Fed’s Shift Could Keep Interest Rates Low for Longer: Live Updates
Fed’s Shift Could Keep Interest Rates Low for Longer: Live Updates
The Federal Reserve, in a significant shift that could keep interest rates low for longer periods, said it would focus on keeping unemployment low and allow inflation to run slightly higher in good times.
The Fed chair, Jerome H. Powell. announced the change in a speech on Thursday at the Kansas City Fed’s annual Jackson Hole symposium that was accompanied by an updated long-run statement describing the Fed’s policy strategy. He said the shifts would allow the gains of a strong economy to benefit a wide range of workers.
“Our revised statement emphasizes that maximum employment is a broad-based and inclusive goal,” Mr. Powell said in remarks prepared for delivery Thursday, and “this change reflects our appreciation for the benefits of a strong labor market, particularly for many in low- and moderate-income communities.”
The Fed had been raising rates as joblessness fell to avoid economic overheating that ended in breakaway inflation, but in recent years, price gains have been tepid. The changes are an explicit recognition that too low, rather than too high, inflation is the problem.
By emphasizing the importance of a strong labor market and underlining the Fed’s modesty in understanding how long, and how far, unemployment can fall, Mr. Powell and his colleagues used their updated framework to lay the groundwork for longer periods of low interest rates, which could translate into both long periods of cheap mortgages and business loans and stronger future job markets.
Mr. Powell, in explaining the changes, said that “with interest rates generally running closer to their effective lower bound even in good times, the Fed has less scope to support the economy during an economic downturn by simply cutting the federal funds rate.”
The result, he said, “can be worse economic outcomes in terms of both employment and price stability, with the costs of such outcomes likely falling hardest on those least able to bear them.”
Mr. Powell acknowledged that it might seem “counterintuitive that the Fed would want to push up inflation” which, in turn, raises prices. But he the trade-off was a less robust economy that did not deliver gains evenly.
“We are certainly mindful that higher prices for essential items, such as food, gasoline, and shelter, add to the burdens faced by many families, especially those struggling with lost jobs and incomes,” he said. “However, inflation that is persistently too low can pose serious risks to the economy.”
Just over one million Americans filed new claims for state jobless benefits last week, the latest sign that the economy is losing momentum just as federal aid to the unemployed has been pulled away.
Weekly claims briefly dipped below the one million mark earlier this month, offering a glimmer of hope in an otherwise gloomy job market. But filings jumped back above one million the following week, and stayed there last week, the Labor Department said Thursday.
“It’s devastating how stubbornly high initial claims are,” said Julia Pollak, a labor economist at the employment site ZipRecruiter. “There are still huge numbers of layoffs taking place.”
Another 608,000 people filed for benefits under the federal Pandemic Unemployment Assistance program, which offers aid to independent contractors, self-employed workers and others not covered by regular state programs. That number, unlike the figures for state claims, is not seasonally adjusted.
Initial weekly unemployment claims,
both regular and those under the Pandemic Unemployment Assistance program
1.0 million regular claims last week after rising above 1 million the week before
Initial weekly unemployment claims, both regular and those under the Pandemic Unemployment Assistance program
1.0 million regular claims last week after rising above 1 million the week before
Other recent indicators also suggest that the recovery is faltering. Job growth slowed in July, and real-time data from private-sector sources suggests that hiring has slumped further in August. On Tuesday, American Airlines said it would furlough 19,000 workers on Oct. 1, the latest in a string of such announcements from major corporations.
“It is worrying because it does signal that these large companies are pessimistic about the state of the recovery and don’t think that we are going to be returning to normal anytime soon,” said Daniel Zhao, senior economist at the career site Glassdoor.
Unemployment filings have fallen sharply since early April, when 6.6 million applied for benefits in a single week. But even after that decline, weekly filings far exceed any previous period. Close to 30 million Americans are receiving benefits under various state and federal programs.
The continued high rate of job losses comes as government support for the unemployed is waning. The $600-a-week federal supplement to state unemployment benefits expired at the end of July, and efforts to replace it have stalled in Congress. President Trump announced this month that he was using his executive authority to give jobless workers an additional $300 or $400 a week, but few states have begun paying out the new benefit, and the $44 billion allocated to the program is expected to last only a few weeks.
Economists warn that the loss of federal support could act as a brake on the recovery. Nancy Vanden Houten, lead economist for the forecasting firm Oxford Economics, estimated that the lapse in extra unemployment benefits would reduce household income by $45 billion in August. That could lead to a drop in consumer spending and further layoffs, she said.
U.S. stocks edged higher on Thursday, as investors digested a speech by the Federal Reserve chair that signaled a looser approach to stimulating the economy.
The S&P 500 was up less than half a percent in early trading. European indexes were down less than 1 percent, after a day when most Asian indexes declined. In Japan, the Nikkei lost 0.4 percent, and the Hang Seng in Hong Kong fell 0.8 percent. In South Korea, the Kospi lost 1.1 percent.
