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Westlake Legal Group > United States Economy

Fed Flagged Coronavirus Risk at January Meeting

Westlake Legal Group 19DC-FED-01-facebookJumbo Fed Flagged Coronavirus Risk at January Meeting United States Economy Powell, Jerome H Interest Rates Inflation (Economics) Federal Reserve System Factories and Manufacturing Economic Conditions and Trends Coronavirus (2019-nCoV) Banking and Financial Institutions

WASHINGTON — Federal Reserve officials left interest rates unchanged at their January meeting as the economy grew steadily, but they spent their meeting reviewing risks to the outlook — including fresh concerns about the coronavirus that had begun to take hold in China.

Minutes from the Fed’s Jan. 28 and 29 meeting showed that officials called the new coronavirus “a new risk to the global growth outlook.” At the time, the outbreak had killed more than 100 people and sickened about 5,000. It has continued to spread since, causing more than 2,000 deaths and infecting more than 75,000 people.

Central bankers have been cautious about predicting how much the virus will affect the United States economy, though they have made it clear that they expect some spillover. Swaths of China have ground to a standstill as authorities try to contain the virus by shuttering factories and enforcing quarantines, disrupting trade and tourism. Factories across the nation are reopening, but haltingly.

The Fed is monitoring how the economic fallout in China bears on American growth and inflation.

“The question for us really is: What will be the effects on the U.S. economy? Will they be persistent, will they be material?” Jerome H. Powell, the Fed chair, told lawmakers while testifying last week. “We know that there will be some, very likely to be some effects on the United States. I think it’s just too early to say.”

Fed officials have signaled that they plan to leave policy unchanged as they wait to see how the economy shapes up in 2020. That patient stance comes after central bankers cut interest rates three times last year in a bid to insulate the economy against fallout from President Trump’s trade war and a slowdown abroad.

  • What do you need to know? Start here.

    Updated Feb. 10, 2020

    • What is a Coronavirus?
      It is a novel virus named for the crown-like spikes that protrude from its surface. The coronavirus can infect both animals and people, and can cause a range of respiratory illnesses from the common cold to more dangerous conditions like Severe Acute Respiratory Syndrome, or SARS.
    • How contagious is the virus?
      According to preliminary research, it seems moderately infectious, similar to SARS, and is possibly transmitted through the air. Scientists have estimated that each infected person could spread it to somewhere between 1.5 and 3.5 people without effective containment measures.
    • How worried should I be?
      While the virus is a serious public health concern, the risk to most people outside China remains very low, and seasonal flu is a more immediate threat.
    • Who is working to contain the virus?
      World Health Organization officials have praised China’s aggressive response to the virus by closing transportation, schools and markets. This week, a team of experts from the W.H.O. arrived in Beijing to offer assistance.
    • What if I’m traveling?
      The United States and Australia are temporarily denying entry to noncitizens who recently traveled to China and several airlines have canceled flights.
    • How do I keep myself and others safe?
      Washing your hands frequently is the most important thing you can do, along with staying at home when you’re sick.

While an initial trade deal with China has alleviated some uncertainty that dogged America’s economy last year, tensions are not fully resolved. Beyond that, manufacturing remains slow and business investment is still weak.

“Participants generally expected trade-related uncertainty to remain somewhat elevated, and they were mindful of the possibility that the tentative signs of stabilization in global growth could fade,” according to the January minutes. Against that backdrop, they saw the current policy as “likely to remain appropriate for a time.”

Interest rates are currently set in a range between 1.5 and 1.75 percent. That is below the Fed’s longer-run estimate of where its rate will settle, and officials believe the current stance should give the economy a slight boost.

The central bank’s next meeting will take place March 17 and 18 in Washington. Since the January gathering, Fed officials have consistently signaled that they remain comfortable leaving rates unchanged for now, unless an economic surprise knocks them off that course.

Coronavirus is not the only risk on the Fed’s radar.

Some Fed officials fretted over financial stability risks at the meeting, noting that “financial imbalances — including overvaluation and excessive indebtedness — could amplify an adverse shock to the economy.”

And “several” pointed out that “planned increases in dividend payouts by large banks and the associated decline in capital buffers might leave those banks with less capacity to weather adverse shocks.”

But the minutes also suggest a paradox for regulators, noting that relatively high capital requirements could cause “potential migration of lending activities” into the shadow banking system — loosely regulated non-bank lenders where supervisors lack oversight authority. From the way the minutes are written, it is unclear how many people shared in that concern.

Officials also discussed a longer-running problem at the January gathering: inflation has remained below policy maker’s 2 percent goal even as the unemployment rate lingers near half-century lows and the economy grows steadily.

“A few participants stressed that the Committee should be more explicit about the need to achieve its inflation goal on a sustained basis,” the minutes said. Several said that “mild overshooting” might help the Fed to reinforce that its goal is symmetric, meaning that officials want price gains to oscillate around 2 percent rather than hovering below that level.

If prices grow too slowly, it diminishes the central bank’s already-limited room to cut interest rates in a recession, since the federal funds rate incorporates price gains. As of December, the central bank’s preferred price index accelerated by just 1.6 percent.

While Fed officials are hopeful that inflation will rise toward its 2 percent target in 2020, they have expressed a similar optimism for years, only to repeatedly fall short.

The Fed has been reviewing its monetary policy framework, and that discussion continued in January with a look at how to handle future financial stability concerns. If the Fed cuts rates at rock-bottom and keeps them there for an extended period of time to fight recessions going forward, they noted, it could encourage investors and financial institutions to take excessive risks — and that reality should potentially play into policy-setting.

But those at the meeting “generally agreed” that supervisory and regulatory tools should make up the backbone of the central bank’s main approach to financial stability concerns, according to the minutes.

While “many participants remarked that the Committee should not rule out the possibility of adjusting the stance of monetary policy to mitigate financial stability risks” participants noted that it was unclear how changes in rates would actually interact with financial vulnerabilities.

As such, “monetary policy should be guided primarily by the outlook for employment and inflation,” the minutes said.

Several suggested that the Fed would need a communication strategy to convey the Committee’s assessment of financial vulnerabilities and the policy implications of those views.

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How Millennials Could Make the Fed’s Job Harder

Westlake Legal Group 23millennial-econ-facebookJumbo How Millennials Could Make the Fed’s Job Harder United States Economy United States Savings Pensions and Retirement Plans Millennial Generation Labor and Jobs Interest Rates Inflation (Economics) Federal Reserve System Banking and Financial Institutions

WASHINGTON — “They say millennials are lazy,” billboards plastered across 15 major cities declared last summer. “Retire early and prove them right.”

That sentiment, reflected in ads for the investment manager Prudential, is the stuff of a 30-year-old’s fantasy — and the Federal Reserve’s nightmare.

A young generation of aggressive savers could leave central bankers with less room to cut interest rates, which they have long done to boost growth in times of economic trouble.

To leave the work force early, millennials would need to build up massive retirement funds and consume less in the process. That hit to demand could slow growth and force rates to drop ever lower to entice spending. And if today’s workers actually managed to retire young, it would exacerbate the situation by shrinking the labor force, further weighing on the economy’s potential.

Millennials, who are roughly between the ages of 24 and 39 and have not lived through pronounced price spikes, already have the lowest inflation expectations of any adult generation. Their belief that costs will not increase could eventually slow actual price gains by making it hard for businesses to charge more. The Fed’s main interest rate includes inflation, so that would leave it with even less room to cut.

It may not come to this. Millennials could become more worried about inflation as they age, giving companies more room to lift prices. Their difficult post-recession entry into the labor market means many are laden with student debt, so it’s unclear if they will be able to retire young. But many indicate that they want to leave the work force early — an ambition that economists say could spell macroeconomic trouble if realized.

“It would lower interest rates — that’s certainly true,” said Joseph Gagnon, an economist at the Peterson Institute for International Economics. “It would be a double whammy: It directly raises savings” and “it would further reduce the need to invest in factories and offices for these people.”

Interest rates have been falling for decades, and demographics are a major factor in that decline, economists say. Once people are past middle age, they are living longer without working correspondingly later in life, so they have been saving heavily to fund extended retirements.

Millennials, already accused of killing everything from paper napkins to mayonnaise, would happily exacerbate the drop in interest rates, which baby boomers have driven to date.

Of millennial workers with an active 401(k), 43 percent expect to retire before the age of 65, based on data from T. Rowe Price. For Generation X — often defined as those aged 40 to 55 — that figure is 35 percent. While the T. Rowe Price survey targeted a privileged group, broader polls have turned up similar findings.

Members of Gen X are short on savings, so they may need to work further into old age. But younger people have time to turn things around: While they got a slow start, they are still under the age of 40. Millennials have begun saving more as they work in greater numbers and benefit from a record-long economic expansion.

There’s even a movement — Financial Independence, Retire Early, or “FIRE” — dedicated to frugality in pursuit of quitting the work force as soon as possible.

