Category: Economy

Members of the Federal Reserve are debating how quickly to reduce the central bank’s portfolio of bonds, without starting a recession.

Heading into the second quarter of 2022, the balance of Federal Reserve’s assets is almost $9 trillion. The majority of these assets are securitized holdings of government debt and mortgages. Most were purchased to calm investors during the subprime mortgage crisis in 2008 and 2020’s pandemic.

“What’s happened is the balance sheet has become more of a tool of policy.” Roger Ferguson, former vice chairman of the Federal Reserve Board of Governors, told CNBC. “The Federal Reserve is using its balance sheet to drive better outcomes in history.”

The U.S. central bank has long used its power as a lender of last resort to add liquidity to markets during times of distress. When the central bank buys bonds, it can push investors toward riskier assets. The Fed’s policies have boosted U.S. equities despite tough economic conditions for small businesses and ordinary workers.

Kathryn Judge, a professor at Columbia Law, says the Fed’s stimulus is like grease for the gears of the financial system. “If they apply too much grease too frequently, there are concerns that the overall machinery becomes risk-seeking and fragile in alternative ways,” she said to CNBC in an interview.

Analysts believe that the Fed’s choice to raise interest rates in 2022 then quickly reduce the balance sheet could set off a recession as riskier assets are repriced.

Watch the video above to learn more about the recession risks of the Fed’s monetary policies.

After rising steadily for months, mortgage rates made a U-turn last week, and borrowers jumped to take advantage. The crisis in Ukraine rattled financial markets and caused a run on the relatively safer bond market. Yields fell and mortgage rates followed.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 4.09% from 4.15%, with points remaining unchanged at 0.44 (including the origination fee) for loans with a 20% down payment, according to the Mortgage Bankers Association. The rate was 83 basis points lower one year ago.

As a result, demand for refinances jumped 9% last week compared with the previous week, but application volume was still half of what it was the same week one year ago, when rates were lower.

“Mortgage rates dropped for the first time in 12 weeks, as the war in Ukraine spurred an investor flight to quality, which pushed U.S. Treasury yields lower,” said Joel Kan, an MBA economist. “Looking ahead, the potential for higher inflation amidst disruptions in oil and other commodity flows will likely lead to a period of volatility in rates as these effects work against each other.”

Applications for a mortgage to purchase a home increased 9% from the previous week but were 7% lower than the same week one year ago. Homebuyers are less sensitive to weekly rate moves, and the jump in demand was likely due more to increased supply hitting the market for the spring season. Slightly lower mortgage rates didn’t hurt of course, especially given how high home prices are now.

“The average loan size remained close to record highs, with higher-balance loan applications continuing to dominate growth,” added Kan.

Mortgage rates surged back sharply to start this week, jumping more than 25 basis points in just two days, according to Mortgage News Daily. Investors are moving away from bonds, causing yields to rise, despite the ongoing crisis in Ukraine, which caused rates to drop at the outset.

“While the Ukraine situation does indeed drive demand for bonds, the associated inflation implications are simultaneously pushing demand away,” wrote Matthew Graham, chief operating officer at Mortgage News Daily. “The net effect was a move back up to the highest mortgage rates since early 2019.” 

Job growth accelerated in February, posting the biggest monthly gain since July as the employment picture got closer to its pre-pandemic self.

Nonfarm payrolls for the month grew by 678,000 and the unemployment rate was 3.8%, the Labor Department’s Bureau of Labor Statistics reported Friday.

That compared with estimates of 440,000 for payrolls and 3.9% for the jobless rate.

In a sign that inflation could be cooling, wages barely rose for the month, up just 1 cent an hour, or 0.03%, compared with estimates for a 0.5% gain. The year-over-year increase was 5.13%, well below the 5.8% Dow Jones estimate as more lower-wage workers were hired and 12-month comparisons helped mute more recent gains.

