The development is owed partly to a rebound in immigration as the United States has eased pandemic-related restrictions, cleared processing backlogs and enacted more permissive policies. Labor supply has also received a boost as some demographic groups — including women in their prime working years — have returned to the job market in bigger numbers than anticipated, pushing their employment rates to record highs.

That influx has made the Fed’s job a little less painful. Hiring has been able to chug along at a solid clip without further overheating the labor market because job seekers are becoming available to replace those who are getting snapped up. Unemployment has held steady around 3.5 percent, and some data even suggests that staffing is becoming less strained. Wage growth has begun to slow, for instance, and workers are no longer pulling such long hours.

“Monetary policy is part of the story to get demand moving towards supply, but any help we can get from supply increasing, that’s good news,” John C. Williams, the president of the Federal Reserve Bank of New York, said in an interview with The Financial Times this month.

Read it all.

The expanding supply of workers has allowed the Fed to accept the faster-than-expected hiring without slamming the brakes on the economy even more aggressively.

A Flood of New Workers Has Made the Fed’s Job Less Painful. Can It Persist? https://t.co/mvAz3MCsYF

— Sean Graf (@seangraf) July 24, 2023

Delays at naval shipyards mean that nearly 40% of US attack submarines are out of commission for repairs, about double the rate the Navy would like, according to new data released by the service.

As of this year, 18 of the US Navy’s 49 attack submarines — 37% — were out of commission, according to previously undisclosed Navy data published by the Congressional Research Service. That leaves the US at a critical disadvantage against China’s numerically superior fleet.

The maintenance backlog has “substantially reduced” the number of nuclear submarines operational at any given moment, cutting the “force’s capacity for meeting day-to-day mission demands and potentially putting increased operational pressure” on submarines that are in service, CRS naval analyst Ronald O’Rourke said in a July 6 report.

That’s up from 28% overall in 2017 and 33% in 2022, and below the industry best practice of 20%.

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Backlogs at overworked shipyards have left US attack submarines at a crucial disadvantage against China’s numerically superior fleet https://t.co/N0DOKv7yse

— Bloomberg (@business) July 11, 2023

The mandate was an attempt by the Biden administration to define sex to include “gender identity” for the purposes of Health and Human Services (HHS) regulations. Critics say the rule would have required doctors, clinics, and hospitals to perform procedures to which they object and insurance companies to pay for such procedures.

The Southern Baptist Convention’s Ethics and Religious Liberty Commission (ERLC) president Brent Leatherwood welcomed the news.

“The Biden administration’s decision to back down from the transgender mandate marks a significant victory in safeguarding the rights of medical professionals to operate in a manner consistent with their deepest held beliefs,” Leatherwood said in written comments.

“This is an important development we should take note of because it not only represents a win for conscience rights but also furthers efforts to shield vulnerable individuals who should never become pawns in the sexual revolution.”

Read it all.

Over $200 billion from the U.S. government’s COVID-19 relief programs were likely stolen, a federal watchdog said on Tuesday, adding that the U.S. Small Business Administration (SBA) had weakened its controls in a rush to disburse the funds.

At least 17% of all funds related to the government’s coronavirus Economic Injury Disaster Loan (EIDL) and Paycheck Protection Program (PPP) schemes were disbursed to potentially fraudulent actors, according to a report released Tuesday by the SBA’s office of inspector general.

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Over $200 billion likely stolen from U.S. COVID relief programs, watchdog says https://t.co/ipofUWaBm2 pic.twitter.com/Nt4CTgxDdA

— Reuters Politics (@ReutersPolitics) June 27, 2023

Headline rates of inflation across most of the world’s economies have fallen back sharply since the autumn but core rates — which exclude volatile categories such as energy and food — remain at or close to multi-decade highs.

These rates, seen as a better gauge of underlying price pressures, have sparked concern that central banks will struggle to hit their targets without wiping out growth.

“The next leg of the improvement in the inflation numbers is going to be harder,” said Carl Riccadonna, chief US economist at BNP Paribas. “It requires more pain, and that pain likely involves a recession in the back half of the year.”

Torsten Slok, chief economist at Apollo Global Management, added: “The only way to get inflation down to 2 per cent is to crush demand and slow down the economy in a more substantial way.”

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“The next leg of the improvement in the inflation numbers is going to be harder. It requires more pain:” BNP's Riccadonna

Apollo's Torsten Slok: “The only way to get inflation down to 2% is to crush demand.”
https://t.co/8BVmtH9pdm

— Lisa Abramowicz (@lisaabramowicz1) June 23, 2023

The Republicans have capitulated on the US debt ceiling. This averts the risk of abrupt fiscal tightening in a slowing economy that has yet to digest the most aggressive monetary squeeze in over 40 years.

