The start of a Fed rate-cutting cycle is a huge moment for the international financial system. Central banks in emerging markets can loosen a little without fearing a run on their currencies. Indonesia’s central bank has stopped defending the rupiah and dared to cut rates. India’s Sensex stock index hit an all-time high on Thursday as markets anticipate a new world of abundant liquidity and surging inflows of foreign funds.

The Fed’s jumbo half-point cut is transmitted instantly to the 40-odd countries and currency boards linked to the US dollar in one way or another. These regions were forced to import the most aggressive tightening cycle in 40 years through their exchange rates, whether or not their local economies were synchronised with the US cycle….

But there is a large caveat to this rosy global picture. It all depends on whether the Fed is ahead of the curve and delivers a soft landing; or whether it is behind the curve, has misjudged the delayed effects of past tightening, and has already let recessionary dynamics take hold.

These binary outcomes can have drastically different consequences for the world.

Mislav Matejka, equity strategist at JP Morgan, says there have been four soft landings and eight recessions in the last 12 Fed cycles. The “softs” delivered stock market gains of 20pc or so over the following year. The “hards” led to months of sell-offs, snowballing into wipeout crashes in 2001 and 2008. This time the starting point is stretched after a 26pc rise in Wall Street’s S&P 500 index over the last year.

Read it all.

Enjoy the torrid Fed rally, but the world is not out of the woods yet https://t.co/of6TpXposG

— Felix Randal (@felixrandal) September 20, 2024

The Group of 7 countries might have set a record when they met in Italy last week. Has there ever been a less popular assemblage of leaders of the free world? Approval ratings ranged from Giorgia Meloni of Italy’s about 40 percent to Emmanuel Macron of France’s 21 percent to Fumio Kishida of Japan’s 13 percent. Last year the Edelman Trust Barometer found that only 20 percent of people in the G7 countries thought that they and their families would be better off in five years. Another Edelman survey, from 2020, uncovered a broad distrust of capitalism in countries across the world, “driven by a growing sense of inequity and unfairness in the system.”

Why the broad dissatisfaction with an economic system that is supposed to offer unsurpassed prosperity? Ruchir Sharma, the chairman of Rockefeller International and a Financial Times columnist, has an answer that boils down to two words: easy money. In an eye-opening new book, “What Went Wrong With Capitalism,” he makes a convincing case.

“When the price of borrowing money is zero,” Sharma told me this week, “the price of everything else goes bonkers.” To take just one example: In 2010, as the era of ultralow and even negative interest rates was getting started, the median sale price for a house in the United States hovered around $220,000. By the start of this year, it was more than $420,000.

Nowhere has inflation (in the broad sense of the term) been more evident than in global financial markets. In 1980 they were worth a total of $12 trillion — equal to the size of the global economy at the time. After the pandemic, Sharma noted, those markets were worth $390 trillion, or around four times the world’s total gross domestic product.

Read it all.

How Capitalism Went Off the Rails

By Bret Stephens, Opinion Columnist @nytimes

"The social consequence of this is rage; the political consequence is populism."
https://t.co/yD7bmUnqDw

— Stefan Michaelsen (@stefanmichaelse) June 19, 2024

When it comes to the size of the federal government’s annual deficit, appearances can be deceiving.

The gap between spending and revenue for fiscal year 2023, which ended on Sept. 30, was $1.7 trillion, the Congressional Budget Office projected ahead of the official Treasury Department figures. That would be a roughly $300 billion widening in the shortfall from fiscal year 2022.

But the gap was actually much larger. That is because of the odd way President Biden’s attempt to broadly cancel student debt shows up in budget figures.

Read it all.

The Federal Deficit Is Even Bigger Than It Looks: Student-debt cancellation complicates the numbers as higher interest rates make borrowing costlier https://t.co/UnnEwiCbb6 pic.twitter.com/WqwpDVfUfn

— Jesse Felder (@jessefelder) October 13, 2023

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

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.”

Read it all.

“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 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

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.

Read it all.

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

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.

Read it all.

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

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.

Read it all.

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.

Read it all (registration or subscription).

"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.

Read it all (my emphasis).

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.

Read it all.

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.

Read it all.

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.

Read it all.

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

America’s gross national debt topped $30 trillion for the first time on Tuesday, an ominous fiscal milestone that underscores the fragile nature of the country’s long-term economic health as it grapples with soaring prices and the prospect of higher interest rates.