For the labor market broadly, the report brought the level of employed Americans closer to levels before the Covid crisis, though still short by 1.14 million. Labor shortages remain a major obstacle to fill the 10.9 million jobs that were open at the end of 2021, a historically high gap that had left about 1.7 vacancies per available worker.

At least from an employment perspective, the February report confirms that the rampant omicron spread during the winter had little impact.

“This report indicates that the job market is healthy and resilient to the ebbs and flows of the pandemic,” said Daniel Zhao, senior economist for job placement site Glassdoor. “We’ve seen that job gains have been over 400,000 for 10 months in a row.”

“The labor market recovery remains very robust across the board as more Americans are returning to work,” added Eric Merlis, managing director of global markets at Citizens Financial Group. “Geopolitical issues and inflation pose ongoing threats to the U.S. economic recovery, but pandemic restrictions are being lifted and we continue to see strong job growth.”

Markets, however, reacted little to the news as investors remain focused on the Russia-Ukraine war. Stocks fell through the day Friday and government bond yields were sharply lower.

As has been the case for much of the pandemic era, leisure and hospitality led job gains, adding 179,000 for the month. The job gap for that sector, which was hit most by government-imposed restrictions, is 1.5 million from pre-Covid levels.

The unemployment rate for the industry tumbled to 6.6%, a slide of 1.6 percentage points from January and closer to the 5.7% of February 2020. Wages actually declined slightly, falling 2 cents an hour to $19.35. The increase in hiring for bars, restaurants, hotels and other similar businesses likely is contributing to the slower pace of pay increases.

“We’re getting back to pre-pandemic levels in terms of labor force participation. Job growth is still quite healthy and strong. So things are really good,” said Kathy Jones, chief fixed income strategist at Charles Schwab. “As more people come back to work and participation picks up, the level of wage gains should start to subside a little bit. In terms of the Fed worrying about inflation driven by people making more money, I guess that’s good news.”

Other sectors showing strong gains included professional and business services (95,000), Health care (64,000), construction (60,000), transportation and warehousing (48,000) and retail (37,000). Manufacturing contributed 36,000 and financial activities rose 35,000.

Previous months saw upward revisions. December moved up to 588,000, an increase of 78,000 from the previous estimate, while January’s rose to 481,000. Together, the revisions added 92,000 more than previously recorded and brought the three-month average to 582,000.

The labor force participation rate, a closely watched metric indicating worker engagement, rose to 62.3%, still 1.1 percentage points from the February 2020 pre-pandemic level. An alternative measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons, and is sometimes referred to as the “real” unemployment rate, also edged higher, to 7.2%.

The trend for jobs is clearly upward after a wintertime surge of Covid omicron cases, while exacting a large human toll, left little imprint on employment.

“If we see more numbers like this moving forward, we can be optimistic about this year,” wrote Nick Bunker, economic research director at job search site Indeed. “Employment is growing at a strong rate and joblessness is getting closer and closer to pre-pandemic levels. Still, in these uncertain times, we cannot take anything for granted. But if the recovery can keep up its current tempo, several key indicators of labor market health will hit pre-pandemic levels this summer.”

The economy also has been wrestling with pernicious inflation pressures running at their highest levels since the early 1980s stagflation days. The Labor Department’s main inflation gauge showed consumer prices rising at a 7.5% clip in January, a number that is expected to climb to close to 8% when February’s report is released next week.

Amid it all, companies continue to hire, filling broad gaps still left in the leisure and hospitality sector as well as multiple other pandemic-struck industries.

The Federal Reserve is watching the jobs numbers closely. Monetary policymakers widely view the economy as near full employment, adding pressure to prices that have soared amid supply shortages and demand surges related to the pandemic.

Inflation has come as Congress has pumped more than $5 trillion in stimulus into the economy while the Fed has kept benchmark borrowing rates anchored near zero and injected nearly $5 trillion into the economy through asset purchases.

Now, Fed officials expect this month to start raising interest rates, with market expectations that those hikes likely will continue through the year.