The putative accord between the White House and Congress does not even try to address the larger threat to America’s economic model and hegemonic status.

The Congressional Budget Office says the US is on course for fiscal deficits of 7pc of GDP as far as the eye can see.

Sacred entitlements remain untouchable. Middle-class welfare – ie. consumption – will continue to eat up an ever-greater share of the budget. It is this that is leading to slow fiscal ruin.

The gross debt-to-GDP ratio was 62pc in 2007 (IMF data). It will be 122pc this year, and 138pc by 2028, with no sign of reaching a plateau. By then it will have overtaken Italy.

Read it all.

“It is a sobering thought that the US is racking up as much debt-to-GDP accumulation over 20 years as it did over two world wars and the Great Depression combined”

✍️ Ambrose Evans-Pritchardhttps://t.co/wWkRv2XYKd

— Telegraph Business (@telebusiness) May 30, 2023

Treasury Secretary Janet Yellen said that the government could become unable to pay bills on time by June 1. In that case, the Treasury Department could halt payments, such as to federal employees or veterans.

In a worst-case scenario, a failure to pay holders of U.S. government debt, a linchpin of the global financial system, could trigger severe recession and send stock prices plummeting and borrowing costs soaring.

Many economists don’t expect a default for the first time in U.S. history. But they outline three potential ways the standoff could affect the economy and financial system, ranging from not great to extremely scary.

Read it all.

U.S. lawmakers might have just days to act before the standoff over the debt ceiling reverberates through the economy https://t.co/JM1UfZ7HfW

— Real Time Economics (@WSJecon) May 22, 2023

…ultimately, to truly integrate and capitalize on AI, U.S. defense leaders will need to shift how they measure military capability. The Pentagon will never give artificial intelligence its due when it does not consider AI to be a key component of military strength. When military leaders appear before Congress to advocate for their budgets, they make their case in terms of industrial-age metrics. The navy, for example, lays out how many ships it requires, while the air force spells out how many aircraft it has to purchase. These measurements still matter, but what matters more today is the digital capabilities of these systems, such as whether the ships and planes have sensors to detect enemy forces, algorithms that can process information and enable better decision-making, and intelligent munitions to precisely strike targets. All these capabilities can be improved with artificial intelligence, and U.S. leaders must begin taking them into account.

It will not be easy for the armed forces to make these changes: the American military is a vast and unwieldy bureaucracy. It will also be hard for the U.S. government as a whole to adjust to the rise of AI, given how polarized Washington is. Reforms to high-skilled immigration, in particular, have run into repeat resistance from conservatives on Capitol Hill. And the fact that today’s AI systems have major limitations—and therefore require great caution and care during implementation—further complicates the process. Military service members will not use systems they do not trust, and so military officials must make sure that when AI is deployed it works as intended.

But the pieces of a better AI strategy are falling into place. The Pentagon may not yet properly measure the power of artificial intelligence, but it is paying much more attention to the technology. The federal government has increased spending and is exploring data and computing resources for academics. The White House is trying to make it easier for foreign STEM workers to come to the country. The United States, in other words, is working to ensure that China cannot fully catch up. If Washington ultimately maintains control over the semiconductor supply chain, maximizes the inflow of talent, and fields trustworthy systems, it will succeed in staying ahead. As the AI revolution reshapes global power, the United States can come out on top.

Read it all.

Washington’s immigration policies are making it more difficult to recruit foreign scientists—and, as a result, threatening the country’s advantage in the AI race, writes @paul_scharre. https://t.co/z1UR0faYUp

— Foreign Affairs (@ForeignAffairs) April 4, 2023

The Federal Reserve is facing criticism over Silicon Valley Bank’s collapse, with lawmakers and financial regulation experts asking why the regulator failed to catch and stop seemingly obvious risks. That concern is galvanizing a review of how the central bank oversees financial institutions — one that could end in stricter rules for a range of banks.

In particular, the episode could result in meaningful regulatory and supervisory changes for institutions — like Silicon Valley Bank — that are large but not large enough to be considered globally systemic and thus subject to tougher oversight and rules. Smaller banks face lighter regulations than the largest ones, which go through regular and extensive tests of their financial health and have to more closely police how much easy-to-tap cash they have to serve as a buffer in times of crisis.