Scott Rieckens, 36, and his wife Taylor, 35, began following a FIRE plan in 2017. The couple, who have one child, ditched their leased cars and $3,000-a-month apartment in San Diego to move to Bend, Ore. They save more than 50 percent of their income and aim to have the $1.7 million they think they’d need to retire by their early 40s, though Mr. Rieckens doesn’t plan to completely stop working then.

He recently produced a documentary on the FIRE movement, released last year, which drew more than 10,000 people to screenings in over 200 cities. The audience skewed younger, Mr. Rieckens said, explaining that FIRE appeals to millennials partly because they have faced precarious jobs without pensions.

“You start to get this sense of lack of control, and fear,” he said. “You can take control of your life.”

The Rieckens may be extreme savers, but many millennials with means are prioritizing saving. According to a recent Bank of America survey, 25 percent of millennial savers had amassed more than $100,000, up from 16 percent in 2018.

They have good reason. Millennials have grown up with dire warnings that Social Security will be exhausted by the time it is their turn to use it. They came of age in the worst downturn since the Great Depression, so they are no strangers to economic insecurity.

But there’s a paradox to thrift: Saving, even if virtuous on an individual level, can cause economic trouble en masse. If ambitious cash stockpiling were to catch on, it could exacerbate secular stagnation, a term that the Harvard University economist Lawrence H. Summers repopularized to describe the low-growth, low-inflation state of many advanced economies.

When consumers save a big portion of their income, they are not spending as much on dinners out, movie nights and cars. Businesses respond by investing less in equipment and technology, and productivity stalls. Bosses are unwilling to pay their workers more for the same output, and weak pay gains further restrain spending.

Retirement saving behavior is not the only driver causing economic torpor and lower rates. Inequality has left a small number of people with more money than they can realistically spend. Slower labor force growth and more iterative technological improvements could also have an impact.

The lower interest rates that result from high and unequal saving might sound great — think cheaper mortgages — but they leave economies vulnerable to shocks. In the United States, for example, rates are now in a range of just 1.5 percent to 1.75 percent, leaving the Fed room for about six quarter-point rate cuts in a downturn. Headed into the last recession, rates topped 5 percent.

Fed officials think mass bond-buying and promises to keep rates low for longer can give them power to fight a slump. But the jury is out on whether such alternatives will add enough ammunition to make up for lost room on interest rates.

Even Ben S. Bernanke, a former Fed chair with an optimistic take on the central bank’s ability to prop up the economy in a downturn, says officials could end up in a tight spot if rates drop substantially lower.

It is anyone’s guess whether they will stabilize at low levels, rise or resume their descent.

“A continued downtrend is as likely as reversion to normal,” Mr. Summers said. “Lots of the structural forces that are driving this seem likely to continue.”

That’s what makes millennial retirement behavior so interesting: It is a wild card still, one that could slightly lift or substantially lower rates going forward.

Policy could influence how things play out. The government could nudge workers toward later retirement or ramp up deficit spending on old-age benefits. Mr. Summers’s research shows that fiscal spending is already propping rates up. Alternately, uncertainty about the fiscal future — like whether the present complacency over large deficits continues — could spur millennials to save more now.

What is clear is that rates are unlikely to head higher soon. That makes maintaining slow but stable inflation more important than ever.

Doing so is proving difficult. The Fed’s preferred inflation index accelerated just 1.6 percent over the past year. It has never sustainably topped 2 percent since the Fed formally adopted that goal in 2012.

That shortfall is threatening to derail inflation expectations. Americans who lived through the great inflation of the 1970s remember an era when services and goods were rapidly increasing in price, and they tend to have a higher outlook for future prices.

Millennials and Generation Z are a different story. Rents and tuition have gotten pricier, but computing power worth millions of dollars a generation ago now fits into a $600 phone. Free entertainment abounds. As America’s collective memories of breakneck price gains fade, the nation’s younger people have become an anchor that threatens to drag down overall expectations.

John C. Williams, the president of the Federal Reserve Bank of New York, said in a speech last month that “there is still time to avert this fate.” Moving inflation up and keeping it there could convince millennials, he said.

“In this case, it’s fortunate that the young are impressionable.”

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Trump Effort to Keep U.S. Tech Out of China Alarms American Firms

Westlake Legal Group 00DC-TECHPROTECT-ross-facebookJumbo-v2 Trump Effort to Keep U.S. Tech Out of China Alarms American Firms United States Politics and Government United States Economy United States Defense and Military Forces Trump, Donald J International Trade and World Market Industrial Espionage Huawei Technologies Co Ltd Economic Conditions and Trends Commerce Department China

WASHINGTON — The Trump administration’s push to prevent China from dominating the market for advanced technologies has put it on a collision course with the same American companies it wants to protect.

Firms that specialize in microchips, artificial intelligence, biotechnology and other industries have grown increasingly alarmed by the administration’s efforts to restrict the flow of technology to China, saying it could siphon expertise, research and revenue away from the United States, ultimately eroding America’s advantage.

The concerns, which have been simmering for months, have taken on new urgency as the Commerce Department considers adopting a sweeping proposal that would allow the United States to block transactions between American firms and Chinese counterparts. Those rules, on top of new restrictions on Chinese investment in the United States and proposed measures that would prevent American companies from exporting certain products and sharing technology with foreign nationals, have the tech industry scrambling to respond.

The Trump administration’s crackdown has already prompted foreign firms to shun American components and technology over concerns that access to parts they need could be abruptly cut off. American companies are watching warily as the United States considers restricting export licenses for companies that sell products or share intellectual property with China, including General Electric, which sells aircraft parts to China as part of a joint venture with Safran, a French firm.

Top administration officials plan to meet on Feb. 28 to discuss further restrictions on China, including whether to block G.E.’s license to sell jet engines and whether to further curtail the ability of Huawei, the Chinese telecom giant, to have access to American technology.

There is growing bipartisan consensus in Washington that China poses a security threat and that the United States must protect domestic industries to retain a technological edge. While President Trump’s trade war with China was aimed at forcing Beijing to end practices that gave Chinese industries an advantage, the initial deal signed last month did little to address the security concerns.

The tech industry has warned that limiting access to China, both in terms of selling and buying products, could cripple American companies and end up undercutting the United States as the biggest global hub of research and development.

Companies, along with the lawyers and consultants who advise them, say firms increasingly have no choice but to locate more research and development outside the United States, to ensure that they have uninterrupted access to China, a fast-growing consumer market and the center of the global electronics supply chain. New investment dollars are being funneled to research hubs near University of Waterloo in Canada, as well as Israel, Britain and other places beyond the reach of the American government, they say.

“Anyone who thinks our concerns are exaggerated should talk to the U.S. semiconductor industry workers who are already losing their jobs due to walling off our largest market,” said John Neuffer, the president and chief executive of the Semiconductor Industry Association, which represents chip makers. “Revenue from that big market fuels our big research investments, which allows us to innovate and drive America’s economic growth and national security.”

The RISC-V Foundation, a nonprofit that has created an open-source software standard for the chips that power smartphones and other electronics, acknowledged in recent months that it had chosen to move its incorporation from Delaware to Switzerland because of concerns from its members about more stringent regulations in the United States.

“If this administration proceeds with the current trajectory, we’ll see more defections of companies, of scientists,” said Scott Jones, a nonresident fellow with the Stimson Center. “They’ll take their toys and they’ll go elsewhere, and other economies will be the beneficiary of that.”

The most recent source of concern stems from a Commerce Department plan to vet and potentially block technology transactions that pose a risk to the United States. The proposed rule would allow the commerce secretary to block transactions involving technology that was tied to a “foreign adversary” and that posed a significant risk to the United States.

The rule grew out of an executive order Mr. Trump signed last year to try to shut out Huawei by authorizing the commerce secretary to bar any purchase of technology designed by a “foreign adversary” that put America at risk. American companies say the regulations are written so broadly that they could give the United States authority to block transactions or unwind existing ones in areas far afield from telecom gear.

While tech companies say they support efforts to protect U.S. national security, dozens of companies and industry lobbying groups have expressed concerns about the proposal.

IBM, in a January comment letter, told the Commerce Department to “go back to the drawing board” and said the rules “will lead to a broad disengagement of U.S. business from global markets and suppliers.”

“Its reach, breadth and vagueness are unprecedented,” IBM said.

The Internet Association, which counts Google and Facebook among its members, said the proposal lacked “substantive safeguards.” The Motion Picture Association warned that it could affect Hollywood’s ability to pursue transactions around special effects or animation.

The Commerce Department said in a statement that the process would ensure that “all points of view have been considered and the U.S. national security considerations are balanced against corporate commercial interests.”

The tougher measures have come in response to what the administration and even the tech industry view as a rising economic and security threat. China is gaining ground in a range of technologies that experts say could give the country an economic and military edge, including artificial intelligence, facial recognition, microchips and quantum computing.

To try to dominate these advanced industries, China has deployed subsidies, targeted acquisitions of American firms and created industrial plans like Made in China 2025 to leap ahead. The administration has repeatedly accused China and its companies of engaging in corporate espionage, hacking and intellectual property theft.