Investors were also considering the latest U.S. weekly unemployment claims, which again topped one million, according to data released by the Labor Department.
In an address Thursday morning, Jerome H. Powell, the Fed chair, summarized a nearly two-year review of the central bank’s policy tools. Mr. Powell said the central bank would allow higher inflation and lower unemployment before raising interest rates.
The economy contracted slightly less in the spring than initially believed. The Commerce Department on Thursday said U.S. gross domestic product shrank 9.1 percent in the second quarter (an annual rate of decline of 31.7 percent), a bit better than the initially reported 9.5 percent decline. The quarter was still the worst on record.
Thursday’s earnings report from Rolls-Royce, the jet engine maker, served as a reminder of the pandemic’s toll. The British company reported a half-year loss of 5.4 billion pounds ($7.1 billion), as the coronavirus’s impact on air travel hurt demand for its engines, which are used in both Airbus and Boeing aircraft. The company has been closing plants and has plans to shed up to 9,000 workers; its shares fell 9 percent.
It has been nearly a month since the $600 a week in extra federal unemployment assistance ran out. For most of the nearly 30 million Americans receiving benefits, the wait for additional help is likely to drag on for weeks more.
President Trump this month announced a plan to use federal emergency funds to provide $300 a week in extra payments to most unemployed workers. (States can choose to chip in an additional $100 a week, but few are doing so.) As of Wednesday, 32 states had been approved for grants under the program, known as Lost Wages Assistance.
Arizona, the first state to turn the grants into payments, sent $252.6 million to about 400,000 recipients last week, a sum that included retroactive payments for the first two weeks of August. Texas this week has paid out $424 million and expects to deliver nearly $1 billion more to cover the first three weeks of benefits. A handful of other states are paying benefits or expect to begin doing so within days.
Most, however, said it could take until mid-September or later to reprogram computer systems and take other steps to get the money to recipients. Some states don’t expect to send out funds until early October.
Once the money starts flowing, it may not last long. Mr. Trump’s order authorized spending up to $44 billion, which federal officials said last week would cover four or five weeks of payments. That means jobless workers in many states may receive a lump sum covering several weeks of retroactive benefits, but nothing more without congressional action.
Why have some states been able to move quickly to pay out the new $300-a-week unemployment benefit, while others expect the process to take weeks? In a word: technology.
On the surface, the benefit looks like the $600-a-week federal supplement that ended in July, just cut in half. But there are subtle differences: The program has a different funding source (the Federal Emergency Management Agency instead of the Labor Department) and new restrictions (people receiving less than $100 a week in regular benefits don’t qualify).
Those kinds of adjustments would be trivial on a modern computer system. But thanks to years of underinvestment, many state unemployment systems are running on computers that are anything but modern.
In Oklahoma, for example, the unemployment system runs on a 40-year-old mainframe computer that turns even minor adjustments into a major programming task. As a result, even though the state was among the first to apply for the funds, it doesn’t expect to begin paying the new benefit until late September.
”The fact that I’m working with a mainframe from 1978 to process claims is just crippling to the agency,” said Shelley Zumwalt, interim executive director of the agency that oversees Oklahoma’s unemployment system. “We are just holding that system together with masking tape and chewing gum.”
When the pandemic hit, Arizona, too, was stuck with archaic computer systems. It built a new system virtually from scratch to begin paying out federally funded emergency benefits, and it was among the last states to do so.
But the approach left Arizona better able to handle curveballs like the new $300 benefit. Last week it became the first state to begin paying the supplement.
“Through that chaos, we created a pandemic unemployment system,” said Michael Wisehart, director of the Arizona Department of Economic Security.
Christy Miller says there are three things that shape her identity: making people laugh, making people strong and lifting heavy objects. She can’t do any of those right now, and she isn’t sure when she will be able to again.
Ms. Miller, 49, is a standup comedian in New York, where comedy clubs have been closed since March. She is also a personal trainer and an amateur power lifter — activities she has had to give up because gyms, too, remain closed in the city.
For Ms. Miller, the extra $600 a week in unemployment benefits from the federal government that lapsed at the end of last month didn’t just allow her to pay rent and buy food. It also freed up the time and mental energy for her to learn video production, podcasting and other skills to help her survive the pandemic-driven shutdown of her industry.
“I would give up the $600 a week any day for this coronavirus to go away and get back to work,” she said. “But the $600 has allowed me not to be homeless, to learn more computer stuff that I never would have learned or had the time to learn.”
None of those new ventures are paying the bills yet, though. She saved as much of her unemployment benefits as she could, and has enough to cover rent through the end of the year. But other bills are another matter.
A stopgap $300-a-week federal supplement is in the works, but it’s not clear when New York will begin paying it, or whether it will be enough to keep her going. And there is little guarantee that her business will bounce back before her savings run out.
“If they don’t fix this pandemic thing, I may have to leave New York because I can’t afford to stay here,” she said.