Regulators and lawmakers are focused both on whether a deregulatory push in 2018, during the Trump administration, went too far, and on whether existing rules are sufficient in a changing world.

While it is too early to predict the outcome, the shock waves that Silicon Valley Bank’s demise sent through the financial system, and the sweeping response the government staged to prevent it from inciting a nationwide bank run, are clearly intensifying the pressure for stronger oversight.

Read it all.

What happened at Silicon Valley Bank? The failure has accusing fingers pointed at the Fed. And at the central bank, it's kicked off a bout of regulatory soul-searching.

with @FlitterOnFraud https://t.co/qptaFO0iSO

— Jeanna Smialek (@jeannasmialek) March 15, 2023

President Biden scored an early political point this month in his fight with congressional Republicans over taxes, spending and raising the federal debt limit: He forced Republican leaders to profess, repeatedly, that they will not seek cuts to Social Security and Medicare.

In the process, Mr. Biden has effectively steered a debate about fiscal responsibility away from two cherished safety-net programs for seniors, just as those plans are poised for a decade of rapid spending growth.

New forecasts from the nonpartisan Congressional Budget Office, released on Wednesday, showed Medicare and Social Security spending growth rapidly outpacing the growth in federal tax revenues over the next 10 years. That is the product of a wave of baby boomers reaching retirement age and beginning to tap the programs, which provide guaranteed income and health insurance from the time benefits are claimed until death.

Those retirees are an electoral force. In refusing to touch so-called entitlement programs, Mr. Biden was appealing to seniors, along with generations of future retirees, when he used his State of the Union address and subsequent speeches this month to amplify attacks on Republican plans to reduce future spending on Social Security and Medicare or potentially sunset the programs entirely.

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A healthy country would tackle this program head on and make the necessary adjustments and compromises to do so 4/4 https://t.co/bjLzztGF23 #socialsecurity #medicare #unfundedliabilities #usa #Stewardship all we are doing now is making things worse for those who come after us

— Kendall Harmon (@KendallHarmon6) February 16, 2023

The U.S. government may have awarded roughly $5.4 billion in coronavirus aid to small businesses with potentially ineligible Social Security numbers, offering the latest indication that Washington’s haste earlier in the pandemic opened the door for widespread waste, fraud and abuse.

The top watchdog overseeing stimulus spending — called the Pandemic Response Accountability Committee, or PRAC — offered the estimate in an alert issued Monday and shared early with The Washington Post. It came as House Republicans prepared to hold their first hearing this week to study the roughly $5 trillion in federal stimulus aid approved since spring 2020.

The suspected wave of grift targeted two of the government’s most generous emergency initiatives: the Paycheck Protection Program, known as PPP, and the Economic Injury Disaster Loan, dubbed EIDL. Started under President Donald Trump — and managed by the beleaguered Small Business Administration — the roughly $1 trillion in loans and grants aimed to help cash-strapped companies stay afloat financially during the worst economic crisis since the Great Depression.

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Some $5.4B in #COVID19 aid may have gone to businesses using fishy Social Security numbers. Nearly 70,000 suspect SSNs, including ones that didn't exist or didn't match name & birth records.
House #Republicans are holding hearings on aid fraud this week.https://t.co/m4Mteizpdr

— Laurie Garrett (@Laurie_Garrett) January 30, 2023

Eighteen months ago, the online used car retailer Carvana had such great prospects that it was worth $80 billion. Now it is valued at less than $1.5 billion, a 98 percent plunge, and is struggling to survive.

Many other tech companies are also seeing their fortunes reverse and their dreams dim. They are shedding employees, cutting back, watching their financial valuations shrivel — even as the larger economy chugs along with a low unemployment rate and a 3.2 percent annualized growth rate in the third quarter.

One largely unacknowledged explanation: An unprecedented era of rock-bottom interest rates has abruptly ended. Money is no longer virtually free.

For over a decade, investors desperate for returns sent their money to Silicon Valley, which pumped it into a wide range of start-ups that might not have received a nod in less heady times. Extreme valuations made it easy to issue stock or take on loans to expand aggressively or to offer sweet deals to potential customers that quickly boosted market share.

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High valuations in Silicon Valley made it easy to issue stock or take on loans to expand aggressively or to offer sweet deals to potential customers that quickly expanded market share. Not anymore, @DavidStreitfeld reports. https://t.co/rHsLe5mXfZ

— NYTimes Tech (@nytimestech) January 24, 2023

The FBI’s purpose, according to Herbert N. Foerstel in his book “Surveillance in the Stacks,” was to demand details about library use by people from countries “hostile to the United States, such as the Soviet Union.” Agents tended to approach whoever was at the reference desk — often a student assistant or paraprofessional — and ask for names and other details of people who used the library to locate technical and scientific materials, such as engineering journals and publications of the National Technical Information Service. At the University of Wisconsin, according to Foerstel, agents watched a Soviet national reading the Russian newspaper “Pravda” and then asked a librarian if that copy “had been marked up.”