Last week, the U.S. government charged Huawei and two of its subsidiaries with federal racketeering and conspiracy to steal trade secrets from six American companies. It also charged four members of China’s military with hacking into Equifax, one of the nation’s largest credit reporting agencies, and stealing trade secrets and the personal data of about 145 million Americans in 2017.

Beijing’s actions have created an overwhelming fear in Washington that China will come to dominate advanced industries and put American competitors out of business, in the same way it did for steel, furniture and solar panels. But the stakes are even higher this time, given that many of these new technologies are critical for the military.

“The Chinese have long been a commercial people, but for China, purely economic success is not an end in itself,” Attorney General William P. Barr said in a speech this month. “It is a means to wider political and strategic objectives.”

The Trump administration’s response has been to offer a new definition of national security, one that encompasses economic threats. The distinction has allowed the United States to enact powerful rules restricting commercial exchanges with China.

Mr. Trump has cited national security in his decision to tax foreign metals, propose new limits on the technology that can be transferred outside the United States and bar Chinese companies like Huawei from buying American components.

While tech companies found a way around the initial Huawei ban, the administration is considering much more severe restrictions. A new proposal would extend the reach of the U.S. government to regulate products made around the world, prohibiting companies from using American components and technologies in foreign-made products that are then supplied to Huawei.

The proposals have set off panic within the technology industry, which fears the new restrictions will hamper its ability to tap into the Chinese market. Industry lawyers and trade groups have begun warning that, unless the administration can persuade its allies to adopt similar restrictions, companies will decide the safest course is to try to limit their use of American technology.

Critics point to past incidents where tight regulation pushed American industries offshore — including machine tool makers in the 1990s, and commercial satellites in the 2000s. While it is illegal for companies to move existing operations abroad to try to circumvent export control rules, there are no such constraints on new investments.

“Their incentive is shareholder value and making money,” Jim McGregor, the chairman of greater China for APCO Worldwide, said of America’s biggest technology companies. “It’s not defending what is good for America. You can say that’s terrible, but that’s the way our system works.”

Mr. McGregor said the economic incentives of the Chinese market would encourage companies to “decouple from America.”

Chinese companies are also working to weed American components out of their supply chains — a long-running effort toward self-sufficiency that has accelerated under the threat of harsher U.S. measures.

In recent months, some Chinese companies have begun asking their suppliers to certify that their products are made with a minimal amount of American content, so they are not at risk from American export controls, people familiar with the conversations say.

Chinese telecom companies have been asked to find an alternative to using Oracle’s software in their systems. And CITIC Capital, a giant investment management firm with deep links in China, has embraced helping Chinese companies find alternatives to American technology as an investment theme for this year.

Some who favor tougher China rules say companies are exaggerating the potential impact in an attempt to influence new regulations. They say that the United States retains big advantages in research and development, and that companies are trying to scare the government into loosening rules by saying they will leave.

Others say the national security threat from China is so serious that some short-term revenue loss is warranted.

“You can’t avoid paying that price,” said Clyde Prestowitz, a former Reagan administration official who led trade negotiations with Japan and China. “Your only choice is to pay it now or later. Now, you still have a cutting-edge industry that will take a hit, but that can survive and prosper if high tech does not become a Chinese playground.”

The administration’s view is not monolithic. Within the Commerce Department, some are pressing for stricter rules while others say crippling American business will do more to endanger national security.

The Pentagon is also split, with some officials calling for tighter regulations and others saying the government should not put innovation at risk, given that military technologies typically draw on commercial products.

Some China experts say that American companies are deluding themselves and that, without safeguards, China will eventually steal their technology and drive them out of business.

“We’ve seen what happens to many foreign firms who ‘have to be there’ in steel, telecom, et cetera,” Derek Scissors, a resident scholar at the American Enterprise Institute, said of China. “They get progressively more desperate, until they die.”

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Bipartisan Lawmakers Cast Doubt on Judy Shelton, Trump’s Fed Nominee

Westlake Legal Group 13dc-Shelton-facebookJumbo Bipartisan Lawmakers Cast Doubt on Judy Shelton, Trump’s Fed Nominee Waller, Christopher (1959- ) United States Politics and Government United States Economy Shelton, Judy Senate Committee on Banking Senate Gold Standard (Monetary) Federal Reserve System Banking and Financial Institutions

WASHINGTON — Republican lawmakers expressed concern about Judy Shelton, President Trump’s nominee for the Federal Reserve, casting doubt on the confirmation chances of a candidate viewed as a potential next Fed Chair.

Ms. Shelton faced skepticism from both Republicans and Democrats on the Senate Banking Committee, with lawmakers questioning whether she would protect the Fed’s independence and pressing her about previous policy positions she has espoused, including a return to the gold standard.

“I’m concerned,” Senator Richard Shelby, the Alabama Republican, said when asked which way he was leaning on her confirmation following the hearing. He was joined by Senator John Kennedy, Republican of Louisiana, and Senator Patrick J. Toomey, Republican of Pennsylvania, in expressing uncertainty about whether she would win their support.

Ms. Shelton, 65, has been a controversial pick for the job. She has a history of supporting the gold standard, has questioned the need for the Fed, and has changed her policy views significantly since Mr. Trump, for whom she served as an unofficial campaign adviser, came into office.

Senator Mike Crapo, the Idaho Republican who chairs the committee, sought to portray Ms. Shelton as a solid pick for diversity who would support lighter financial regulation.

But other Republicans were less sanguine, with Mr. Toomey, Republican of Pennsylvania, calling Ms. Shelton’s view that the Fed should pay attention to foreign exchange rates “dangerous.”

“I remain concerned,” he told reporters outside of the hearing, saying that he has not yet made up his mind on Ms. Shelton’s nomination. He said he would be willing to oppose one of Mr. Trump’s nominees if he thinks the “nominee is unsuitable for the job.”

Mr. Kennedy said “nobody wants anybody on the Federal Reserve that has a fatal attraction to nutty ideas,” adding that he was “not saying that’s the case here.”

Because Ms. Shelton would need a simple majority vote to move onto confirmation by the full Senate, only one Republican would need to object in order to potentially dash her chances of moving forward. The committee has 13 Republicans and 12 Democrats, and it is not clear that any of the Democrats would support her bid.

“They asked substantive, tough questions,” Sam Bell, the founder of Employ America, said of Republican senators. Mr. Bell’s group has been pushing for Fed nominees that are focused on boosting employment and has vocally opposed Ms. Shelton.

“The aura, after the hearing, is that there’s serious bipartisan skepticism.”

Democrats showed their discomfort with Ms. Shelton, particularly her close ties to Mr. Trump, and pressed her repeatedly on whether she would operate independent of the White House. They quizzed her on whether she felt the president’s frequent attacks on Jerome H. Powell, the chairman of the Federal Reserve, were appropriate.

“Frankly, no one tells me what to do,” Ms. Shelton said at one point. “I don’t think it’s the job of the Federal Reserve to accommodate political agendas” and “the Fed operates independently, as it should.”

But she indicated that she did not have a problem with Mr. Trump’s ongoing criticisms of Mr. Powell. The president regularly blasts the Fed Chair on Twitter and in public remarks, faulting him for not doing more to boost the economy and pushing him to cut interest rates more aggressively.

“I do believe that every American, every member of Congress” and “our President” have the right to criticize the Fed, she said, adding later that “in some ways, it’s refreshing that it is out in the open.”

Ms. Shelton’s nomination has raised concerns among economists and former central bankers, who worry that her changing policy views — she used to support higher interest rates, but flipped to support lower rates around the time Mr. Trump came into office — suggests she would operate with an eye on the White House.

Heightening that concern is the possibility that Ms. Shelton is viewed as a possible successor to Mr. Powell should Mr. Trump win a second term and opt to replace his first pick for the Chair job.

That tough questions came from both sides of the aisle could owe, in part, the Fed’s extensive efforts in recent years to explain its policies and the importance of its independence to members of Congress. Mr. Powell and the Fed’s governors regularly visit with lawmakers, discussing policy and hearing out their concerns. When they appear on Capitol Hill to offer testimony, they often highlight that politically unconstrained central banks have a history of fostering superior economic outcomes.

Mr. Trump’s other nominee for the Fed, Christopher Waller, 60, also appeared before the Senate Banking Committee but had a far less testy hearing. Mr. Waller, currently research director at the Federal Reserve Bank of St. Louis, faced only light vetting, though he was asked some questions mirroring those posed to Ms. Shelton.

Ms. Shelton was asked repeatedly about her history of supporting a gold standard, a monetary approach that the United States abandoned half a century ago because it was deemed impractical. Mainstream economists generally say that returning to a gold-backed currency, if it were even possible, would be economically damaging.

“You never go back, with money,” Ms. Shelton said during the hearing, suggesting she was surprised to be portrayed as supporting a return to a traditional gold standard. At one point, Ms. Shelton said that she “would not advocate going back to a prior historical monetary arrangement.”

