The data underlined the challenging path the Fed faces as it tries to guide the U.S. economy toward slower inflation. Both the economy and price pressures have retained momentum, even as central bankers raise interest rates to try to cool demand. As a result, the Fed has become steadily more aggressive in its efforts to constrain spending and temper inflation, and it is likely to keep raising rates and keep them elevated for a while.

“Inflation is very high in the United States and abroad, and the risk of additional inflationary shocks cannot be ruled out,” Lael Brainard, the Fed’s vice chair, said in a speech on Friday. She later added that policymakers were “committed to avoiding pulling back prematurely.”

The Fed has lifted interest rates five times this year, including three unusually large three-quarter-point increases, and Ms. Brainard reiterated that it would need to restrict the economy for some time to make sure inflation was back under control. But she also emphasized that future rate increases would depend on incoming data, suggesting that the Fed will keep an eye on the economy as it slows down and calibrate its moves accordingly.

Economists remain hopeful that healing supply chains, a slowing housing market, cooling consumer demand and a moderating labor market will combine to pull inflation lower in the months ahead. Spending on goods fell in August for the second month in a row, which should ease pressure on factories and shipping routes, and overall spending may slow further as consumers draw down the extra savings they built up earlier in the pandemic.

But Russia’s war in Ukraine poses a constant risk to the global supply of food and oil, and some industries, including automobiles, remain severely disrupted. Rents and other service costs have been rising sharply, and labor shortages spanning many industries have pushed wages up, which could feed through to higher prices.

Article source: https://www.nytimes.com/2022/09/30/business/economy/inflation-fed.html

Taken together, the two measures suggest economic growth was at best anemic in the first half of the year. At worst, the economy had been shrinking for two consecutive quarters, a common, though unofficial, definition of a recession. An average of the two measures, which some economists consider more reliable than either individual figure, shows that output shrank slightly in the first half of the year.

The conflicting signals sent by the two measures of output in recent quarters had been something of an economic mystery because, in theory, the two indicators should be identical. G.D.P. measures the value of all the goods and services produced and sold in the country; the lesser-known gross domestic income measures all the money earned by individuals, businesses and other organizations. Because one person’s spending is someone else’s income, the two figures should add up to the same amount.

In practice, the two measures rarely align perfectly because they are derived from different data sources. Recently, however, they diverged sharply, which government statisticians attributed in part to the big shifts in economic activity caused by the pandemic, as well as difficulty accounting for the huge aid programs enacted to combat it. Before the latest revisions, government data showed gross domestic income as $773 billion larger than gross domestic product in the second quarter of this year, a gap of nearly 4 percent.

The updated data released Thursday helped narrow the gap to 1.3 percent. Gross domestic income was revised downward both last year and this year, mostly because workers’ earnings grew less than previously believed. Gross domestic product was revised upward in 2020 and 2021, mostly because of stronger consumer spending, especially on services, as well as increased exports.

Those upward revisions to G.D.P. years mean that the recovery, taken as a whole, looks stronger than earlier figures suggested. They indicate that G.D.P. returned to its prepandemic growth path at the end of last year, a remarkably rapid recovery from the deep pandemic recession.

Article source: https://www.nytimes.com/2022/09/29/business/economy/economy-gross-domestic-product.html

Ms. Truss has been cheered on by conservative champions of supply-side economics in the United States, including many of the chief backers of Mr. Trump’s tax cuts. Stephen Moore, who served as an outside economic adviser to the former president, praised Ms. Truss for her willingness “to challenge the reigning orthodoxy by sharply cutting taxes to boost growth,” calling the package “a gutsy and sound policy decision.”

“By far the most important change is the reduction in the top income tax rate from 45 percent to 40 percent,” Mr. Moore wrote. “This will bring jobs, capital and businesses back to the U.K.”

A host of critics, though, have lined up to denounce the tax package, warning it will provoke economic war with the Bank of England and risk a damaging combination of economic contraction and soaring prices, which could in turn hurt the global recovery.

The impact of previous tax cuts, including those signed into law by Mr. Trump in 2017, provides fodder for those critiques.

Much as Ms. Truss has proposed to do, Mr. Trump reduced tax rates for income earners across the spectrum, including those in the highest bracket. He also cut a variety of business tax rates — a contrast with the British plan, which cancels a planned increase in corporate taxes. Mr. Trump said his full package of cuts would jump-start economic activity by encouraging businesses to invest, hire and raise wages.

Yet initial evidence, which includes studies from I.M.F. economists, suggests Mr. Trump’s cuts did not deliver the steep gains in investment and productivity that conservatives had promised. If such gains came to pass in Britain, they could help counter inflation there.

Instead, the cuts increased consumer spending, an outcome that helped temporarily expand growth in the United States, the I.M.F. found, but which could be dangerous in a high-inflation environment.

Article source: https://www.nytimes.com/2022/09/29/us/politics/tax-cuts-uk.html

Over the centuries, British leaders have often gone to extraordinary lengths to protect the pound’s value, viewing its strength as a sign of the country’s economic power and influence. King Henry I issued a decree in 1125 ordering that those who produced substandard currency “lose their right hand and be castrated.”

In the 1960s, the Labour government under Harold Wilson so resisted devaluing the pound — then set at a fixed rate of $2.80, high enough to be holding back the British economy — that he ordered cabinet papers discussing the idea to be burned. In 1967, the government finally cut its value by 14 percent to $2.40.

Other economic crises thrashed the pound. In the 1970s, when oil prices skyrocketed and Britain’s inflation rate topped 25 percent, the government was compelled to ask the International Monetary Fund for a $3.9 billion loan. In the mid-1980s, when high U.S. interest rates and a Reagan administration spending spree jacked up the dollar’s value, the pound fell to a then record low.

The pound’s dominance has been waning since the end of World War II. Today, the global economy is experiencing a particularly tumultuous time as it recovers from the aftermath of the coronavirus pandemic, supply chain breakdowns, Russia’s invasion of Ukraine, an energy shortage and soaring inflation.

As Richard Portes, an economics professor at London Business School, said, currency exchanges have enormous swings over time. The euro was worth 82 cents in its early days, he recalled, and people referred to it as a “toilet paper” currency. But by 2008, its value had doubled to $1.60.

What might cause the pound to revive is not clear.

The Truss government’s economic program has forcefully accelerated the pound’s slide — the latest in a series of what many economists consider egregious economic missteps that peaked with Brexit.

Much depends on the Truss government.

“The plunge in the pound is the result of policy choices, not some historical inevitability” said Ian Shepherdson, chief U.S. economist at Pantheon Macroeconomics. “Whether this is a new, grim era or just an unfortunate interlude depends on whether they reverse course or are kicked out at the next election.”

Article source: https://www.nytimes.com/2022/09/28/business/economy/uk-pound-history.html