The rise in book bans, explained
The public was largely ignorant of these encounters until the case of Gennady Zakharov, a Russian-born United Nations aide who was indicted in 1986 for trying to transmit “unclassified information about [American] robotics and computer technology” to the Soviets. His source turned out to be a Guyanese college student who stole publicly available microfiche from several New York-area libraries and sold it to Zakharov.

The next year, the New York Times reported for the first time on the existence of the Library Awareness Program, calling it part of a national counterintelligence effort.

The FBI immediately tried to downplay the program’s significance. “Hostile intelligence has had some success working the campuses and libraries,” said James Fox, deputy assistant director of the New York FBI office, “and we’re just going around telling people what to be alert for.”

This explanation didn’t satisfy librarians. “We’re extremely concerned,” said Betsy Pinover, public relations director of the New York Public Library, “about intellectual freedom and the reader’s right to privacy, and are committed to protecting the privacy of our readers.” The New York Library Association and American Library Association issued similar statements. Rep. Major R. Owens (D-N.Y.), a former librarian, called it “a new low for the anti-intellectualism of the Reagan administration.” Cartoonists took aim; humorists made hay.

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When the FBI Was Secretly Spying on People's Library Habits | @washingtonpost https://t.co/0jLhLJEkO9

— Publishers Weekly (@PublishersWkly) January 24, 2023

Republicans, who have newly taken control of the House of Representatives, say that they cannot abide runaway spending and must rein it in. This deep concern appears episodic. When Donald Trump was president, the debt ceiling was increased three times with Republican support, and the national debt rose by $8trn over his term ($3.2trn of which came before covid-induced spending began in 2020). Those increases were not particularly contentious, and the White House wishes the same for this one. “Raising the debt ceiling is not a negotiation; it is an obligation of this country and its leaders to avoid economic chaos,” Mr Biden’s press secretary said in a statement released on January 20th.

But it may not be so simple. Republicans are unlikely to let their leverage over Mr Biden lapse. Kevin McCarthy squeaked into his position of Republican speaker of the House by promising many concessions to hardliners, including pledging extreme brinkmanship over the debt ceiling. Mr McCarthy has vowed to secure spending cuts in exchange for raising the debt limit, and pledged to put the country on the path to a balanced budget in a decade. As part of his bargain to attain power, the beleaguered speaker also had to allow a parliamentary manoeuvre that would make his own removal easier. Mr McCarthy may not be able to keep his promises, in which case his own party could end his speakership in its first year.

This is forcing financiers, lawyers and officials to focus on the unthinkable. The starting point of such contingency planning is that a sovereign default would be cataclysmic: in all likelihood stocks would plunge, borrowing costs would soar, growth would suffer and the dollar’s status as the world’s dominant currency would be shaken. Any way to avoid this series of disasters merits attention. The problem, unfortunately, is that each proposed workaround has severe—and quite possibly unworkable—drawbacks.

Read it all (registration or subscription).

Most games of chicken do not have trillion-dollar stakes. But such a spectacle is common in America https://t.co/18TkzGkAnt

— The Economist (@TheEconomist) January 23, 2023

Washington is gearing up for another big fight over whether to raise or suspend the nation’s debt limit, with Treasury Secretary Janet L. Yellen telling Congress on Thursday that the United States had reached its existing borrowing cap of $31.4 trillion.

The United States borrows huge sums of money by selling Treasury bonds to investors across the globe and uses those funds to pay existing financial obligations, including military salaries, safety net benefits and interest on the national debt. Once the United States hits the cap, Treasury begins using “extraordinary measures” — suspending some investments and exchanging different types of debt — to try to stay beneath the cap for as long as possible. But eventually, the United States will need to either borrow more money to pay its bills or stop making good on its financial obligations, including possibly defaulting on its debt.

Responsibility for lifting or suspending the borrowing cap falls to Congress, which must get a simple majority in both the House and Senate to vote for any change to the debt limit. Raising the debt limit has become a perennial fight, with Republican lawmakers using it as leverage to try to force spending cuts.