In 2009, Ms. Shelton started a Wall Street Journal editorial with the line: “Let’s go back to the gold standard.”

Ms. Shelton has been a longtime critic of the type of policies the Fed undertook during the last recession to reinvigorate the economy, including lowering rates to near zero and purchasing large quantities of government-backed securities, often called quantitative easing or Q.E. She has blamed those efforts, which were intended to lower borrowing costs and encourage investment, for rising inequality.

During the hearing, Mr. Kennedy asked both nominees what they would do in the event of a serious recession, and pushed Ms. Shelton in particular.

“I would never go negative, I’m adverse to that idea,” Ms. Shelton said, referring to the idea of lowering interest rates below zero.

“At the maximum,” Ms. Shelton said, she would take rates to zero and engage in mass bond-purchases “very reluctantly. But first I would make it clear that there are limits to monetary policy.”

While Mr. Trump regularly urges the Fed to adopt negative interest rates, central bank officials have long been skeptical about pushing rates below zero in the United States — even in a recession — because it can have undesirable side effects.

Ms. Shelton’s ties to Mr. Trump have become an issue in part because of the president’s vocal criticism of the Fed, which is independent and answers to Congress, not the White House.

She “had a whole lot of explaining to do, and it’s not at all clear that she won over any detractors or undecideds,” Ian Katz, an analyst at Capital Alpha Partners, a policy and political research company in Washington, wrote in note following the hearing.

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Powell, Warning of a Possible Virus Fallout, Is Slammed Again by Trump

Westlake Legal Group 11dc-fed-facebookJumbo Powell, Warning of a Possible Virus Fallout, Is Slammed Again by Trump United States Politics and Government United States Economy Powell, Jerome H Interest Rates Federal Reserve System Federal Budget (US) Economic Conditions and Trends Congressional Budget Office

WASHINGTON — Federal Reserve Chair Jerome H. Powell warned lawmakers on Tuesday that the coronavirus epidemic sweeping China could pose broader economic risks, even as he signaled that the central bank is comfortable holding interest rates steady for now.

“We are closely monitoring the emergence of the coronavirus, which could lead to disruptions in China that spill over to the rest of the global economy,” Mr. Powell told House Financial Services Committee members.

The central bank chief is also set to testify before the Senate Banking Committee on Wednesday.

The Fed is treading cautiously as the economy continues to add jobs but inflation remains low. An initial trade deal with China has eased one major source of economic uncertainty, but tariffs remain on Chinese goods and tensions with other nations could reignite. And the new virus — which has killed more than 1,000 people and sickened tens of thousands — has emerged as an economic wild card.

“Some of the uncertainties around trade have diminished recently, but risks to the outlook remain,” Mr. Powell said. Still “the current stance of monetary policy will likely remain appropriate” as long as incoming economic information remains in line with the Fed’s outlook.

When asked by lawmakers about the coronavirus, Mr. Powell said the Fed is asking questions including “What will be the effects on the U.S. economy? Will they be persistent? Will they be material?”

“We know that there will be some — very likely be some effects on the United States,” he said. “I think it’s just too early to say, we have to resist the temptation to speculate on this.”

Mr. Powell added that “the Chinese government has obviously taken very strong measures” in terms of containing the virus. “The People’s Bank of China has done a number of things to support economic activity. I think you can expect the Chinese government to do lots of things to support economic activity,” he said.

The Fed’s policy rate is now set in a range of 1.5 to 1.75 percent, after officials cut it three times last year to insulate the economy against wobbling global growth and fallout from President Trump’s trade battles.

The housing market perked up as the Fed made its cuts, and the economy as a whole is growing steadily through a record 11th year of expansion.

Despite that, Mr. Powell has remained the subject of near-constant White House complaints. Mr. Trump told Fox Business Network on Monday that “we should have a lower interest rate” and said Mr. Powell “let me down. I think he’s done the wrong thing.”

As Mr. Powell testified Tuesday, Mr. Trump commented on his performance on Twitter, seemingly blaming the Fed Chair as stock prices drifted downward. Prices later recovered and it is unclear what caused the minor wobble, which came amid developing news about the coronavirus and potential regulatory action involving technology companies.

Mr. Powell was asked about negative rates, which Mr. Trump has repeatedly pressed for in the United States. He said that the Fed chose to use other tools to stimulate the economy in the last downturn, and would probably do so again in the next.

“When you have negative rates, does it wind up creating downward pressure on bank profitability, which limits credit extension?” he said. “There’s some evidence of that.”

The Fed operates independently of the White House but answers to Congress, which has given it the freedom to pursue its two goals — stable inflation and maximum employment — as it sees fit.

Mr. Powell has met extensively with lawmakers from both the House and the Senate, and he tends to get a comparatively welcoming reception during his visits to Capitol Hill.

A good relationship with Congress could prove essential in the next recession. Interest rates have fallen across advanced economies as the population has aged and productivity growth has slowed, which means that the Fed will likely have less room to cut borrowing costs to coax the economy back to life in future downturns.

That means “it would be important for fiscal policy to help support the economy if it weakens,” Mr. Powell said. He tied that point to a pet topic of his: the size of the government’s debt.

“Putting the federal budget on a sustainable path when the economy is strong would help ensure that policymakers have the space to use fiscal policy to assist in stabilizing the economy during a downturn,” he said. “A more sustainable federal budget could also support the economy’s growth over the long term.”

The budget deficit topped $1 trillion in 2019 and the Congressional Budget Office expects trillion-dollar deficits for the next several years.

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Trump’s $4.8 Trillion Budget Would Cut Safety Net Programs and Boost Defense

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WASHINGTON — President Trump released a $4.8 trillion budget proposal on Monday that includes a familiar list of deep cuts to student loan assistance, affordable housing efforts, food stamps and Medicaid, reflecting Mr. Trump’s election-year effort to continue shrinking the federal safety net.

The proposal, which must be approved by Congress, includes additional spending for the military, national defense and border enforcement, along with money for Mr. Trump’s Space Force initiative and an extension of the individual income tax cuts that were set to expire in 2025. Its biggest reduction is an annual 2 percent decrease in spending on discretionary domestic programs, like education and environmental protection.

Speaking to the nation’s governors at the White House, Mr. Trump said Monday that his budget proposal would bring the deficit close to zero in “not that long a period of time” and that he was investing heavily in the military and America’s nuclear arsenal.

“We’re going to have a very good budget with a very powerful military budget, because we have no choice,” he said, adding that he was aiming to reduce spending by rooting out fraud and abuse.

“We’re doing a lot of things that are good including waste and fraud,” Mr. Trump said Monday. “Tremendous waste and tremendous fraud.”

The White House budget is largely a messaging document that reflects the administration’s spending priorities and has little chance of being enacted in full by Congress. While Monday’s proposal is similar to the president’s previous requests, it is a stark contrast with the leading Democratic rivals for the White House, who have proposed large tax increases on the rich and expansions of government efforts to provide health care, education, affordable housing and aid for the poor.

For instance, at a time when many Democratic candidates are proposing sweeping efforts to forgive student loan debt and make some or all public colleges tuition-free, Mr. Trump’s budget again recommends eliminating subsidized federal student loans and ending the public service loan program, an incentive for teachers, police officers, government workers and other public servants that cancels their remaining federal student loans after a decade of payments. Those proposals were in last year’s budget; Congress failed to adopt them.

The budget also calls for the creation of a single income-driven loan repayment program, to replace what has become a confusing jumble of different payment plans. Under the administration’s plan, borrowers would pay 12.5 percent of their discretionary income toward their loans, instead of the 10 percent many currently pay.

Mr. Trump’s $4.8 trillion budget deviates from his previous proposals in that it does not contain an explicit plan to repeal and replace Obamacare.

In previous years, Mr. Trump’s budget has proposed repealing the Affordable Care Act and replacing it with a system that would provide block grants of funding to states with far fewer rules about how the money should be spent. The new budget backs away from that approach. It leaves the Affordable Care Act’s funding in place but asks Congress to develop policies that would “advance the president’s health reform vision,” with a corresponding price tag, which it says would save $844 billion over the decade.

The budget’s approach to health care is particularly striking given its actions in court. It has joined a lawsuit brought by a group of Republican states that would seek to invalidate all of Obamacare. The Supreme Court is deciding whether it will take up that case or allow the lower courts to continue reviewing it. The president has repeatedly promised to release a health care plan that could be deployed if he wins in court, but he has yet to release one.

The budget still makes major changes to health care programs, including several that would tend to lower federal spending in Medicaid, by reducing the share of medical bills the federal government will pay for the Obamacare expansion population and imposing new requirements on beneficiaries who wish to enroll. Altogether, it proposes combined cuts to spending in Medicaid and Affordable Care Act subsidies that come to a trillion dollars, cuts that would mean substantial program changes.

Democratic candidates, in contrast, have offered detailed plans, which typically cost trillions of dollars raised via new taxes on corporations and the rich, to expand health care coverage and reduce costs for American patients.

