The Week in Business: Higher Interest Rates Are Coming
What’s Up? (Jan. 23-29)
The End of Near-Zero Interest Rates
After nearly two years of near-zero interest rates, the Federal Reserve signaled that it would probably raise them in March. Jerome H. Powell, the Fed chair, said officials no longer thought that America’s rapidly healing economy needed so much support, given that inflation is running far above policymakers’ target and the tight labor market. By making it more expensive to borrow money to buy a house or car, the Fed hopes the higher interest rates will cool demand and eventually help rein in inflation. The Fed’s preferred measure of inflation, the personal consumption expenditures index, was 5.8 percent in December, the fastest pace since 1982 and one that could be disastrous for the political prospects of President Biden and his fellow Democrats in the November midterm elections.
Market Turbulence
Whether you held traditional stocks, cryptocurrencies or a combination of both, it was a stressful week to be an investor. Stocks swung wildly as uncertainty about upcoming interest rate increases — how many and how quickly — came at the same time as positive signs about growth in the American economy last year. Bitcoin, the largest cryptocurrency, continued its dramatic fall before inching up slightly, though its value remained just above where it was last summer. Bitcoin’s value is now about half of its peak in November.
Slowing Economies
The International Monetary Fund released new predictions for 2022, showing slower economic growth than it had previously predicted, driven mostly by issues with the world’s two largest economies, China and the United States. Compared with the 5.9 percent growth experienced in 2021, the I.M.F. predicted that global growth this year would be 4.4 percent, down from its earlier prediction of 4.9 percent. The demise of President Biden’s Build Back Better legislation coupled with reduced economic support from the Fed and persistent supply chain issues contributed to the lower expectations for the United States, while China’s economy continues to struggle with its disruptive “zero Covid” approach and a troubled real estate sector.
What’s Next? (Jan. 30-Feb. 5)
To Boycott or Not to Boycott?
The 2022 Beijing Winter Olympics begin this week, as China is under increasing scrutiny for human rights abuses, including allegations of forced labor in Uyghur communities in Xinjiang. The United States, Britain, Canada and Australia have announced they will not be sending government officials to Beijing, in a diplomatic boycott of the Games. Many of the world’s most famous brands, however, will still be there, including Visa and Coca-Cola. Corporations’ reluctance to boycott the Games could soften the political blow of the diplomatic boycotts.
The State of the Job Market
The Labor Department will release its report on January’s employment figures on Friday, indicating the state of the job market at the year’s outset and the extent to which the Omicron variant has affected it. Last month’s report showed that 199,000 jobs were added to the economy in December, the smallest gain of 2021. But with the unemployment rate at 3.9 percent, people who are looking for jobs are having little trouble finding them. Employers, however, continue to struggle to attract workers, with demand for them far outweighing supply. The Labor Department will also release data on the number of Americans who voluntarily left their jobs in December. A record 4.5 million Americans quit their jobs in November.
Another Vote on an Amazon Union
Workers at an Amazon warehouse in Birmingham, Ala., will begin voting in a mail-in election to decide whether to form a union. Last spring, workers there voted against unionization before the National Labor Relations Board threw out the vote, citing improper interference from Amazon. If the vote for unionization succeeds this time, it would be the first union at the online retailer, which employs about a million people in the United States. Amazon workers at a warehouse in Staten Island are also pushing for a union vote. And Starbucks workers recently voted to unionize at two locations.
Inflation F.A.Q.
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Where is inflation headed? Officials say they do not yet see evidence that rapid inflation is turning into a permanent feature of the economic landscape, even as prices rise very quickly. There are plenty of reasons to believe that the inflationary burst will fade, but some concerning signs suggest it may last.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
What Else?
Apple revenue and profit in the holiday quarter beat expectations. CNN goes on a hiring spree for its new streaming news channel. Neil Young is leaving Spotify over the platform’s streaming of Joe Rogan, a podcaster dismissive of Covid vaccines. The Biden administration’s plan to make companies mandate vaccines or testing is over.