The breach of that threshold, which was revealed in new Treasury Department figures, arrived years earlier than previously projected as a result of trillions in federal spending that the United States has deployed to combat the pandemic. That $5 trillion, which funded expanded jobless benefits, financial support for small businesses and stimulus payments, was financed with borrowed money.

The borrowing binge, which many economists viewed as necessary to help the United States recover from the pandemic, has left the nation with a debt burden so large that the government would need to spend an amount larger than America’s entire annual economy in order to pay it off.

Some economists contend that the nation’s large debt load is not unhealthy given that the economy is growing, interest rates are low and investors are still willing to buy U.S. Treasury securities, which gives them safe assets to help manage their financial risk. Those securities allow the government to borrow money relatively cheaply and use it to invest in the economy.

Read it all.

Breaking News: The U.S. national debt topped $30 trillion, years ahead of schedule, as pandemic spending fueled government borrowing. https://t.co/6yUwsPvi1P

— The New York Times (@nytimes) February 1, 2022

When America’s Bureau of Labor Statistics released data this month showing that consumer price inflation had surged to 7 per cent, many investors were shocked. No wonder: this marks the fastest jump since 1982.

But here is another number that should spark concern: 17 per cent. That was the annual inflation rate for overall trucking costs last month, according to a (deeply buried) section of the bureau’s data. For the long-haul trucking sector, the number was even scarier: 25 per cent.

That is bad news for business — and consumers — given that almost three-quarters of freight in America is moved by trucks. Or to put it another way, if you want to understand what lies behind that scary 7 per cent inflation number, don’t just track raw material, energy or cross-border shipping costs; watch those oft-ignored truckers too.

Read it all.

Gillian Tett: if you want to understand what lies behind that scary US 7 per cent inflation number, don’t just track raw material, energy or cross-border shipping costs; watch those oft-ignored truckers too https://t.co/pjoTTvixvr pic.twitter.com/NVm8tsQ0Lb

— FT Opinion (@ftopinion) January 21, 2022

The Omicron variant is circling the globe, closing borders and sparking new restrictions on economic activity. Yet central banks, instead of loosening monetary policy to prop up their economies as they did at the start of the pandemic, are moving to unwind stimulus and raise interest rates.

The moves reflect a new thinking among policy makers about the pandemic’s economic effects: Central-bank officials worry that rather than simply threatening to curtail economic growth, a surge in Covid-19 cases could also prolong high inflation.

In the past week, the Federal Reserve, the Bank of England and the European Central Bank all moved to tighten monetary policy in response to inflation concerns.

When the pandemic first became widespread, in early 2020, governments locked down their economies. Consumer spending fell sharply, employers shed workers and prices fell. Within a few months, the rise of e-commerce and remote working allowed the economy in many developed countries to recover rapidly. With mass vaccinations, that recovery has continued this year.

Read it all.

Central-bank officials worry that rather than simply threatening to curtail economic growth, a surge in Covid-19 cases could also prolong high inflation https://t.co/NgdMbwDeym

— The Wall Street Journal (@WSJ) December 19, 2021

The global economy’s comeback from last year’s deep contraction is approaching a delicate juncture, as policy makers and executives grapple with the bumpy transition from the post-pandemic reopening to a more normalized pace of growth.

Central banks in the U.S. and elsewhere are trying to chart a path that will curb inflation but not choke off growth as they navigate the process of weaning economies off the extraordinary measures—including rock-bottom interest rates and enormous bond-buying programs—deployed to support their economies.

The surge in U.S. consumer demand over the past year—turbocharged by trillions in stimulus—has ricocheted outward and caused disruptions to global supply chains that are now worsening and may stretch through 2022, say executives. The resulting higher prices and the struggle to secure raw materials and labor are piling the pressure on some companies and weighing on major economies such as Germany.

Meanwhile, China is in the midst of an ambitious effort to reform its economy, including reining in household and corporate debt, particularly in the country’s housing market, clamping down on the technology sector and pursuing ambitious climate goals—factors that could slow growth there and globally.

Read it all.

As supply-chain disruptions worsen and inflation surges, executives and policy makers must navigate a delicate transition to a more normal economy https://t.co/hQKhTB9wc6

— Real Time Economics (@WSJecon) November 8, 2021

The Federal Reserve’s preferred gauge of inflation climbed in August at the quickest pace in 30 years, data released on Friday showed, keeping policymakers on edge as evidence mounts that rapidly rising prices are poised to last longer than practically any of them had expected earlier this year.

