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State Unemployment Claims Fall Below 400,000

The weekly figure was about 367,000, a decrease of 58,000 from the previous week. New claims for Pandemic Unemployment Assistance, a federally funded program for jobless freelancers, gig workers and others who do not ordinarily qualify for state benefits, totaled 71,000, a decrease of 2,000 from the prior week. The figures are not seasonally adjusted. (On a seasonally adjusted basis, state claims totaled 376,000, a decline of 9,000.)

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The Economic Gauges Are Going Nuts. Jerome Powell Is Taking a Longer View.

The economy is changing so fast that just making sense of it is no easy task. Within a few months, the United States has gone from no jobs and depressed prices to widespread labor shortages and uncomfortably high inflation.

In this most unusual recovery, the signals that economic policymakers use to inform their decisions are going haywire. What is one to make, for example, of the combination of strong growth in jobs and wages paired with millions of working-age people who seem to have no interest in returning to the work force?

It’s easy to imagine Jerome Powell, the Federal Reserve chair, as a pilot in unfamiliar territory with malfunctioning gauges. He’s doing what you’d want a pilot to do in those circumstances: looking to the horizon.

A recurring theme on Wednesday, as he spoke to the news media after a Fed policy meeting, was his focus on the things that haven’t changed about the economy, the lessons learned in the expansion of the 2010s. He is resisting the urge to conclude that the pandemic fundamentally changed the most important dynamics.

To Mr. Powell’s mind, these are those lessons: American workers are capable of great things. The labor market can run hotter for longer than a lot of economists once assumed, with widely beneficial results. There are many powerful structural forces that will keep inflation in check. And for those reasons, the Fed should move cautiously in raising interest rates, rather than risk choking off a full economic recovery too soon.

His is a profoundly optimistic view of the coming years. He does not see the labor shortages of 2021 as evidence of lasting scars to the potential of American workers, but rather as a reflection of the difficulty of reopening large sectors of the economy and reallocating labor after a pandemic.

“You look through the current time frame and look one and two years out — we’re going to be looking at a very, very strong labor market,” Mr. Powell said, describing an environment of low unemployment, high rates of participation and “rising wages for people across the spectrum.”

And he was dismissive of the possibility that spikes in both wages and prices would turn into a lasting 1970s-style spiral.

“Is there a risk that inflation will be higher than we think? Yes,” Mr. Powell said. “We don’t have any certainty about the timing or the extent of these effects from reopening.”

But he added: “We think it’s unlikely they would materially affect the underlying inflation dynamics that the economy has had for a quarter of a century. The underlying forces that have created those dynamics are intact.” These include globalization and an aging world population.

If you squint, you can even see the application of lessons from three big missteps in Mr. Powell’s career as a central banker.

In 2013, as a Fed governor, he helped push Chair Ben Bernanke toward “tapering” the pace of bond-buying in the Fed’s quantitative easing program, which created global financial tremors and led the central bank to reverse course. (In one sign of how deep the scars of that experience are, Mr. Powell carefully said on Wednesday that at this meeting, they merely talked about talking about tapering their current Q.E. purchases, which was itself a subtle shift from his previous guidance that it was not yet time to talk about talking about tapering.)

In 2015, Mr. Powell supported a decision to begin raising interest rates to prevent inflation from taking off. This also caused global economic problems — and an under-the-radar economic slowdown in the United States — even though with hindsight the American job market had lots of remaining potential to improve.

And in 2018, under his leadership, the Fed raised interest rates four times despite an absence of inflationary pressure. The last of these, especially, came to look like a mistake within days, and Mr. Powell soon reversed course.

At each of those junctures, the people who argued that the American labor market was already at or near its potential — a fundamentally pessimistic view about the number of people who could be coaxed to work by the right mix of compensation and job opportunities — looked with hindsight to be wrong. So were the people who routinely predicted that an outburst of problematic inflation was right around the corner.

The risk with this approach is that Mr. Powell is, in effect, fighting the last battle — applying the lessons of those episodes to a different economic environment.

There are, after all, quite a few differences between then and now. Most significantly, fiscal policymakers have acted on a much larger scale now, and the trillions of dollars coursing through the economy surely create different types of inflation risks. All else being equal, looser fiscal policy — larger continuing deficits — implies that tighter monetary policy is needed to keep a lid on inflation.