This year is shaping up to be the messiest fight in at least a decade. Republicans now control the House and they have adopted new rules that make it more difficult to raise the debt limit and strengthen Republicans’ ability to demand that any increase be accompanied by spending cuts. Senate Republicans have also insisted that increases to the debt limit should be tied to “structural spending reform.”

Read it all.

The U.S. Will Hit Its Debt Limit Today. How Bad Will It Be? – The New York Times https://t.co/Dw7I3uRvAx

— Louisette Lanteigne 🌎✌️⚖️♥️ (@lulex) January 19, 2023

Prices continued to climb at a brutally rapid pace in September, with a key inflation index increasing at the fastest rate in 40 years, bad news for the Federal Reserve as it struggles to wrestle the cost of living back under control.

Overall inflation climbed 8.2 percent over the year through September, according to the latest Consumer Price Index report on Thursday, a slight moderation from August but more than what economists had expected.

Even more worrisome, underlying inflation trends are headed in the wrong direction. After stripping out fuel and food — which are volatile and removed to get a better sense of the trajectory — prices climbed 6.6 percent over the year through September. That was the quickest rate since 1982.

Inflation has been rapid for a year and a half now, and it is proving stubborn even as the Fed mounts its most aggressive campaign in generations to slow the economy and bring price increases under control. Fast inflation has also triggered the highest Social Security cost-of-living adjustment in decades — an 8.7 percent increase in benefits to retired and disabled Americans, a move that was announced Thursday.

Read it all.

Inflation Is Unrelenting, Bad News for the Fed and White House https://t.co/VC0vlFl1h8

— Bill Labovitz (@wlabovitz) October 13, 2022

[Josep] Borrell, speaking at an annual conference of EU ambassadors, admitted that Brussels was “quite reluctant” to believe US warnings that Russia was going to invade Ukraine in February and had failed to analyse Russian president Vladimir Putin’s actions.

“We didn’t believe it will happen . . . And we haven’t foreseen neither the capacity of Putin to escalate,” he said.

Borrell added Brussels failed to understand what other countries wanted, and instead pushed its own ideas on them.

“We think that we know better what is in other people’s interests,” he said. “We have to listen more . . . to the rest of the world. We need to have more empathy.

“We try to export our model, but we don’t think how others will perceive this,” he added.

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The Federal Reserve is risking a ‘world recession’ by forcing the world into a dash to raise rates, warns EU’s top diplomat in unguarded critique of US monetary policy https://t.co/jXmo4V4L2F @FinancialTimes w @Sam1Fleming @colbyLsmith

— Henry Foy (@HenryJFoy) October 10, 2022

As of yesterday, the gross national debt is $31 trillion. This is a new record no one should be proud of. In the past 18 months, we’ve witnessed inflation rise to a 40-year high, interest rates climbing in part to combat this inflation, and several budget-busting pieces of legislation and executive actions. Just in 2022, Congress and the President have approved a combined $1.9 trillion in new borrowing, and President Biden has approved $4.9 trillion in new deficits since taking office. We are addicted to debt.

For decades, lawmakers have chosen to pass politically easy policies rather than face the challenges of true governing. Consider this: it was only five years ago that our country marked $20 trillion in gross debt. While much of that new borrowing was necessary to combat COVID, we are now past the most severe challenges of the pandemic, and it is time to budget responsibly – yet we are still borrowing.

Even more troubling than where the debt stands now is where it’s going. Our nation faces significant fiscal challenges in the near term. Medicare is only six years from insolvency, and Social Security insolvency is only 12 years away. Yet policymakers have put forth no plan to put either program on strong fiscal footing.

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"As of yesterday, the gross national debt is $31 trillion. This is a new record no one should be proud of." https://t.co/JLTh4UqSiD

— CRFB.org (@BudgetHawks) October 4, 2022

It is hard not to feel a sense of foreboding. As the Federal Reserve has tightened policy, asset prices have plunged. Stocks, as measured by the Wilshire 5000 all-cap index, have shed $12trn of market capitalisation since January. Another $7trn has been wiped off bonds, which have lost 14% of their value. Some $2trn of crypto market-cap has vanished over the past year. House prices adjust more slowly, but are falling. Mortgage rates have hit 7%, up from 3% last year. And this is all in America—one of the world’s strongest economies.

