemic’s first two years. The slowdown in these regions will be more abrupt than what advanced economies will experience, leading to what the World Bank describes as “substantial scarring” to output.

Income inequality is widening both within and between countries, the World Bank said, and could become entrenched if disruptions to education systems persist and if high national debt hinders the ability of nations to support their low-income populations. Globally, the prospect of higher interest rates and withdrawal of fiscal support could take a toll on low-income countries while they are already vulnerable.

Growth in the world’s two largest economies, the United States and China, is poised to moderate considerably. The World Bank said that the recently passed infrastructure law would do little to buttress growth in the United States in the near term and that pandemic restrictions were curbing consumer spending and residential investment in China.

The World Bank is recommending stronger debt relief initiatives to help poor countries as well as urging support for policies that will strengthen their financial systems and improve local infrastructure in ways that will spur growth. Easing global supply chain bottlenecks, particularly for Covid vaccine doses, will be crucial.

“At the start of 2022 the supply of vaccines is increasing appreciably, but new variants and vaccine deployment bottlenecks remain major obstacles,” Mr. Malpass said.


Credit…Jason Redmond/Reuters

Boeing said on Tuesday that it received 79 new orders for planes in December, capping its best year of sales since 2018 as it tried to move past a prolonged crisis caused by two crashes of the 737 Max jet.

The company sold a net 535 new planes last year after factoring in cancellations, a big turnaround from 2020 when cancellations exceeded new sales by 471 planes and just ahead of its chief rival, Airbus, the European aviation giant. But Boeing delivered 340 aircraft to customers, far fewer than Airbus.

In addition to the Max crisis, the company’s performance has also been dented by quality concerns about its 787 Dreamliner that forced Boeing to slow production and suspend deliveries of that plane.

About two-thirds of the planes sold last year were variants of the Max, which regulators around the world grounded for nearly two years after the crashes, which killed a total of 346 people. Boeing’s December orders included the sale of 50 Max jets to Allegiant Air in what amounted to a big shift by the budget airline, which typically buys used planes.

Since the Federal Aviation Administration allowed the Max to fly again in late 2020, the plane has been used for just over 300,000 flights carrying paying passengers, with about 475 of the planes in circulation, the company said.

Boeing also sold a record 84 freighter planes last year, reflecting strong demand for air cargo. At the start of this year, the company had 4,250 orders in its backlog, about 80 percent of which are for the Max.

Airbus, which is based in France, said on Monday that it sold 507 planes last year and delivered more than 600. It has an order backlog of 7,082 planes.


Credit…Calla Kessler for The New York Times

Citadel Securities, the powerful trading firm that serves brokerage firms like Robinhood, said on Tuesday that it had sold a stake to the venture capital firms Sequoia Capital and Paradigm for $1.15 billion, uniting an established financial giant with two top Silicon Valley investors.

The deal, which values Citadel Securities at about $22 billion, is the first outside investment in the firm, which was founded two decades ago by the billionaire Kenneth C. Griffin, who runs the multibillion-dollar hedge fund Citadel.

It’s a bet on disrupting Wall Street. Citadel Securities has become a trading giant, dominating market making for stocks and options. Its institutional business now has more than 1,600 clients, while it also works with consumer-facing brokerage firms like Robinhood.

“Citadel Securities has carved out a unique place in the financial markets through its ability to absorb and price risk using techniques and capabilities from far outside the traditional world of Wall Street,” Alfred Lin, a Sequoia partner who will take a seat on Citadel Securities’ board, said in a statement.

Sequoia is one of Silicon Valley’s top venture firms, having backed the likes of Apple, DoorDash and WhatsApp. Paradigm was founded by Fred Ehrsam, a co-founder of the cryptocurrency exchange Coinbase, and Matt Huang, who led crypto investments at Sequoia.

Citadel Securities has been criticized for its relationship with Robinhood, where it pays the firm for the right to process users’ trades, which some say could create conflicts of interest. Sequoia is also an investor in Robinhood.

Mr. Huang of Paradigm said that Citadel Securities would move into more markets and asset classes, “including crypto.” Mr. Griffin has mixed feelings about crypto, so this is a noteworthy aside.

Mr. Griffin, whose net worth was most recently estimated at $21 billion, is believed to own about 85 percent of the securities unit, according to Bloomberg. If that’s the case, his stake in Citadel Securities alone would be valued at some $18 billion.


Credit…Libby March for The New York Times

The National Labor Relations Board announced Monday that it had certified a victory for a union at a second Starbucks store in the Buffalo area, where votes were tallied in December but remained inconclusive as the union challenged the ballots of several employees it said did not work at the store.

The labor board declared the union the winner at another Buffalo-area store when it counted the votes on Dec. 9, and the union lost an election at a third store.

The board agreed with the union that the challenged ballots should not count, giving the union a 15-to-9 win. None of the other roughly 9,000 company-operated Starbucks locations in the United States have a union.

Labor experts have said that establishing a second unionized store in the same market could provide a significant boost to the union, Starbucks Workers United. The union is part of Workers United, an affiliate of the giant Service Employees International Union.