The budget maintains the administration’s tradition of highly optimistic economic growth forecasts, which have not born out the past two years. Even then, it would leave the federal budget deficit only slightly smaller at the end of a possible second term for Mr. Trump, in 2024, than it was the year before he took office. It would not balance the budget until 2035 and add a projected $7 trillion to the national debt by the end of this decade, breaking Mr. Trump’s campaign promise to pay off the entire debt while in office.

It also avoids some hot-button issues that Democrats could seek to turn against Mr. Trump in November — notably, by not reducing Social Security or Medicare benefits. Most of the administration’s initiatives to save money on Medicare are cost-reduction proposals first offered under President Barack Obama, a Democrat.

Instead, the budget seeks to claim victories on core issues of Mr. Trump’s appeal to voters, including growing the economy and cracking down on immigration. That focus was underscored in the first lines of the budget’s introduction, written by Mr. Trump, which looked backward.

“Over the past three years, my administration has worked tirelessly to restore America’s economic strength,” he wrote. “We have ended the war on American workers and stopped the assault on American industry, launching an economic boom the likes of which we have never seen before.”

The administration reserved some of its deepest cuts for the Environmental Protection Agency, which would face a 26 percent reduction in funding and the elimination of 50 programs Mr. Trump deemed “wasteful” or duplicative. The budget would shrink the agency to funding levels it last saw during the 1990s and focus it on “core functions” like addressing lead exposure in water and revitalizing former toxic sites, while excluding efforts like beach cleanup. It does not mention climate change.

Congress has typically ignored the administration’s proposals for cuts to the agency.

The budget did contain a few new initiatives, compared to past budgets. It included a White House proposal to move Secret Service from the Department of Homeland Security to the Treasury Department, arguing that such a move would “create new efficiencies” in the investigation of financial crimes and prepare the United States to face “the threats of tomorrow” such as the use of cryptocurrencies to finance terrorism.

There appears to be bipartisan support for the move, though Democrats have balked at Treasury Secretary Steven Mnuchin’s unwillingness to provide reports ahead of the 2020 election on the cost to taxpayers of protecting Mr. Trump.

Emily Cochrane, Stacy Cowley, Lola Fadulu and Lisa Friedman contributed reporting.

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Trump’s Budget Math Grapples With Economic Reality

Westlake Legal Group 10dc-budgetmath-facebookJumbo Trump’s Budget Math Grapples With Economic Reality United States International Relations United States Economy Tax Cuts and Jobs Act (2017) Presidential Election of 2020 Politics and Government National Debt (US) medicaid Interest Rates Federal Budget (US)

WASHINGTON — President Trump’s budget proposals have been defined by a belief that the economy will grow significantly faster than most economists anticipate. The latest version, set for release on Monday, is a brief departure: It concedes, for the first time, that the administration’s past projections were too optimistic.

Then it goes right back to forecasting 3 percent growth, for the better part of a decade.

Mr. Trump’s $4.8 trillion budget proposal is slightly larger than last year’s $4.75 trillion request and calls for increased spending on the military, the border wall, infrastructure and other priorities, including extending the president’s 2017 tax cuts. It also includes trillions of dollars of cuts to safety-net programs like Medicaid and discretionary spending programs outside of the military, like education and the environment.

The White House makes the case that this is affordable and that the deficit will start to fall, dropping below $1 trillion in the 2021 fiscal year and that the budget will be balanced by 2035. That projection relies on rosy assumptions about growth and the accumulation of new federal debt — both areas where the administration’s past predictions have proved to be overconfident.

According to summary tables reviewed by The New York Times and interviews with administration officials, the new budget will forecast a growth rate for the United States economy of 2.8 percent this year — or, by the metric the administration prefers to cite, a 3.1 percent rate. That is more than a half percentage point larger than forecasters at the Federal Reserve and the Congressional Budget Office predict.

It then predicts growth above 3 percent annually for the next several years if the administration’s economic policies are enacted. The Fed, the budget office and others all see growth falling below 2 percent annually in that time. By 2030, the administration predicts the economy will be more than 15 percent larger than forecasters at the budget office do.

Past administrations have also dressed up their budget forecasts with economic projections that proved far too good to be true. In its fiscal year 2011 budget, for example, the Obama administration predicted several years of growth topping 4 percent in the aftermath of the 2008 financial crisis — a number it never came close to reaching even once.

Trump officials had considered their projections to be a break from that trend, writing last year that they were the first administration on record “to have experienced economic growth that meets or exceeds its own forecasts in each of its first two years in office.” That turned out to be wrong: In the middle of last year, the Commerce Department revised its accounting of the 2018 growth rate downward, to well below the rate Trump officials had forecast. Their predictions were similarly off in 2019.

Robust economic growth rates are not the only area where the administration’s renewed optimism appears in its latest budget. It has also revised down its estimate of the interest the federal government would pay to borrow money over the next decade, based largely on the assumption that the Fed, which began cutting rates in 2019, would raise them only modestly again over the next 10 years. The changes in rate assumptions reduce budget deficits by $1.5 trillion over the course of the decade, according to the administration’s projections.

Essentially, administration officials are contending that rising levels of debt in the United States will not drive up borrowing costs, as many conservative economists have long warned, at least for the next several years. They also believe, a rarity among economists, that a sustained stretch of 3 percent growth would not push the Fed to raise interest rates.

As a result, the administration sees federal debt held by the public — the national debt, essentially — declining from 79 percent of the overall economy this year to 66 percent in 2030. The budget office sees it rising, to 98 percent, a level not reached since 1946.

In order to justify that optimism, administration officials are contending that their overly optimistic growth forecasts of the past were a fluke of circumstance.

Mr. Trump’s first budget, in the spring of 2017, predicted growth of 2.3 percent that year using the administration’s preferred measure — the change in the size of the economy from the fourth quarter of the preceding year. It was a mild undershoot; growth actually hit 2.5 percent.

The next two budgets predicted 3.1 percent growth for 2018 and 3.2 percent for 2019. Both were off, badly. Growth was 2.5 percent in 2018, from fourth quarter to fourth quarter, and 2.3 percent in 2019, according to the Commerce Department.

Officials on Sunday attributed a half-point of the missed forecast last year to the effects of American trade policy — specifically, uncertainty over resolution of trade talks with China and congressional approval of a new trade agreement with Canada and Mexico. They said those uncertainties were now resolved and that growth would accelerate accordingly.

The senior administration official also said that a General Motors strike, aerospace giant Boeing’s struggles with its 737 Max aircraft and flooding in the Midwest had reduced growth by an additional three tenths of a percent last year.

Mr. Trump has long asserted that his push to negotiate with the Chinese and reopen North American trade talks were helping the economy. In the 2016 campaign, his advisers said that tariffs on Chinese imports — even more aggressive levies than what Mr. Trump ultimately imposed on Beijing — would increase growth, by pushing multinational companies to invest in the United States instead of China.

Such an investment wave never materialized. Capital spending growth turned negative for the last three quarters of 2019. Many forecasters believe that decline was trade-related; the budget office, among others, is predicting a bounce-back in investment growth this year. But those forecasters also see growth slowing, over all, as the stimulus fades from Mr. Trump’s deficit-swelling tax cuts in 2017 and spending increases he has signed each year in office.

Partly as a result of those measures, and the administration’s inability to interest Congress in any of its most aggressive proposals for cuts, the federal budget deficit was nearly twice as large last year as the administration projected in its first budget: It topped $1 trillion last year. The Congressional Budget Office predicts it will continue to grow, hitting $1.3 trillion in 2025 as growth slows to 1.5 percent.

For that same year, the new Trump budget predicts the deficit will be less than half the size — and that growth will be just under 3 percent.

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Job Growth Was Strong in January, Overcoming Headwinds

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The job market stayed on a path of steady growth in January.

  • Employers added 225,000 jobs. Forecasters had expected a gain of about 164,000.

  • The unemployment rate was 3.6 percent, up from 3.5 percent in December but still near a half-century low.

  • Average hourly earnings were up 3.1 percent from a year earlier.

  • A major annual revision showed that 2018 and early 2019 produced more than half a million fewer jobs than previously reported.

The job market sprang to life in January, kicking off the election year with some good news for a president who has made the economy the centerpiece of his bid for re-election.

Hiring slowed somewhat last year amid trade tensions and recession fears, but the job market has proved resilient. Now, with the recent abatement in the trade war, those concerns have eased and hiring has rebounded.

“You still have headwinds of tariffs, you still have headwinds of trade uncertainty, but those headwinds have been lessened,” said Ellen Zentner, chief United States economist for Morgan Stanley.

January’s numbers may have been helped by unusually warm winter weather in much of the country, which lifted employment in construction, hospitality and other weather-sensitive sectors.

“The overall employment number is not as good as first glance suggests because of unusual January weather, but it’s still a solid number,” said Diane Swonk, chief economist at Grant Thornton.