The February jobs report “will give the Fed greater confidence to push ahead with its planned policy tightening but, with wage growth now levelling off, there is arguably less pressure for officials to front-load an aggressive series of rate hikes over the coming months,” wrote Michael Pearce, senior U.S. economist at Capital Economics.

Traders continued to fully price in a 25 basis point rate hike at the March Fed meeting, and see a strong possibility of five more such increases through the end of the year, according to CME Group data.

The economy was likely to have added jobs at a healthy pace in February and wages gains were strong.

The February employment report, released at 8:30 a.m. Friday, is the final monthly employment data the Federal Reserve will consider before it meets March 15 and 16. The central bank is widely expected to raise interest rates at that meeting in its first hike since 2018.

Economists expect 440,000 jobs were created in February, according to Dow Jones. That compares to 467,000 in January. Wages were expected to rise by 0.5% or 5.8% year-over-year, and the unemployment rate is expected to fall to 3.9%, off 0.1 percentage points, according to Dow Jones.

“The labor market is tightening pretty fast, and there’s no end in sight to strong wage growth,” said Ethan Harris, head of global economics at Bank of America. “It’s still going to be a very tight labor market…and our guess is wage inflation stays close to 6% throughout the year.” Wage growth was 5.68% year-over-year in January.

The Fed’s dual mandate is full employment and price stabilization. The central bank is hitting its goal on employment, but it is expected to battle rising inflation with a series of interest rate hikes. The first of those hikes is expected to be a quarter point increase in March and then as many as six more over the course of this year.

“For the Fed, this just keeps them on track,” said Harris.

Economists are keeping a close eye on wages, as inflation is running hot and is expected to go even higher with the recent jump in oil prices after Russia’s Ukraine invasion. The consumer price index jumped 7.5% on a year-over-year basis in January and is expected to be even higher in February when it is released next week.

There is a concern that if wage gains are too strong that they begin to feed a wage and price spiral.

But rising wages are a driver of economic growth since they can support the consumer. Michael Gapen, chief U.S. economist at Barclays, said he had expected to see households pulling funds from savings this quarter to support consumption, but rising wages could reduce the hit to savings.

“It’s going to come from labor market income rather than just drawdown,” he said. “You want the labor market to kick off solid income growth.”

Economists said job growth was likely to come from a broad range of industries. There were expected to be gains in leisure and hospitality.

“The supply chain issues are still an issue impeding manufacturing but less so particularly in the vehicle sector. They do seem to be getting their production schedules back up,” said Mark Zandi, chief economist at Moody’s Analytics. “Construction seems more problematic. There’s a record number of homes in the pipeline. They just can’t seem to get anything across the finish line.” He said the industry has been impacted by parts shortages and labor shortages.

Tom Simons, money market economist at Jefferies, said the labor market continues to be plagued by a shortage of supply.

“One thing that’s a limiting factor is supply of labor. We should still see that reflected in strong wage numbers. It’s going to be reflected in another dip in unemployment,” said Simons.

Simons said he also is watching wage gains. “It is a big deal in terms of just trying to conceptualize how well the consumer can keep up with inflation,” said Simons. “The labor market is so tight, and there’s still pent up demand for various things. It seems reasonable that wages will continue to climb as employers compete to secure workers.”

Rising inflation and global supply chain strains remain top of mind for retailers as they navigate the post-holiday earnings season. But also making its way into conversations with analysts and investors is Russia’s invasion of Ukraine, which entered its second week on Thursday.

A number of retailers have temporarily halted operations in Russia, either as a signal of corporate condemnation of the war or because these companies are unable to carry on business in the country due to imposed sanctions impacting logistics.

Some, such as Victoria’s Secret, are warning that uncertainty created by the war could weigh on business in the first quarter and potentially beyond.

The biggest concern for many retailers will likely be the duration of the crisis, said Chuck Grom, an analyst with Gordon Haskett.