Moreover, there are some signs — early, but striking — of a more lasting change in the power dynamics between capital and labor. Workers appear to have the upper hand with employers in ways they haven’t in a generation.

This could turn out to be a temporary result of the post-pandemic moment, and is mostly positive (Mr. Powell explicitly characterizes higher wages and more expansive job opportunities as a good thing). But if we are returning to a more 1960s-style dynamic in which workers demand pay that is higher than productivity gains would imply are justified, and employers readily give it to them and raise their prices, it will mean that Mr. Powell’s Fed is on track to get behind the curve on inflation.

Ultimately, then, the question of whether the Fed is on a wise course will depend on whether the pandemic fundamentally changed things, or just created a miserable year for the economy, after which things return to normal.

One trait Mr. Powell has shown, including in the 2013, 2015 and 2018 episodes, is a willingness to pivot when evidence emerges that his judgment is wrong. The best hope for the economy of the 2020s is that his pilot’s view of the horizon is correct. The second best is that if it turns out to be wrong, he adjusts quickly.

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The Fed Meets as Economic Data Offers Surprises and Mixed Signals

Investors will scour the Federal Reserve’s policy statement and economic projections Wednesday for any hint that recent data surprises — including faster-than-expected inflation and slower job growth — have shaken up the central bank’s plans for its cheap-money policies.

Economic policymakers are unlikely to make major changes at a time when interest rates are expected to stay near zero for years to come, but a series of tiny adjustments to their policy messaging and new economic projections could combine to make this week’s meeting one to watch, and an important moment for markets.

The central bank will release new economic forecasts from its 18 officials for the first time since March, when the Fed projected no rate increase until at least 2024. Policymakers could pencil in an earlier move, pulling the initial rate rise forward to 2023.

Markets will also watch for even the subtlest hint at what lies ahead for the Fed’s $120 billion in monthly bond purchases, which have kept many kinds of borrowing cheap and pushed up prices for stocks and other assets. Several Fed officials have said they would like to soon discuss plans for slowing their bond buying, though economists expect it will be months before they send investors any clear signal about when the “taper” will start.

The Fed is scheduled to release the policy announcement from its two-day meeting at 2 p.m., followed by a news conference with Chair Jerome H. Powell.

The central bank may want to use the meeting and Mr. Powell’s remarks to “start getting us ready, otherwise, we’re going to be in complete denial until we realize — ‘Ouch, the Fed is stepping away,’” said Priya Misra, head of global rates strategy at T.D. Securities. The point may be to say “they are not running for the exits, but they are at least planning the escape route.”

As it charts a path forward for policy, the Fed will have to weigh signs of economic resurgence — rapid price gains as demand jumps back faster than supply, as well as plentiful job openings — against the reality that millions of people have yet to return to work. The shortfall probably owes to a cocktail of factors, as older workers retire, would-be immigrants remain in their home countries, and virus fears, child-care issues and expanded government benefits combine to keep potential employees at home.

Many workers may simply need time to shuffle into new and suitable jobs, and the Fed is likely to signal that it plans to continue providing policy support as they do that. Here’s what else to watch for.

The Fed is aiming for inflation that runs “moderately above 2 percent for some time” so that it eventually averages 2 percent. Its policy statement has long noted that price gains have run “persistently below this longer-run goal.” After several months of above-2 percent inflation numbers, it may be time to update that language to reflect recent price spikes.

The Fed’s preferred inflation gauge jumped 3.6 percent in April from a year earlier, and the more up-to-date and closely related Consumer Price Index inflation measure popped by 5 percent in May.

But the Fed — like many financial economists — expects that pop to prove temporary. The 5 percent increase in C.P.I. happened partly because prices fell during last year’s intense lockdowns, making current year-over-year comparisons look artificially elevated. Without that so-called base effect, the increase would have been in the neighborhood of 3.4 percent.

That is still obviously on the high side. The rest of the surge came as wages increased and demand bounced back faster than global supply chains, fueling shortages in computer chips and causing shipping snarls. While base effects should fade quickly, it is unclear how rapidly supply bottlenecks will be sorted out. The semiconductor issue may clear up over the coming months, for instance, but some importers have estimated that a shipping container shortage could last at least into next year, potentially lifting prices for some products.