The numbers come at a pivotal moment, as inflationary warning signals abound. Used car prices show signs of picking up again, costs for raw goods like cotton and crude oil are increasing and companies continue to experience pain from persistent supply chain disruptions.

That is stoking fears in Washington and on Wall Street that although rapid price gains will eventually fade, the adjustment could drag on for months. A longer burst of inflation raises the chances that consumers will change their expectations and behavior, paving the way for more permanent price increases.

It is a high-stakes juncture for policymakers. The Fed is preparing to withdraw some of its support for the economy soon, but it would prefer to do so only gradually, given the millions of Americans who remain out of work. The White House is trying to pass two big policy packages at the core of President Biden’s economic agenda, and Republicans have begun wielding every new inflation data point as an argument against more federal spending.

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The August rise in the Personal Consumption Expenditures index is stoking fears that although rapid price gains will eventually fade, the adjustment could drag on for months, @jeannasmialek writes. https://t.co/PmlzSdu1kN

— NYT Business (@nytimesbusiness) October 2, 2021

Federal Reserve Chairman Jerome Powell warned of potentially tragic economic consequences if Congress and the White House don’t provide additional support to households and businesses disrupted by the coronavirus pandemic.

“The expansion is still far from complete,” Mr. Powell said in his strongest remarks to date on the subject, delivered to a virtual conference of private-sector economists Tuesday. “At this early stage, I would argue that the risks of policy intervention are still asymmetric. Too little support would lead to a weak recovery, creating unnecessary hardship.

By contrast, the risks of providing too generous relief are smaller, he said. “Even if policy actions ultimately prove to be greater than needed, they will not go to waste,” he said.

A few hours after Mr. Powell spoke, President Trump said he was suspending negotiations with congressional Democrats over steps to extend unemployment benefits that lapsed in July and to provide additional aid to hard-hit businesses, cities and states.

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“The recovery will be stronger and move faster if monetary policy+fiscal policy continue 2 work side by side 2 provide support to the economy until it is clearly out of the woods,” #Fed Chairman Jerome Powell said" https://t.co/QBf23Fbdql #economy #stimulusbill #politics #covid19

— Kendall Harmon (@KendallHarmon6) October 7, 2020

PELLEY: And when you say things, people listen. And Wall Street didn’t want to hear that this was going to take longer than their hopes indicated?

POWELL: I was really calling out a risk that I think is an important one for people to be cognizant of, and that is the risk of longer-run damage to the economy. And really, the good news is that we have the tools to limit that longer-run damage by continuing to provide support to households and businesses as we get through this. And that was really my message.

PELLEY: It was meant to be a signal to Capitol Hill to tell lawmakers the economy needs a great deal more support?

POWELL: That was a part of my remarks this morning. I also wanted to just talk more at length about the longer-run dangers and commit the Fed to really stay in this fight as long as we need to as well….

PELLEY: Has the Fed done all it can do?

POWELL: Well, there’s a lot more we can do. We’ve done what we can as we go. But I will say that we’re not out of ammunition by a long shot. No, there’s really no limit to what we can do with these lending programs that we have. So there’s a lot more we can do to support the economy, and we’re committed to doing everything we can as long as we need to.

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“We’re not out of ammunition by a long shot. No, there’s, there’s really no limit to what we can do with these lending programs that we have”

Full transcript is worth a readhttps://t.co/aVGXNyfPP9

— Jonathan Ferro (@FerroTV) May 17, 2020

The eye-popping improvement in economic fortunes last year raises the question: If incomes are up and poverty is down, why is Donald J. Trump’s message of economic decay resonating so broadly?

The answer is in plain sight. While the economy finally is moving in the right direction, the real incomes of most American households still are smaller than in the late 1990s. And large swaths of the country ”” rural America, industrial centers in the Rust Belt and Appalachia ”” are lagging behind.

“We ain’t feeling too much of all that economic growth that I heard was going on, patting themselves on the back,” said Ralph Kingan, the mayor of Wright, Wyo. “It ain’t out in the West.”

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Federal Reserve policy makers indicated that a June interest-rate increase was likely if the economy continued to improve, boosting market expectations they will act next month.

“Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen and inflation making progress toward the committee’s 2 percent objective, then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June,” according to minutes of the Federal Open Market Committee’s April 26-27 meeting released Wednesday in Washington.

Officials were divided over whether those conditions were likely to be met in time. “Participants expressed a range of views about the likelihood that incoming information would make it appropriate to adjust the stance of policy at the time of the next meeting,” the minutes stated.

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