“You have to think the longer it goes on, the more problematic” it gets, Grom said. “In other words, the consumer spends more time getting absorbed with the situation.”

Retailers are already trying to gauge future demand in still unpredictable times and keep shelves stocked without ordering too much merchandise. Businesses are trying to lure consumers back into their stores as Covid cases wane and immunity increases. Yet it could prove to be trickier than this time a year ago, when President Joe Biden and Congress signed off on stimulus payments to families.

Pittsburgh-based clothing retailer American Eagle Outfitters said Wednesday it is taking the war between Russia and Ukraine into consideration when forecasting its outlook for the year, though it didn’t offer specifics on how much of a financial impact the war could have on consumer demand. American Eagle doesn’t operate any brick-and-mortar shops outside of North America and Hong Kong, but it ships merchandise to 81 countries.

Chief Financial Officer Michael Mathias said on an earnings conference call that the retailer is cognizant of multiple factors currently at play: Rising inflation, the fact that American Eagle is beginning to lap a period during which stimulus payments were issued to many consumers last spring, and continued disruption in the global supply chain, “including the war in Ukraine.”

“Against this backdrop, we’re taking a cautious view,” Mathias said.

American Eagle warned that its earnings will decline in the first half of the year compared with prior-year levels, in large part due to heightened freight costs. It does expect earnings to rebound in the back half.

Lingerie retailer Victoria’s Secret, which has a small presence in Russia, also made a slight mention of the war. When it reported its fiscal fourth-quarter results Wednesday, it said inflation and “global unrest” will create a challenging environment in the coming months. Victoria’s Secret issued a disappointing outlook for the first quarter but said it believes the third quarter will be an inflection point for better results.

Kohl’s Chief Executive Michelle Gass was asked Tuesday, on an earnings conference call with analysts, about the situation in Ukraine and how it might hurt the department store chain’s business.

“We’re prepared that there’s going to be an environment of a lot of uncertainty. We certainly contemplated that as we guided this year,” Gass said on the call. “We’ll stay close and be responsive.”

All of this could weigh heavily on the American consumer. Companies, from food producers to auto makers, will likely bear greater burdens from skyrocketing oil prices and ongoing supply chain headaches. Price increases are often passed on to the customer.

“There are implications for U.S. retailers in the higher cost of energy, because of the interruption of and disruption in energy markets,” said David French, senior vice president of government relations at the National Retail Federation, the leading retail trade group. “And there are implications for U.S. retailers in food prices, because of the significance of Ukraine and Russia … as major agricultural regions.”

“Those are probably the biggest first-order effects,” he said, adding that many U.S.-based retailers have modest exposure to Russia and Ukraine, if any. He did mention Ukraine being a major hub for companies outsourcing IT help, however, which could become a larger issue if the crisis persists.

French emphasized that even during the pandemic, consumers have been reporting that their confidence is down but at the same time they’re shopping as if consumer confidence is way up. Holiday retail sales in 2021 surged a record 14.1% from prior-year levels, according to NRF, in spite of inflation and the spreading omicron variant.

BMO Capital Markets analyst Simeon Siegel echoed this sentiment. “Setting aside what it says about humanity, as we learned with Covid, people are really good about not letting things bother them until it knocks at their door,” Siegel said.

At the same time, companies have been quick to take a stance on the Kremlin’s invasion of Ukraine.

Furniture retailer Ikea said Thursday it is closing all of its stores in Russia, stopping production in the country and halting all exports and imports to and from Russia and Belarus.

“The war has both a huge human impact and is resulting in serious disruptions to supply chain and trading conditions, which is why the company groups have decided to temporarily pause Ikea operations in Russia,” the company said in a statement.

Nike, fast-fashion retailer H&M, and coat maker Canada Goose have all said they’re suspending sales in Russia, too.