Compounding that uncertainty, the jump in inflation came faster than officials had expected. If the Fed’s preferred inflation index stood completely still at its April level, inflation would grow by 2 percent this year. Instead, prices have continued to grind higher and are most likely already on track to exceed the Fed’s 2.4 percent forecast for 2021. That means officials are going to have to revise their estimates upward when they release new economic projections. The big questions are by how much and whether the revisions bleed into next year.

Mr. Powell is likely to maintain that the recent surge is temporary, yet he will probably have to address the risk that inflation expectations and wages will rise more briskly, locking in the faster price gains. He has previously said that is a possibility, but an unlikely outcome.

“He may be a little less strident than he was at the April press conference,” said Michael Feroli, chief U.S. economist at J.P. Morgan.

Economists at Goldman Sachs don’t expect the Fed to begin hinting that it is planning to slow its bond purchases until August or September, with a formal announcement in December, and an actual start to tapering at the beginning of next year.

Even then, it’s going to take a long time for the Fed to really unwind its policy support. The Fed has suggested it will first signal that it is thinking of slowing bond purchases, then actually taper, and only then lift rates. Strategists at Goldman estimate that “even if the labor market recovery accelerates rapidly from here,” the first rate increase would probably still be “at least” 15 months away.

Mr. Powell could say or suggest that the policy-setting Federal Open Market Committee is taking the first baby step toward that process — what has been called “talking about talking about tapering” — during his news conference.

Officials could also begin to pencil in a timetable for rate increases. The Fed’s so-called dot plot of interest rate projections showed no interest rate increases through 2023, the last year in the forecast, as of March. Many economists expect it to show one rate increase in 2023 after revisions.

But the Fed’s outlook is likely to remain patient — signaling years of low rates ahead — because the job market has a lot of room left to recover. About seven million fewer people reported being employed in May than in February 2020.

While recent job gains have been robust by normal standards, they’ve been slow compared with the hole that remains in the labor market. After climbing by a solid 785,000 jobs in March, hiring has slowed to a more subdued 418,500 jobs on average over the past two months.

The Fed has two goals — stable inflation and maximum employment — and the recent hiring slowdown means the second target could take a little bit longer to achieve.

“Bottom line, I would like to see further progress than where we are right now,” Loretta Mester, president of the Federal Reserve Bank of Cleveland, said on CNBC shortly after the May jobs report was released. “We want to be very deliberately patient here, because this was a huge, huge shock to the economy.”

That’s why economists are looking out for tweaks this week — but no major shift away from the Fed’s supportive stance.

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A Fading Coal County Bets on Schools, but There’s One Big Hitch

“I hear it from kids all the time: I want to get out of here,” said Kristin Johnson, a 24-year-old middle school teacher at Mount View who lives in Princeton, W.Va., about an hour’s drive away, and is itching for a teacher job to open there. “Those who do get an education know they can make more money somewhere else.”

Ms. Keys returned, in part, out of loyalty. “When I was in high school, we started losing a lot of teachers,” she said. “People feared there would be nobody there to take those jobs.” But a stable teaching job, as well as free housing at her grandmother’s old house, played into her calculations.

This may not be enough to hold her, though. Even dating locally is complicated. Her boyfriend lives over an hour away, outside Beckley. “There is nobody here that is appealing,” Ms. Keys said.

Consider Emily Hicks, 24, who graduated from Mount View in 2015. She is at the forefront of Reconnecting McDowell’s efforts, an early participant in the mentoring program meant to expand the horizons of local youths.

She didn’t even have to leave home to get her bachelor’s degree at Bluefield State College, commuting from home every other day. Today she teaches fifth grade at Kimball Elementary School. Her father is a surveyor for the coal mines; her mother works for the local landfill. But her boyfriend, Brandon McCoy, is hoping to leave the coal business and has taken a couple of part-time jobs at clinics outside the county after getting an associate degree in radiology.

Her brother, Justin, who graduated from high school in June, is going to college to get a degree in electrical engineering. “I have no idea what I’m going to do after that,” he said. “But there’s not a lot to do here.”

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