Under U.S. labor law, employers are obligated to bargain in good faith with a union that has won an N.L.R.B. election, but they are not required to reach agreement on a contract. As a result, winning a contract often requires unions to apply economic pressure such as a work stoppage, something that a second store could make more potent.

Last week, several employees of the first unionized store near Buffalo walked off the job amid concerns about rising Covid-19 infection rates. The workers said they returned on Monday.

The newly unionized store, near the Buffalo airport, filed for a union election in late August, along with the two other stores that voted in December. The union has formally objected to the outcome of the election that it lost, and that objection is pending before the labor board.

Starbucks has 10 business days to request an appeal of the decision announced on Monday. If the request was filed and denied, the result would become final. A company spokesman said that Starbucks was evaluating whether or not to appeal and that it believed its employees’ voices should be heard.

Throughout the union campaign last year, Starbucks dispatched out-of-town managers and a top executive to Buffalo in what it said was an attempt to fix operational issues like understaffing and the poor layout of certain stores. The officials often questioned employees about their workplaces and helped with menial tasks like throwing out garbage.

Several union supporters said they were intimidated by the presence of the officials and were disoriented by other disruptions to their work lives, such as the company’s decision to temporarily close certain stores and send employees to other locations.

Since the initial victory in Buffalo, workers at several other Starbucks stores throughout the country have filed for union elections, including in Boston, Chicago, Seattle and Knoxville, Tenn.

“Today we put an end to Starbucks’s delay attempts and formed our union,” Alexis Rizzo, a shift supervisor at the second unionized location, said in a statement, adding: “We demand that Starbucks stop their union busting in Buffalo and across the nation immediately. No other partners should have to endure what we went through to have a voice on the job.”

Starbucks has denied that it has sought to intimidate employees, but it has said it prefers that its employees not unionize.

Last week, the federal labor board scheduled an election for a Starbucks store in Mesa, Ariz., where workers had filed paperwork in November. Ballots in the election will be mailed out on Friday and will be due back by Jan. 28. Workers at more than 10 other locations, including three in the Buffalo area, are still awaiting decisions from the board on if and when it will set election dates.


Credit…Nicolas Ortega

Reporting to work has always meant accepting a variety of unpleasantries: commutes, pre-coffee chitchat, people who would like you to do what they tell you to do even if it’s not yet 10 a.m.

But for some, the last year has rebalanced the power seesaw between worker and boss. Maybe it was the surge of people quitting: A record high 4.5 million Americans voluntarily left their jobs in November. Maybe it was the ebbing will-they-won’t-they tides of return to office plans. Whatever the change, more workers are feeling empowered to call out their managers, Emma Goldberg writes for The New York Times.

The scrutiny of workplace behavior comes after several years of prominent conversation about appropriate office conduct. The #MeToo movement propelled dozens of executives to step down after accusations of sexual assault. The Black Lives Matter protests after the killing of George Floyd prompted corporate leaders to issue apologies for past discriminatory behaviors and the lack of racial diversity in their work forces and to pledge to make amends.

And increasingly, as people’s work routines have been upended by the pandemic, they’ve begun to question the thrum of unpleasantness and accumulation of indignities they used to shrug off as part of the office deal.

“The tolerance for dealing with jerky bosses has decreased,” said Angelina Darrisaw, chief executive of the firm C-Suite Coach, who saw interest in her executive coaching services rise last year. “You can’t just wake up and lead people,” she added. “Companies are thinking about how do we make sure our managers are actually equipped to manage.”

Wall Street remained unsteady on Tuesday, with major benchmarks slightly lower, after a late rally in technology stocks on Monday failed to hold.

The S&P 500 and the Nasdaq composite, the tech sector’s bellwether index, each dropped about half a percent in early trading.

On Monday, the Nasdaq composite, had fallen close to 3 percent before it rebounded and ended the day with a slight gain.

The market’s recovery on Monday was another example of the resilience stocks have shown throughout most of the pandemic, even when Covid hospitalizations are climbing to new highs, but analysts cautioned that recently volatility in tech stocks could soon become a problem for investors.

Many tech stocks that were early pandemic winners, like Netflix and Zoom, remain well below their highs, and the Nasdaq is close to a 10 percent drop from its last peak, a psychological threshold on Wall Street called a “correction” that serves as a marker of stock investors’ changed mood.

“There is nothing magical about drawing the line at 10 percent other than it makes people realize that stocks don’t always go up,” said Vincent Reinhart, the chief economist of Dreyfus and Mellon.

A big driver of stocks on Tuesday is likely to be comments by Federal Reserve chair, Jerome Powell, who has been nominated by President Biden for a second four-year term and is testifying in front of the Senate Banking Committee as part of the confirmation process. In prepared remarks, Mr. Powell said that the Fed was committed to bringing down inflation, which is the highest it has been in decades. Many economists expect the Fed to raise interest rates, possibly as soon as March.

Also weighing on stocks is the outlook for profits. Large companies will be begin reporting their fourth-quarter earnings later this week. And although the results for the last three months of last year are expected to have been strong, earnings growth is expected to slow this year.