A statement on Nike’s website in Russia says the sneaker giant can’t currently guarantee product delivery in Russia. A Nike spokeswoman told CNBC that given the rapidly evolving situation, along with increased operational challenges, Nike decided to pause its business in the region.

“We are deeply troubled by the devastating crisis in Ukraine and our thoughts are with all those impacted, including our employees, partners and their families in the region,” the spokeswoman said.

British online fashion retailers Boohoo and Asos have also both suspended sales in Russia. On Thursday, the off-price retailer TJX said in a securities filing that it would be selling its 25% stake in the low-cost Russian apparel retailer Familia, which has more than 400 stores in Russia. As a result of the sale, TJX said it may have to report impairments charges.

Craig Johnson, founder of the retailer consulting group CGP, said he expects that retailers or brands with a presence in central and eastern Europe are likely already developing, if not implementing, contingency plans.

“Contingency plans are most critical for in-store and back office employees and hours of operations,” Johnson said. “But they also include plans for physical and cyber security, vendor and public communications, and trimming or delaying merchandise receipts as warranted.”

This story is developing. Please check back for updates.

Initial claims for unemployment insurance totaled 215,000, the lowest tally since the beginning of the year and fewer than Wall Street estimates, the Labor Department said Thursday.

Economists surveyed by Dow Jones had been looking for first-time filings to come in at 225,000 for the week ended Feb. 26.

A separate report from the Bureau of Labor Statistics showed that nonfarm productivity rose 6.6% in the fourth quarter, slightly less than the estimate for 6.7%. However, unit labor costs rose 0.9%, well ahead of the expected 0.3%.

On jobless claims, last week’s total represented a decline of 18,000 from the previous week and was the lowest since Jan. 1.

Continuing claims, which run a week behind the headline number, edged higher to 1.48 million. However, the four-week moving average, which smooths out weekly volatility, moved down to 1.54 million, the lowest level since April 4, 1970.

The total of those receiving benefits under all programs fell further, dropping to 1.97 million, a decline of 62,625.

The jobless numbers come a day before the BLS’ closely watched nonfarm payrolls report. Wall Street is looking for a gain of 440,000 in February, following up the much stronger-than-expected 467,000 total in January.

Companies are still trying to fill nearly 11 million job openings at a time when the worker shortage has expanded to unprecedented levels. There are about 4.4 million more employment openings than there are unemployed workers looking for jobs.

Wages have surged in the current environment, with average hourly earnings up 5.7% in January, a level well above anything seen in the pre-pandemic environment, according to Labor Department data going back about 15 years.

Unit labor costs continued to increase in the last three months of 2021, though at a lower pace than the previous quarter due in large part to the jump in productivity. A 7.5% rise in hourly compensation was largely offset by the 6.6% productivity rise. For the full year, unit labor costs were up 3.6%, down from the 4.3% gain in 2020.

Federal Reserve policymakers are about to tackle the inflation issue with an expected series of rate increases.

Fed Chairman Jerome Powell on Wednesday called the labor market “extremely tight” and said he expects the first rate hike to come at the central bank’s policymaking meeting later this month.

Federal Reserve Chairman Jerome Powell still sees interest rate hikes coming, but noted Wednesday that the Russia-Ukraine war has injected uncertainty into the outlook.

Powell said he sees a series of quarter-percentage-point increases coming, though he left open the possibility of moving more aggressively should inflation persist.

In remarks prepared for dual appearances this week before House and Senate committees in Congress, the central bank chief acknowledged the “tremendous hardship” the Russian invasion of Ukraine is causing.

“The implications for the U.S. economy are highly uncertain, and we will be monitoring the situation closely,” Powell said.

“The near-term effects on the U.S. economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain,” he added. “Making appropriate monetary policy in this environment requires a recognition that the economy evolves in unexpected ways. We will need to be nimble in responding to incoming data and the evolving outlook.”

Later, he said the Fed wants to get inflation under control, but “the bottom line is that we will proceed but we will proceed carefully as we learn more about the implications of the Ukraine war on the economy.”