Kris Fusco is finally back at work. That doesn’t mean her coronavirus worries are behind her.
When Ms. Fusco’s employer — a small, family-owned business in Massachusetts that rents musical instruments to students — laid her off in March, she expected to be out of work for a couple of weeks. That got extended to April, then to June. Eventually one of the owners called her to tell her they didn’t know when they could reopen.
“I said, ‘You do what you need to do to keep your business afloat, and I’m just going to hold on as long as I can,’” she said.
Ms. Fusco, 50, said she was able to get through the extended layoff because of the $600 a week that the federal government was adding to unemployment benefits. She still had to dip into savings, but she was able to pay rent and meet her other obligations. When the benefit supplement expired at the end of last month, however, she had little cushion.
Fortunately, her employer called her back just in time. She returned to work last week, and, despite some nervousness about going into the office with the virus still spreading, she said she was grateful for the paycheck.
But Ms. Fusco doesn’t know how long her good fortune will last. With many schools still teaching remotely or canceling activities like band, she worries that her company’s business will suffer. Already, she has noticed a large number of instruments being returned.
“It’s very worrisome for me because I can see the snowball effect from Covid-19 all around me,” she said. “It’s always lurking right behind my eyeballs that in six months I might be out of a job again.”
Williams-Sonoma, the owner of Pottery Barn, West Elm and its namesake chain, posted a sales jump in its latest quarter as many Americans spent more time at home and sought out new wares for cooking, remote work, decluttering and outdoor socializing.
The company said on Wednesday that net revenue rose 9 percent to about $1.5 billion in the quarter that ended Aug. 2, as it posted a net profit of $135 million. The Williams-Sonoma brand was the star of the quarter, attracting new and existing customers with marketing around eating well at home. Laura Alber, the Williams-Sonoma chief executive, said the company was excited about the growing interest in cooking from millennials as “it will become a lifelong skill that should drive our business over the longer term.”
The results add to rosy reports from companies including Best Buy and Dick’s Sporting Goods this week, which have also benefited from the newly at-home lives of many Americans because of the pandemic. Consumers have been spending on home office wares, fitness equipment, athletic apparel and outdoor furniture, and have headed outdoors for socially distanced activities like golfing, bicycling and running.
One of the few weak spots mentioned by Ms. Alber was backpack sales as students prepare for remote learning. But on the bright side, she said, the company was seeing a surge in its “study-at-home solutions,” especially at Pottery Barn’s youth-oriented divisions, and was aiming to become “the destination for study from home for kids of all ages.”
Turkey is facing its second currency crisis in less than two years. Economists are predicting a sharp downturn after the decline of the lira raised the specter of another round of soaring prices for imported goods like medicine and fuel. And international investors are alarmed by the financial maneuvering and flood of cheap credit that President Recep Tayyip Erdogan has used to prop up the lira and fuel economic growth.
Turkey’s economic fate has geopolitical ramifications. Recently, Turkish armed forces have behaved aggressively in the Mediterranean toward France and Greece, which are NATO allies. Analysts view the confrontations as an attempt by Mr. Erdogan to stir up nationalist sentiment and distract Turks from their money problems. His hold on power was shaken last year after his party lost control of the municipal government in Istanbul.
The sharp devaluation of the lira, which lost 7 percent of its value in August, has already led to higher prices for food and other basics, stirring resentment.
“Everything is unbelievably expensive,” said Derya, a 41-year-old math teacher, who did not want to give her last name because she is a government employee. She said she was mixing more onions into her meatballs to make them go further. Because of the lira’s decline, she said while shopping at an Istanbul market, “we have gotten poorer.”
The government has pressured banks to lend more, helping to prop up consumer spending but also feeding inflation, which is at an annual rate of almost 12 percent. The declining buying power of the lira is one reason it has been losing value against other currencies. In addition, many foreign investors lost faith in Turkey during the last crisis, in 2018, meaning there is little demand for lira assets.
Gatwick Airport, Britain’s second-largest after Heathrow, is planning to cut 600 jobs, about a quarter of its staff, as the travel industry continues to be decimated by the pandemic. Passenger numbers have declined by more than 80 percent in August compared to the previous year, the airport said on Wednesday. Gatwick is operating at just 20 percent capacity, and more than three-quarters of the staff are on the government’s furlough scheme, which will end in October. Stewart Wingate, the airport’s chief, said there were talks with the government to secure support for the aviation industry.
The Food and Drug Administration has granted emergency authorization to Abbott Laboratories for a cheap and portable coronavirus test that gives results in 15 minutes, the company said on Wednesday. It is a so-called antigen test, which works by rapidly detecting fragments of virus in a sample. Antigen tests tend to miss more infections than slower tests based on a technology called polymerase chain reaction, or P.C.R. Abbott said its new test detected the virus in 97.1 percent of people who have it, and accurately found no presence of the virus in 98.5 percent of negative cases.