Rising rates will slow the American economy and should break the back of inflation. But what else will they break? Since the Federal Reserve raised rates again on September 22nd, global markets have been in turmoil. When the British government announced unfunded tax cuts a day later, fire-sales by pension funds caused the yield on government bonds (or “gilts”) to spiral out of control. Contagion then spread to the American Treasury market, which is as volatile and illiquid as it was at the start of covid-19. The cost to insure against the default of Credit Suisse, a global bank, has risen sharply. These ructions indicate the world is entering a new phase, in which financial markets no longer just reflect the pain of adjusting to the new economic context—pricing in higher rates and lower growth—but now also spread pain of their own.

The most catastrophic pain is felt when financial institutions fail. There are two ways they do so: illiquidity or insolvency. Tighter monetary policy is likely to prompt or reveal both.

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Rising rates will slow the American economy and should break the back of inflation. But what else will they break? https://t.co/9jMyduKXBk

— The Economist (@TheEconomist) October 5, 2022

The world’s financial markets are going through their most painful adjustment since the global financial crisis. Adapting to the prospect of higher American interest rates, the ten-year Treasury yield briefly hit 4% this week, its highest level since 2010. Global stock markets have sold off sharply, and bond portfolios have lost an astonishing 21% this year.

The dollar is crushing all comers. The greenback is up by 5.5% since mid-August on a trade-weighted basis, partly because the Fed is raising rates but also because investors are backing away from risk. Across Asia, governments are intervening to resist the depreciation of their currencies. In Europe Britain has poured the fuel of reckless fiscal policy on the fire, causing it to lose the confidence of investors. And as bond yields surge, the euro zone’s indebted economies are looking their most fragile since the sovereign-debt crisis a decade ago.

Read it all.

Even America’s economy, which has been resilient in the face of headwinds this year, is unlikely to keep growing through an interest ­rate shock as severe as the one it now faces https://t.co/JiaMak87kP

— The Economist (@TheEconomist) September 30, 2022

The world can kiss goodbye to an economic soft landing. Western central banks are on a misguided mission to restore their damaged credibility, tightening monetary policy violently after the post-pandemic recovery has already wilted and output is nearing contractionary levels.

Britain’s fiscal blitz has the luck of timing. It is a counter-cyclical stimulus, cushioning some of the blow, even if it risks rattling bond vigilantes, and even if it is wasteful in subsidies for the affluent.

Critics say the energy bailout will cap inflation in the short run but stoke more inflation in the long run, to which one can only reply, like Keynes, that in the long run we are all dead. World events are going to wash over such quibbling with a torrential deflationary force.

The central banks are pushing through with triple-barrelled rate rises after the inflation fever has broken; after the commodity boom has deflated; and after key monetary indicators on both sides of the Atlantic have turned negative. They are prisoners of lagging indicators.

Read it all.

✍️"Inflation will abate gradually of its own accord across the Atlantic world, without the need for a punishment beating by central banks with bad models. Boom-bust monetary policy is frankly a scandal," writes Ambrose Evans-Pritchard https://t.co/InfJuu0hpD

— The Telegraph (@Telegraph) September 23, 2022

Federal Reserve officials, struggling to contain the most rapid inflation in 40 years, delivered a third big rate increase on Wednesday and projected a more aggressive path ahead for monetary policy, one that would lift interest rates higher and keep them elevated longer.

The Fed raised its policy interest rate by three-quarters of a percentage point, boosting it to a range of 3 to 3.25 percent. That’s a significant jump from as recently as March, when the federal funds rate was set at near-zero, and the increases since then have made for the Fed’s fastest policy adjustment since the 1980s.

Even more notably, policymakers predicted on Wednesday that they would raise borrowing costs to 4.4 percent by the end of the year and forecast markedly higher interest rates in the years to come than they had previously expected. Jerome H. Powell, the Fed chair, warned that those moves would be painful for the U.S. economy — but said curbing growth to contain price increases was essential.

“We have got to get inflation behind us,” Mr. Powell said during his post-meeting news conference. “I wish there were a painless way to do that; there isn’t.”

Read it all.

The policy interest rate rose three-quarters of a percentage point, to a range of 3 to 3.25 percent.https://t.co/7rK00RO5Vk

— NYT Business (@nytimesbusiness) September 22, 2022

The Federal Reserve continued its campaign of rapid interest rate increases on Wednesday, pushing up borrowing costs at the fastest pace in decades in an effort to wrestle inflation under control.

Fed officials voted unanimously at their July meeting for the second supersized rate increase in a row — a three-quarter-point move — and signaled that another large adjustment could be coming at their next meeting in September, though that remains to be decided. The decision on Wednesday puts the Fed’s policy rate in a range of 2.25 to 2.5 percent.