The observations come amid 40-year highs for inflation in the U.S., complicated by a Ukraine war that has driven oil prices to around their highest levels in a decade. Consumer prices increased 7.5% from a year ago in January, and the Fed’s preferred inflation gauge showed its strongest 12-month gain since 1983.

Powell and his fellow policymakers have been indicating for weeks that they plan to start raising benchmark interest rates to tackle inflation. He reiterated the stance Wednesday that the process will involve “interest rate increases,” along with indications that the Fed eventually will start reducing its bond holdings.

“We will use our policy tools as appropriate to prevent higher inflation from becoming entrenched while promoting a sustainable expansion and a strong labor market,” he said. “We have phased out our net asset purchases. With inflation well above 2 percent and a strong labor market, we expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month.”

Powell said the likely path for rate hikes will be increments of a quarter percentage point, though he said he would be open to more aggressive moves if inflation gets worse.

“We’re going to avoid adding uncertainty to what is already an extraordinarily challenging and uncertain moment,” he said under questioning from House Financial Services Committee members. “To the extent that inflation comes in higher or is more persistently high than that, we would be prepared to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings.”

The Fed will start cutting the size of its asset holdings after rate hikes have begun, he added.

Since the beginning of the Covid pandemic, the Fed has been buying Treasurys and mortgage-backed securities at the fastest pace ever, driving the total holdings on the central bank balance sheet to nearly $9 trillion.

Powell said the reduction will be conducted “in a predictable manner,” largely through allowing some proceeds from the bonds to roll off each month rather than reinvesting them.

On the economy, the chairman said he still expects inflation to decelerate through the year as supply chain issues are resolved. He called the labor market “extremely tight” and noted strong wage gains, particularly for lower earners and minorities.

“We understand that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing, and transportation,” he said. “We know that the best thing we can do to support a strong labor market is to promote a long expansion, and that is only possible in an environment of price stability.”

Markets have fully priced in a rate increase at the March 15-16 meeting but have decreased expectations for the rest of the year since the Ukraine war began, according to CME group data. Traders are now pricing in five quarter-percentage-point increases that would take the benchmark federal funds rate from its current range of 0%-0.25% to 1.25%-1.5%.

A key inflation measure showed that prices rose at their fastest level in nearly 39 years, but it didn’t deter consumers from spending aggressively, the Commerce Department reported Friday.

The core personal consumption expenditures price index, the Federal Reserve’s primary inflation gauge, rose 5.2% from a year ago, slightly more than the 5.1% Dow Jones estimate. It was the highest level since April 1983.

Including food and energy prices, headline PCE was up 6.1%, the strongest gain since February 1982.

On a monthly basis, core PCE rose 0.5%, in line with estimates, while the headline gain was up 0.6%.

The same report showed that consumer spending accelerated faster than expected, rising 2.1% on the month against the 1.6% estimate. The spending increase reversed a 0.8% decline in December.

That came even though personal income was flat for the month, which was better than the expectation for a drop of 0.3%. After-tax, or real disposable, income fell 0.5% as the expiration of a child tax credit offset wage gains and a large adjustment to Social Security checks.

Personal savings totaled $1.17 trillion, which translated into a 6.4% rate, the lowest December 2013.

A separate report also brought more better-than-expected news: Orders for long-lasting goods jumped 1.6% in January, compared with the outlook for a 0.8% gain.

For markets, inflation has been front and center as price gains have persisted at the strongest levels since the runaway increases in the 1970s and early 1980s. Back then, the Fed had to institute a string of stifling interest rate rises that dragged the economy into a recession.

In the current case, policymakers also have indicated that hikes are coming, though they are hoping to tighten in a more deliberate way. Virtually all central bank officials have said they expect to start the increases in March, and markets expect hikes to come at most if not all the ensuing six meetings this year.