There are still some clouds in the economic sky. The shutdown in production of Boeing’s 737 Max aircraft is rippling through supply chains, retailers are laying off workers, and the new coronavirus could have widespread — though still hard to quantify — economic effects. Manufacturers and retailers both cut jobs in January, and most economists expect hiring to continue its gradual slowdown this year.

Still, this is, by many measures, the best environment for workers in years. Employers are hiring candidates with disabilities, criminal records and other barriers to employment, and are offering flexible schedules and other perks to draw workers off the sidelines. Wages are rising fastest for people at the bottom of the earnings ladder.

The unemployment rate ticked up in January to 3.6 percent, but the rise doesn’t suggest any trouble in the job market. In fact, the opposite: The rate increased because more people joined the labor force to look for work.

The strong labor market in recent years has drawn millions of people off the sidelines and into the work force. The labor force participation rate — the share of the population that is working or looking for work — has been edging up despite a steady outflow of retiring baby boomers. And the rate among Americans in their prime working years has been soaring, especially for women.

The growth of the labor force is good news for workers, because it means the strong economy is giving opportunities to people who were left out of the early stages of the recovery. And it is good news for the broader economy, because it means that companies can keep adding jobs without running out of workers.

“It means we don’t have to settle for a lower pace of job growth,” said Michelle Meyer, chief United States economist for Bank of America Merrill Lynch. “Not only is there demand for labor, there’s supply to fill that demand, and that’s a very positive narrative.”

The growth of the labor force will probably please officials at the Federal Reserve, who cut interest rates three times last year in a bid to keep the expansion from stalling. Friday’s report is a sign that effort is working, while the continued modest pace of wage growth suggests the central bank doesn’t have to worry that the economy will overheat.

Wage growth picked up a bit in January, but over all it remains disappointing, as it has for much of the decade-long expansion. A brief acceleration in wage growth in 2018 prompted hopes that the tight labor market was finally giving workers more bargaining power with employers. But growth has slowed again.

“The moderation in wage growth is the big question,” said Julia Coronado, president of MacroPolicy Perspectives, an economics consulting firm. “It’s everything.”

Economists are not sure what is behind the recent cooling in wage growth, or whether it will continue. It may be an early sign that the job market is weakening more than the headline jobs numbers suggest. Employers in recent months have posted fewer job openings, and the average workweek has shortened.

“It really seems like we are seeing some slowdown in employer demand for workers and hours, and that means a bigger dent on people’s take-home pay,” said Julia Pollak, a labor economist for the employment site ZipRecruiter.

The industrial slump that began last year continued in January. Manufacturers cut 12,000 jobs, with most of the losses coming among automakers, and employment also dipped in the mining sector. Job growth in freight transportation was also weak, the latest evidence that the ripple effects of the trade war are continuing to spread.

The “Phase 1” trade deal with China announced last month, along with the passage of a new North American trade agreement, should help limit further damage. But it could take time for the benefits to filter through to the job market.

“For manufacturing in the U.S. to rebound, you need to see activity globally rebound as well,” Ms. Meyer said. “In the near term, manufacturing might remain more sluggish.”

In the meantime, there is a new threat on the horizon: The coronavirus outbreak has shuttered factories in China and could affect trade globally.

The data in Friday’s report was collected before the coronavirus began to spread, and there have been few signs so far that the outbreak has affected the American economy. Data for the February jobs report will be collected next week, and investors and policymakers will be watching closely for any signs that companies or consumers have become more cautious as a result of the virus.

“I feel like people won’t breath a sigh of relief until they see a February report,” Ms. Zentner said.

In addition to the January figures, the jobs report on Friday included updates to data from 2018 and 2019. These “benchmark revisions” are conducted every year to align the monthly survey-based estimates with more definitive data from state unemployment insurance records, and are usually minor.

Not this year. The revisions showed that employers added 514,000 fewer jobs in 2018 and early 2019 than initially reported, mostly consistent with preliminary figures released last summer. That’s the equivalent of wiping out more than two months of job growth at recent rates, although hiring caught up a bit later in 2019 — by the end of the year, the gap between the original and revised figures had narrowed to about 400,000 jobs.

The revisions kept alive the economy’s record-setting streak of job gains, but by the slimmest of margins. Employers added just 1,000 jobs last February, down from 56,000 before the revision. The jobs streak now stands at 112 consecutive months, far and away a record.

The revisions do not change the fundamental picture of a healthy job market. But they suggest that the economic jolt delivered by the Republican tax cuts in 2018 was milder and ended sooner than it initially appeared.

“There were lots of skeptics when it passed that it would have much pass-through” to the larger economy, Ms. Coronado said of the tax law. “And now the data confirms that there wasn’t much pass-through.”

In his State of the Union address on Wednesday, President Trump sought to take credit for the strong economy. There are signs that pitch is working: Consumer confidence is up among independents, a potentially decisive constituency in the November election. Expect Mr. Trump and his backers to seize on the best elements of the report on Friday as evidence of his success.

But the economy also carries risks for Mr. Trump. Despite his claims of a “blue-collar boom,” manufacturing employment has slumped in recent months, particularly in the politically crucial Midwest. The oil industry is also struggling. And Democrats have highlighted weak wage growth as they argue that the economy is not working for many American families.

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Black Workers’ Wages Are Finally Rising

PHILADELPHIA — On a brisk January morning Markus Mitchell arrives at his desk at 8:30, his phone ringing before he can even log in to his computer. An employee at the giant nonprofit where Mr. Mitchell works is locked out of the organization’s network and needs the 24-year-old’s help.

Mr. Mitchell became a full-fledged employee at JEVS Human Services in Philadelphia in October, after a year as an apprentice. Just three years ago, he was making $13,000 working in the kitchen at a Chick-fil-A, feeling unsure about his future. Landing the $38,000-a-year position was the latest step in a rapid career ascent made possible in part by America’s record-long economic expansion and low unemployment rate.

ImageWestlake Legal Group oakImage-1579735963354-articleLarge Black Workers’ Wages Are Finally Rising Wages and Salaries Vocational Training United States Economy Mitchell, Markus Labor and Jobs JEVS Human Services Black People

Mr. Mitchell landed a job at JEVS Human Services, a Philadelphia nonprofit, after earning just $13,000 a year at a Chick-fil-A.

President Trump frequently celebrates the experience of black workers, noting correctly that the group’s unemployment rate is at its lowest on record.

Their wages are also going up — a New York Times analysis of government data found that wage growth for black workers has accelerated recently after lagging for much of the decade-long economic expansion.

Westlake Legal Group 0207-biz-web-BLACKWAGES-Unemployment-rate-Artboard_2 Black Workers’ Wages Are Finally Rising Wages and Salaries Vocational Training United States Economy Mitchell, Markus Labor and Jobs JEVS Human Services Black People

Unemployment rate by race

Seasonally adjusted

DEC. ’19

Blacks

6.4%

Whites

2.9%

RECESSIONS

Westlake Legal Group 0207-biz-web-BLACKWAGES-Unemployment-rate-Artboard_3 Black Workers’ Wages Are Finally Rising Wages and Salaries Vocational Training United States Economy Mitchell, Markus Labor and Jobs JEVS Human Services Black People

Unemployment rate by race

Seasonally adjusted

DEC. ’19

Blacks

6.4%

Whites

2.9%

RECESSIONS

Note: Racial categories exclude Hispanics.

Current Population Survey via IPUMS | By The New York Times

But when Mr. Mitchell looks around his relatively low-income and heavily black neighborhood, he worries that the rising tide of a strong economy has not been equally good for everyone in his community. And when it comes to his own labor market gains, he’s working hard to make sure they do not prove fleeting.

A malignant reality lurks beneath the happy surface as black workers finally make job market progress. Not only did the gains take a decade of steady job growth to materialize, but they could evaporate at the first sign of economic weakness, as they did after previous expansions.

In April 2017, Mr. Mitchell quit his low-paying job, hoping that he could achieve a better life. By June that year, he was in a training program, one that helped connect him to another backed by JEVS. That led to a pre-apprenticeship role in partnership with AmeriCorps, then an apprenticeship and now his full-time job.

He has one certification, is working on another in networking and could even progress to a cybersecurity test down the road. He’s conscious that without a college degree he has challenges, but hopeful that his on-the-job experience and practical training will help him weather future downturns.

“I know that the fact that I don’t have a degree puts me at a disadvantage, over my peers,” he said. “I’ve gained enough knowledge to go and do computer work for people myself, so if that’s what I had to do, I’d do it.”

Mr. Mitchell’s story is, on one level, a lesson in the power of a strong labor market to lift up disadvantaged communities. When workers are scarce, companies are more likely to hire people without much experience or formal education, and to provide training to help those employees succeed. Employers are also more likely to consider candidates with disabilities, criminal records or other barriers to work and to offer other options, like flexible hours, to attract people with caregiving responsibilities.

Companies are also more likely to raise pay. Wage growth, which was sluggish for much of the recovery, has picked up in recent years, with the strongest gains among workers at the bottom of the earnings ladder, in jobs that are often concentrated in the service sector, like fast food and retail.