The central bank’s brisk moves are intended to slow the economy by making it more expensive to borrow money to buy a house or expand a business, weighing on the housing market and economic activity more broadly. Jerome H. Powell, the Fed chair, said during a news conference after the meeting that such a cool-down was needed to allow supply to catch up with demand so that inflation could moderate.

ADVE

Read it all.

I've been doing this for ~a decade, and I can't remember another time when such a chorus of strategists/sell-side economists/close central bank watchers so bluntly said: "Nope. The market read the Fed wrong." https://t.co/Jy36gAlIEP

— Jeanna Smialek (@jeannasmialek) July 28, 2022

But there are two risks of a hard landing. One thing to fear is that the inflation episode today is like that of 1920. Back then the problem would have passed on its own, but the Fed tightened too much in response. There are no indications of overtightening yet, but then there wouldn’t be: the effects of the roughly two-percentage-point rise in both nominal and inflation-indexed ten-year Treasury rates since December 2021 will not begin to show in the real economic data until 2023.

The second risk is that this is indeed like the 1970s, and so it is imperative to scotch any expectations of an inflationary spiral before they are even formed. Turn on the news, and there is constant chatter that likens our situation to that of the 1970s, with suggestions to hedge against inflation.This may reflect the tendency of social and professional media towards clickbait, but it could nonetheless shift expectations. There is little indication so far of such a shift in the prices of long-term bonds. Possibly it is imprudent to place too much weight on this particular harbinger alone.

Most of the time I think it would be great fun to be a member of the fomc. Not today. The risks inherent within our current situation are immense. And misjudgments caused by a failure to listen to the right signals would be devastating.

Read it all.

#Inflation is a problem, and #recession is a risk. But easy monetary and fiscal policy has created a stronger recovery than we've seen in the past. Are we ahead, on net, relative to past episodes? https://t.co/mgF6FJSmvV

— Carl R. Tannenbaum (@NT_CTannenbaum) July 5, 2022

The US is either in recession already, or probably will be by early autumn. This has sweeping consequences for the world’s dollarised financial system, for commodity demand, and for global inflation.

The New York Federal Reserve’s internal model is flashing an 80pc risk that the US economy will enter a sustained contraction in the second half of this year, much sooner than presumed just weeks ago. The chances of a “soft landing” have dropped to 10pc. If so, you can stop worrying about an inflationary spiral.

The institution’s “dynamic stochastic general equilibrium” model (DSGE) points to an outright fall in GDP of 0.6pc this year and a further fall of 0.5pc next year. It likens the current picture to the 1990 recession under George Bush senior, triggered by the First Gulf War.

Monetarists think the DSGE model understates the danger since it entirely ignores the role of money in the economy. It treats the abrupt switch from extreme quantitative easing to extreme quantitative tightening – a $2.4 trillion reversal, annualised – as mostly background noise. This New Keynesian blind spot on how QE works (through the banking multiplier) has misled the Fed before, and may be misleading the Fed now.

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"The US is either in recession already, or probably will be by early autumn. This has sweeping consequences for the world’s dollarised financial system, for commodity demand, and for global inflation" | Writes Ambrose Evans-Pritchard https://t.co/RadPwXVZI3

— The Telegraph (@Telegraph) June 21, 2022

Soaring prices are hurting Americans. The cure is going to hurt, too. It may take a recession to stamp out inflation — and it’s likely to happen on President Joe Biden’s watch.

A downturn by the start of 2024, barely even on the radar just a few months ago, is now close to a three-in-four probability, according to the latest estimates by Bloomberg Economics.

On Wednesday the Fed delivered its biggest interest-rate hike in almost three decades, as it takes the fight against inflation into overdrive. When central bankers try this hard to slow the economy down, they often end up tipping it into outright reverse.

Read it all.

The risk of a US recession by the first quarter of 2024 has hit 72% as the Fed hikes rates to curb inflation https://t.co/K4LabRfe6D

— Bloomberg Markets (@markets) June 15, 2022

None of this implies that the Fed’s job will be easy. The degree to which the central bank will have to tighten monetary policy to control our currently high inflation, and the associated risk of an economic slowdown or recession, depends on several factors: how quickly the supply-side problems (high oil prices, supply-chain snarls) subside, how aggregate spending reacts to the tighter financial conditions engineered by the Fed and whether the Fed retains its credibility as an inflation fighter even if inflation takes a while to subside.

Of these, history teaches us, the last may be the most important. Inflation will not become self-perpetuating, with price increases leading to wage increases leading to price increases, if people are confident that the Fed will take the necessary measures to bring inflation down over time.