“Overall, the real economy appears to be in stronger health than we feared, suggesting that the Fed will push on with its planned rate hikes starting in March, although the Ukraine conflict makes a 50 [basis point] hike less likely,” wrote Paul Ashworth, chief U.S. economist at Capital Economics.

The data released Friday showed that energy increased at a 1.1% pace in January, while food costs rose 0.9%. Services inflation cooled off slightly, rising 0.4%.

Inflation fed through to worker pay, with wages and salaries surging 9.3% in 2021 after increasing just 1.3% the year before. Those costs rose another 0.5% in January, a slightly slower rate than the 0.7% increase the month before.

That infusion of money has kept demand for goods high.

Excluding transportation, new orders still rose 0.7%. Ex-defense orders were up 1.6%.

Weekly jobless claims came in slightly less than expected last week and economic growth to end 2021 was slightly better than originally reported, according to government data released Thursday.

Initial filings for unemployment insurance totaled 232,000 for the week ended Feb. 19, the Labor Department said. That was a touch below the 235,000 Dow Jones estimate and down 17,000 from the previous week.

A separate report showed that gross domestic product, a sum of all the goods and services produced in the U.S. economy, increased at a 7% annualized rate during the fourth quarter, according to the Commerce Department.

On the jobs side, continuing claims, which run a week behind the headline number, totaled 1.48 million, a decline of 112,000 from the previous week and good for the lowest total since March 14, 1970.

The total of those receiving benefits through all government programs fell by just over 30,000 to 2.03 million, according to data through Feb. 5. That level has continued to fall as Covid-19 pandemic-associated jobless aid programs have expired.

Despite the improved jobs picture, total employment level remains about 1.7 million below where it was in February 2020, just before the pandemic. The unemployment rate has fallen from a crisis peak of 14.7% to 4%.

On the broader economic side, the slight upward revision of GDP from the initial reading of 6.9% was in line with market estimates. That brought full-year growth to 5.7%, the fastest pace since 1984 that was driven by a strong inventory rebuild in the second half of the year.

The change higher came due to increased contributions from fixed investment and state and local government spending. Downward revisions to consumer spending and exports offset some of the gains.

Federal Reserve officials won’t be able to trade a slew of assets including stocks and bonds — as well as cryptocurrencies — under new rules that became formal Friday.

Following up on regulations announced in October, the policymaking Federal Open Market Committee announced that most of the restrictions will take effect May 1.

The rules will cover FOMC members, regional bank presidents and a raft of other officials including staff officers, bond desk managers and Fed employees who regularly attend board meetings. They also extend to spouses and minor children.

“The Federal Reserve expects that additional staff will become subject to all or parts of these rules after the completion of further review and analysis,” a release announcing the rules stated.

The rules “aim to support public confidence in the impartiality and integrity of the Committee’s work by guarding against even the appearance of any conflict of interest,” the statement also said.

Central bank officials acted after disclosures last year that several senior Fed officials had been trading individual stocks and stock funds just before the time the central bank adopted sweeping measures aimed at boosting the economy in the early days of the Covid spread.

Regional presidents Eric Rosengren of Boston and Robert Kaplan left their positions following the controversy.

The announcement Friday extended the ban to cryptocurrencies like bitcoin, which were not mentioned in the original announcement in October.

Under the regulations, officials still holding market positions will still have 12 months to shed prohibited positions. New Fed officials will have six months to do so.

In the future, officials covered by the new rules must give 45 days’ notice before making any permissible asset purchases, a restriction that will go into effect July 1. They then will have to hold those positions for at least a year and will be banned from any trading during “periods of heightened financial market stress.” There is no set definition of the term, which will be determined by the Fed chair and the board’s general counsel.

Along with stocks, bonds and crypto, the ban extends to commodities, foreign currencies, sector index funds, derivatives, short positions and agency securities or using margin debt to buy assets.

Congress has been debating a measure that also will restrict its members from owning individual stocks, though it has not been adopted yet.