The Federal Reserve sees the continually expanding work force as a key reason for future patience on interest rates. Mary C. Daly, president of the San Francisco branch, has said Fed officials should see how far the labor expansion can run “experientially.”

Westlake Legal Group 0207-biz-web-BLACKWAGES-Wage-growth-Artboard_2 Black Workers’ Wages Are Finally Rising Wages and Salaries Vocational Training United States Economy Mitchell, Markus Labor and Jobs JEVS Human Services Black People

Median wage growth by race

12-month moving average

DEC. ’19

Blacks

+4.3%

Whites

+3.4%

Westlake Legal Group 0207-biz-web-BLACKWAGES-Wage-growth-Artboard_3 Black Workers’ Wages Are Finally Rising Wages and Salaries Vocational Training United States Economy Mitchell, Markus Labor and Jobs JEVS Human Services Black People

Median wage growth by race

12-month moving average

DEC. ’19

Blacks

+4.3%

Whites

+3.4%

Note: Wage growth is measured as median change in hourly wages over a year. Workers who enter or leave the labor force are excluded. Methodology based on the Federal Reserve Bank of Atlanta’s wage tracker. Black and white categories exclude Hispanics.

Source: Current Population Survey via IPUMS | By The New York Times

But tight labor markets alone cannot undo established structural barriers. Even now, the unemployment rate for black Americans is double that of whites — a figure that does not even take into account higher rates of incarceration for black men in particular. The median black worker still makes 78 cents to the median white worker’s $1 each week.

Mr. Mitchell grew up in Grays Ferry, a neighborhood in South Philadelphia where rows of identical low-income housing units sit alongside faded corner bodegas.

He has lived in his home, which is subsidized, since his family ran into hard times around the last recession. His mother, a teacher, had to take time off work after a bad car accident — and then struggled to find new work as the economy reeled. Since she was the primary breadwinner for her five sons, including one with a severe disability, it was a major blow.

The boys were interested in college, but for Mr. Mitchell, high school changed that. He felt that his teachers did not care about him, especially after concerns about the building’s safety forced his high school to shut down before his senior year. Fights plagued the hallways of his new school. There were cages on the windows.

“It was waking up to go to a day care, that was actually a jail, that you could freely walk out of,” he said.

He cut classes, sneaking out a side door to the freedom of the surrounding city. Though an avid reader — his dresser is buried under psychology classics, as varied as Dale Carnegie and Machiavelli — he failed English. He was pushed through graduation anyway.

Early adulthood flowed by in a string of odd jobs.

He worked in poison ivy removal (he stopped getting a rash after the fourth or fifth outbreak) and had a short stint at UPS before starting work at Chick-fil-A, where he made $9.50 an hour. He promised himself the job would be short-lived, and spent his mornings and nights reading computer-related training material.

But more than a year in, as he was cleaning the floors at Chick-fil-A, a moment shook him.

“I was squeegeeing water up, and these guys walked in,” he said. They were technicians, sent there to fix the restaurant’s computer network. They were close to his age, and he couldn’t help comparing their work with his own. “I just told myself: Here’s the risk, here’s the reward. What are you going to do?”

It took a few months to finally quit. He was getting a lot of hours at Chick-fil-A, and helping his mother, who now works at a day care, to pay rent.

“I didn’t want to set myself up for failure long term, but I didn’t want to set myself up for failure short term, either,” he said.

“I knew computers, and people with skills in computers, were in demand. I knew it in my heart,” he said. But at the same time, “who is going to pick this kid up with no college degree, no experience?”

His timing was ideal. The shortage of qualified workers in information technology is prompting employers to cast a wider net, fueling demand for apprenticeship programs like the one he completed.

“We know because of the economy, employers are trying to expand the pipeline of talent that they’re tapping,” said Edison Freire, a former teacher who founded the apprentice program Mr. Mitchell went through.

Westlake Legal Group 0207-biz-web-BLACKWAGES-Employment-rate-Artboard_2 Black Workers’ Wages Are Finally Rising Wages and Salaries Vocational Training United States Economy Mitchell, Markus Labor and Jobs JEVS Human Services Black People

Change in employment rate since January 2007

12-month rolling average

Black women

ages 45-54

+4.6%

Black men

ages 25-34

+1.3%

White men

ages 45-54

–1.4%

Westlake Legal Group 0207-biz-web-BLACKWAGES-Employment-rate-Artboard_3 Black Workers’ Wages Are Finally Rising Wages and Salaries Vocational Training United States Economy Mitchell, Markus Labor and Jobs JEVS Human Services Black People

Change in employment rate

since January 2007

DEC. ’19

12-month rolling average

Black women

ages 45-54

+4.6%

Black men

ages 25-34

+1.3%

White men

ages 45-54

–1.4%

Note: Employment rates are as a share of the population. Demographic groups represented are black and white men and women, each in 10-year age groups from 25 to 54, for a total of 12 groups.

Source: Current Population Survey via IPUMS | By The New York Times

Mr. Mitchell has made huge gains in the past few years. But his long-term prospects remain uncertain. He still doesn’t have a college degree. He is hoping that his certificate and experience make up for that, but they have yet to be tested in the crucible of a recession.

What happens to Mr. Mitchell and others like him has implications for the broader economy. Historically, the gains made during periods of low unemployment have proved transitory for black workers, who are among the last to benefit from a good economy and among the first to suffer in a downturn.

But there have been few past examples of a labor market as strong and sustained as the current one. Some economists hope that as more workers like Mr. Mitchell get a foothold in the labor market, and even manage to climb a few rungs up the ladder, they will be better positioned to weather an eventual recession. That larger pool of workers would leave the American economy better off in the long run.

Today’s solid labor market comes with costs. A strong economy fuels urbanization and lifts rent, and can make it harder for lower-income minority families like Mr. Mitchell’s to get by. Rent has marched up along with his salary as the family’s housing vouchers have been reduced. Money is manageable, but Mr. Mitchell remains frugal — when he eats a $3 cheesesteak for lunch, he carefully wraps half of it for later.

But Mr. Mitchell has big goals. He is hoping that he and his younger brothers can pull together sufficient savings to move themselves and their mother to another neighborhood. He loves where he grew up, but it’s changing — gentrifying, diversifying. And the bustling local market doesn’t seem to be pulling black workers up with it.

He noted that Pennsylvania’s minimum wage has not increased, and “very seldom do I hear of someone getting a better job.” (Philadelphia last year raised the minimum wage for city employees and contractors, but state law prohibits the city from raising the floor for all workers. Federal efforts have yet to gain traction.)

Philadelphia is a university town, but he worries that it is not focused on educating its native youths, a group that is heavily black. Standing outside his old high school last month, he glumly pointed out the door he used to skip classes. Nobody stopped him, he said. And years later, a steady stream of students — mostly racial or ethnic minorities — are still pouring out.

“I don’t see much of a change, as far as my people elevating economically,” he said. “There’s often a loophole through things, sometimes there’s not. I was lucky enough to be blessed with one.”

Jeanna Smialek reported from Philadelphia, and Ben Casselman from New York.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Black Workers’ Wages Are Finally Rising

PHILADELPHIA — On a brisk January morning Markus Mitchell arrives at his desk at 8:30, his phone ringing before he can even log in to his computer. An employee at the giant nonprofit where Mr. Mitchell works is locked out of the organization’s network and needs the 24-year-old’s help.

Mr. Mitchell became a full-fledged employee at JEVS Human Services in Philadelphia in October, after a year as an apprentice. Just three years ago, he was making $13,000 working in the kitchen at a Chick-fil-A, feeling unsure about his future. Landing the $38,000-a-year position was the latest step in a rapid career ascent made possible in part by America’s record-long economic expansion and low unemployment rate.

ImageWestlake Legal Group oakImage-1579735963354-articleLarge Black Workers’ Wages Are Finally Rising Wages and Salaries Vocational Training United States Economy Mitchell, Markus Labor and Jobs JEVS Human Services Black People

Mr. Mitchell landed a job at JEVS Human Services, a Philadelphia nonprofit, after earning just $13,000 a year at a Chick-fil-A.

President Trump frequently celebrates the experience of black workers, noting correctly that the group’s unemployment rate is at its lowest on record.

Their wages are also going up — a New York Times analysis of government data found that wage growth for black workers has accelerated recently after lagging for much of the decade-long economic expansion.

Westlake Legal Group 0207-biz-web-BLACKWAGES-Unemployment-rate-Artboard_2 Black Workers’ Wages Are Finally Rising Wages and Salaries Vocational Training United States Economy Mitchell, Markus Labor and Jobs JEVS Human Services Black People

Unemployment rate by race

Seasonally adjusted

DEC. ’19

Blacks

6.4%

Whites

2.9%

RECESSIONS

Westlake Legal Group 0207-biz-web-BLACKWAGES-Unemployment-rate-Artboard_3 Black Workers’ Wages Are Finally Rising Wages and Salaries Vocational Training United States Economy Mitchell, Markus Labor and Jobs JEVS Human Services Black People

Unemployment rate by race

Seasonally adjusted

DEC. ’19

Blacks

6.4%

Whites

2.9%

RECESSIONS

Note: Racial categories exclude Hispanics.