The Fed’s greater policy independence, its willingness to take responsibility for inflation and its record of keeping inflation low for nearly four decades after the Great Inflation, make today’s Fed much more credible on inflation than its counterpart in the ’60s and ’70s. The Fed’s credibility will help ensure that the Great Inflation will not be repeated, and Mr. Powell and his colleagues will put a high priority on keeping that credibility intact.

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Inflation Isn’t Going to Bring Back the 1970s https://t.co/tktAb9cccV #AndyVermautFromBelgiumLovesNewYorkTimes pic.twitter.com/yIIchHkNgK

— Andy Vermaut (@AndyVermaut) June 14, 2022

The US economy will tip into a recession next year, according to nearly 70 per cent of leading academic economists polled by the Financial Times.

The latest survey, conducted in partnership with the Initiative on Global Markets at the University of Chicago’s Booth School of Business, suggests mounting headwinds for the world’s largest economy after one of the most rapid rebounds in history, as the Federal Reserve ramps up efforts to contain the highest inflation in about 40 years.

The US central bank has already embarked on what will be one of the fastest tightening cycles in decades. Since March it has raised its benchmark policy rate by 0.75 percentage points from near-zero levels.

The Federal Open Market Committee gathers once again on Tuesday for a two-day policy meeting, at which officials are expected to implement the first back-to-back half-point rate rise since 1994 and signal the continuation of that pace until at least September.

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Almost 70% of the economists who participated in our latest poll with @ChicagoBooth’s IGM predict @nberpubs will declare a recession in 2023 https://t.co/uMD6PnzX30 @FinancialTimes @caitlinsgilbert

— Colby Smith (@colbyLsmith) June 12, 2022

….he also suggests it is possible the nation could be in for a period of “stagflation,” a word Mr. Bernanke says was invented in the 1970s.

“Even under the benign scenario, we should have a slowing economy,” he said. “And inflation’s still too high but coming down. So there should be a period in the next year or two where growth is low, unemployment is at least up a little bit and inflation is still high,” he predicted. “So you could call that stagflation.”

He is particularly aware that runaway inflation can quickly become a political issue — possibly putting the Federal Reserve in the cross-hairs of the public — in a way that even unemployment doesn’t evoke. “The difference between inflation and unemployment is that inflation affects just everybody,” he said. “Unemployment affects some people a lot, but most people don’t respond too much to unemployment because they’re not personally unemployed. Inflation has a social-wide kind of impact.”

Mr. Bernanke appears to be somewhat concerned about the credibility of the Federal Reserve in the public consciousness, especially given the aggressive approach that he took in 2008 and that Mr. Powell continued during the pandemic. “I had this fantasy conversation in my head between Jay Powell and William McChesney Martin, where I think Martin probably would have had apoplexy or something because of the different things that intervening chairs have done,” he said, referring to Mr. Martin, the chair of the Federal Reserve from 1951 to 1970.

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Bernanke is hopeful that Powell, the current Federal Reserve chairman, can help tame inflation without having to put in place the extreme measures that Volcker did in the 1970s or send the economy into recession.

Ben Bernanke Sees ‘Stagflation’ Ahead https://t.co/rZ2EuGbfUN

— Sean Graf (@seangraf) May 16, 2022

Some Federal Reserve officials have begun to acknowledge that they were too slow to respond to rapid inflation last year, a delay that is forcing them to constrain the economy more abruptly now — and one that could hold lessons for the policy path ahead.

Inflation began to accelerate last spring, but Fed policymakers and most private-sector forecasters initially thought price gains would quickly fade. It became clear in early fall that fast inflation was proving to be more lasting — but the Fed pivoted toward rapidly removing policy support only in late November and did not raise rates until March.

Several current and former Fed officials have suggested in recent days that, in hindsight, the central bank should have reacted more quickly and forcefully last fall, but that both profound uncertainty about the future and the Fed’s approach to setting policy slowed it down.

Officials had spent years dealing with tepid inflation, which made some hesitant to believe that rapidly rising prices would last. Even as they became more concerned, it took the Fed’s large group of policymakers time to come to an agreement on how to respond. Another complicating factor was that the Fed had made clear promises to markets about how it would remove support for the economy, which made adjusting quickly more difficult.

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Some Federal Reserve officials have begun to acknowledge that they were too slow to respond to rapid inflation last year, a delay that is forcing them to constrain the economy more abruptly now — and one that could hold lessons for the policy path ahead. https://t.co/RzMroyCmbM

— The New York Times (@nytimes) May 11, 2022