Current Population Survey via IPUMS | By The New York Times

But when Mr. Mitchell looks around his relatively low-income and heavily black neighborhood, he worries that the rising tide of a strong economy has not been equally good for everyone in his community. And when it comes to his own labor market gains, he’s working hard to make sure they do not prove fleeting.

A malignant reality lurks beneath the happy surface as black workers finally make job market progress. Not only did the gains take a decade of steady job growth to materialize, but they could evaporate at the first sign of economic weakness, as they did after previous expansions.

In April 2017, Mr. Mitchell quit his low-paying job, hoping that he could achieve a better life. By June that year, he was in a training program, one that helped connect him to another backed by JEVS. That led to a pre-apprenticeship role in partnership with AmeriCorps, then an apprenticeship and now his full-time job.

He has one certification, is working on another in networking and could even progress to a cybersecurity test down the road. He’s conscious that without a college degree he has challenges, but hopeful that his on-the-job experience and practical training will help him weather future downturns.

“I know that the fact that I don’t have a degree puts me at a disadvantage, over my peers,” he said. “I’ve gained enough knowledge to go and do computer work for people myself, so if that’s what I had to do, I’d do it.”

Mr. Mitchell’s story is, on one level, a lesson in the power of a strong labor market to lift up disadvantaged communities. When workers are scarce, companies are more likely to hire people without much experience or formal education, and to provide training to help those employees succeed. Employers are also more likely to consider candidates with disabilities, criminal records or other barriers to work and to offer other options, like flexible hours, to attract people with caregiving responsibilities.

Companies are also more likely to raise pay. Wage growth, which was sluggish for much of the recovery, has picked up in recent years, with the strongest gains among workers at the bottom of the earnings ladder, in jobs that are often concentrated in the service sector, like fast food and retail.

The Federal Reserve sees the continually expanding work force as a key reason for future patience on interest rates. Mary C. Daly, president of the San Francisco branch, has said Fed officials should see how far the labor expansion can run “experientially.”

Westlake Legal Group 0207-biz-web-BLACKWAGES-Wage-growth-Artboard_2 Black Workers’ Wages Are Finally Rising Wages and Salaries Vocational Training United States Economy Mitchell, Markus Labor and Jobs JEVS Human Services Black People

Median wage growth by race

12-month moving average

DEC. ’19

Blacks

+4.3%

Whites

+3.4%

Westlake Legal Group 0207-biz-web-BLACKWAGES-Wage-growth-Artboard_3 Black Workers’ Wages Are Finally Rising Wages and Salaries Vocational Training United States Economy Mitchell, Markus Labor and Jobs JEVS Human Services Black People

Median wage growth by race

12-month moving average

DEC. ’19

Blacks

+4.3%

Whites

+3.4%

Note: Wage growth is measured as median change in hourly wages over a year. Workers who enter or leave the labor force are excluded. Methodology based on the Federal Reserve Bank of Atlanta’s wage tracker. Black and white categories exclude Hispanics.

Source: Current Population Survey via IPUMS | By The New York Times

But tight labor markets alone cannot undo established structural barriers. Even now, the unemployment rate for black Americans is double that of whites — a figure that does not even take into account higher rates of incarceration for black men in particular. The median black worker still makes 78 cents to the median white worker’s $1 each week.

Mr. Mitchell grew up in Grays Ferry, a neighborhood in South Philadelphia where rows of identical low-income housing units sit alongside faded corner bodegas.

He has lived in his home, which is subsidized, since his family ran into hard times around the last recession. His mother, a teacher, had to take time off work after a bad car accident — and then struggled to find new work as the economy reeled. Since she was the primary breadwinner for her five sons, including one with a severe disability, it was a major blow.

The boys were interested in college, but for Mr. Mitchell, high school changed that. He felt that his teachers did not care about him, especially after concerns about the building’s safety forced his high school to shut down before his senior year. Fights plagued the hallways of his new school. There were cages on the windows.

“It was waking up to go to a day care, that was actually a jail, that you could freely walk out of,” he said.

He cut classes, sneaking out a side door to the freedom of the surrounding city. Though an avid reader — his dresser is buried under psychology classics, as varied as Dale Carnegie and Machiavelli — he failed English. He was pushed through graduation anyway.

Early adulthood flowed by in a string of odd jobs.

He worked in poison ivy removal (he stopped getting a rash after the fourth or fifth outbreak) and had a short stint at UPS before starting work at Chick-fil-A, where he made $9.50 an hour. He promised himself the job would be short-lived, and spent his mornings and nights reading computer-related training material.

But more than a year in, as he was cleaning the floors at Chick-fil-A, a moment shook him.

“I was squeegeeing water up, and these guys walked in,” he said. They were technicians, sent there to fix the restaurant’s computer network. They were close to his age, and he couldn’t help comparing their work with his own. “I just told myself: Here’s the risk, here’s the reward. What are you going to do?”

It took a few months to finally quit. He was getting a lot of hours at Chick-fil-A, and helping his mother, who now works at a day care, to pay rent.

“I didn’t want to set myself up for failure long term, but I didn’t want to set myself up for failure short term, either,” he said.

“I knew computers, and people with skills in computers, were in demand. I knew it in my heart,” he said. But at the same time, “who is going to pick this kid up with no college degree, no experience?”

His timing was ideal. The shortage of qualified workers in information technology is prompting employers to cast a wider net, fueling demand for apprenticeship programs like the one he completed.

“We know because of the economy, employers are trying to expand the pipeline of talent that they’re tapping,” said Edison Freire, a former teacher who founded the apprentice program Mr. Mitchell went through.

Westlake Legal Group 0207-biz-web-BLACKWAGES-Employment-rate-Artboard_2 Black Workers’ Wages Are Finally Rising Wages and Salaries Vocational Training United States Economy Mitchell, Markus Labor and Jobs JEVS Human Services Black People

Change in employment rate since January 2007

12-month rolling average

Black women

ages 45-54

+4.6%

Black men

ages 25-34

+1.3%

White men

ages 45-54

–1.4%

Westlake Legal Group 0207-biz-web-BLACKWAGES-Employment-rate-Artboard_3 Black Workers’ Wages Are Finally Rising Wages and Salaries Vocational Training United States Economy Mitchell, Markus Labor and Jobs JEVS Human Services Black People

Change in employment rate

since January 2007

DEC. ’19

12-month rolling average

Black women

ages 45-54

+4.6%

Black men

ages 25-34

+1.3%

White men

ages 45-54

–1.4%

Note: Employment rates are as a share of the population. Demographic groups represented are black and white men and women, each in 10-year age groups from 25 to 54, for a total of 12 groups.

Source: Current Population Survey via IPUMS | By The New York Times

Mr. Mitchell has made huge gains in the past few years. But his long-term prospects remain uncertain. He still doesn’t have a college degree. He is hoping that his certificate and experience make up for that, but they have yet to be tested in the crucible of a recession.

What happens to Mr. Mitchell and others like him has implications for the broader economy. Historically, the gains made during periods of low unemployment have proved transitory for black workers, who are among the last to benefit from a good economy and among the first to suffer in a downturn.

But there have been few past examples of a labor market as strong and sustained as the current one. Some economists hope that as more workers like Mr. Mitchell get a foothold in the labor market, and even manage to climb a few rungs up the ladder, they will be better positioned to weather an eventual recession. That larger pool of workers would leave the American economy better off in the long run.

Today’s solid labor market comes with costs. A strong economy fuels urbanization and lifts rent, and can make it harder for lower-income minority families like Mr. Mitchell’s to get by. Rent has marched up along with his salary as the family’s housing vouchers have been reduced. Money is manageable, but Mr. Mitchell remains frugal — when he eats a $3 cheesesteak for lunch, he carefully wraps half of it for later.

But Mr. Mitchell has big goals. He is hoping that he and his younger brothers can pull together sufficient savings to move themselves and their mother to another neighborhood. He loves where he grew up, but it’s changing — gentrifying, diversifying. And the bustling local market doesn’t seem to be pulling black workers up with it.

He noted that Pennsylvania’s minimum wage has not increased, and “very seldom do I hear of someone getting a better job.” (Philadelphia last year raised the minimum wage for city employees and contractors, but state law prohibits the city from raising the floor for all workers. Federal efforts have yet to gain traction.)

Philadelphia is a university town, but he worries that it is not focused on educating its native youths, a group that is heavily black. Standing outside his old high school last month, he glumly pointed out the door he used to skip classes. Nobody stopped him, he said. And years later, a steady stream of students — mostly racial or ethnic minorities — are still pouring out.

“I don’t see much of a change, as far as my people elevating economically,” he said. “There’s often a loophole through things, sometimes there’s not. I was lucky enough to be blessed with one.”

Jeanna Smialek reported from Philadelphia, and Ben Casselman from New York.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com