The Federal Reserve's favorite inflation-related adjective used to be transitory, as in: Inflation is transitory and price increases should be temporary.

That is no longer the case. inflation rates have been increasing sharply since August 2021 and have been out of the normal 2%-to-4% range for a full year. The Consumer Price Index rose 8.5% for the year ending in March, a rate that hadn't been seen since December of 1981.

So the central bank has broken up with "transitory" and set its eyes on a new inflation-modifying term: entrenched.

"It's our job to make sure that inflation of that unpleasant high nature doesn't get entrenched in the economy," said Fed Chair Jerome Powell last Wednesday, just after he announced a half-point interest rate hike to combat inflation.

It's unclear what exactly entrenched inflation looks like or how we'll know if we've reached it. The Fed has given very little guidance in general on how long they predict it will take for their interest hikes to lower inflation. "It's a very difficult environment to try to give forward guidance 60, 90 days in advance," said Powell last week. "There are just so many things that can happen in the economy and around the world."

There's nothing investors hate more than uncertainty and as increasing rates pummel U.S. markets, they want more guidance. Americans, who have been hard-hit by rising gas and food prices also want to know when they can finally feel some relief, especially if the Fed's rate hikes risk dragging the economy into a recession.

Looking back: Looking to the past could offer some insight: Although prices have been relatively stable over the past four decades, large swings were not uncommon before the early 1980s.

History (and Fed data) show that the driver of inflation is important in predicting when rates will finally decrease: Prices grew at very rapid rates during World War I and World War II as a result of war-time constraints, but fell again when peacetime resumed.

In the 1970s, the U.S. experienced its longest stretch of heightened inflation. President Richard Nixon removed the dollar from the gold standard and two surges in oil prices pushed inflation rates to 12.3% by late 1974. The Fed began practicing "stop-go" monetary policy, raising benchmark rates as high as 16% and then quickly dropped them again, leading to a cycle in which increased interest rates weren't sustained for long enough to end inflation or increase growth.

By the late 1970s, Federal Reserve Chair Paul Volcker took over and ended that policy. He raised rates and kept them high until inflation came down, throwing the U.S. into recession (its second of the decade) but finally permanently lowering inflation rates, where they remained for the next 40 years.

"I have tremendous admiration for [Volcker]," said Powell last week, when asked about his policy changes. "He had the courage to do what he thought was the right thing."

Looking ahead: So will it take nearly 20 years and two recessions to get us back to normal? Powell certainly doesn't think so. The economy is strong and the unemployment data looks nothing like it did in the 1970s, Powell said. Many believe that we've already reached an inflationary peak and numbers are beginning to flatten.

Analysts often speak of the fears of 1970s stagflation and compare our current situations, but today's inflation is caused by a mixture of global crisis, supply chain disruptions and growth in consumer demand after COVID-lockdowns shut down the economy.

"The inflationary period after World War II is likely a better comparison for the current economic situation than the 1970s and suggests that inflation could quickly decline once supply chains are fully online and pent-up demand levels off," wrote the White House Council of Economic Advisers in a recent white paper.

Still, as growth slows and markets drop, the two S phrases — stagflation and sticky inflation — get thrown around with increasing frequency.

Some investors think the answer is in the middle.

"We expect U.S. inflation to slow over the next two years, but the progress will be very uneven," wrote Bank Of America analysts in a recent not. "There is tentative evidence of an easing of supply chain challenges and we expect 'two steps forward, one step back' process in the next year." But this won't be a decade-long struggle, they predict. Prices should begin to ease by 2023.

High inflation and rising recession risks are darkening the mood in the manufacturing industry.

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Fifty-nine percent of manufacturing leaders say inflationary pressures are making a recession more likely within the next year, according to a survey released on Wednesday by the National Association of Manufacturers.

Three-quarters of manufacturers say inflationary pressures are worse today than six months ago, with 54% also saying higher prices are making it harder to compete and remain profitable.

The survey was conducted May 17-May 31, prior to the alarming May inflation report that set off severe turbulence in financial markets.

"Through multiple crises, manufacturers have proven remarkably resilient, but there's no mistaking there are darker clouds on the horizon," Jay Timmons, CEO of the manufacturing trade group, said in a statement.

The top business challenge reported by manufacturing CEOs in the survey was increased raw material costs, cited by 90% of respondents. The top sources of inflation were increased raw material prices (97%), freight and transportation costs (84%), wages and salaries (80%), energy costs (56%) and shortage of workers (49%).

"Russia's war on Ukraine has undeniably exacerbated higher energy and food costs," Timmons said, adding that deficit spending from the federal government has contributed to high inflation. Timmons did not mention the Federal Reserve's belated shift away from emergency policies.

NAM urged lawmakers to refrain from imposing new taxes and focus on easing supply pressures, including by passing the Bipartisan Innovation Act championed by the White House. Timmons said 88% of manufacturers in the survey see it as an important piece of legislation.

"Though it won't solve every issue, this will give us many of the tools needed to ramp up domestic manufacturing and strengthen our supply chains," Timmons said. "Congress needs to move swiftly to get it to President Biden's desk."

WASHINGTON —

Treasury Secretary Janet Yellen on Sunday said the U.S. economy is slowing but pointed to healthy hiring as proof that it is not yet in recession.

Yellen spoke on NBC's "Meet the Press" just before a slew of economic reports will be released this week that will shed light on an economy currently besieged by rampant inflation and threatened by higher interest rates. The data will cover sales of new homes, consumer confidence, incomes, spending, inflation and overall output.

The highest-profile report will likely be Thursday, when the Commerce Department will release its first estimate of the economy's output in the April-June quarter. Some economists forecast it may show a contraction for the second quarter in a row. The economy shrank 1.6% in the January-March quarter. Two straight negative readings is considered an informal definition of a recession, though in this case economists think that's misleading.

Instead, the National Bureau of Economic Research — a nonprofit group of economists — defines a recession as "a significant decline in economic activity that is spread across the economy and lasts more than a few months."

Yellen argued that much of the economy remains healthy: Consumer spending is growing, Americans' finances, on average, are solid, and the economy has added more than 400,000 jobs a month this year, a robust figure. The unemployment rate is 3.6%, near a half-century low.

"We've got a very strong labor market," Yellen said. "This is not an economy that's in recession."

Still, Yellen acknowledged the economy is "in a period of transition in which growth is slowing," from a historically rapid pace in 2021.

She said that slowdown is "necessary and appropriate," because "we need to be growing at a steady and sustainable pace."

Slower growth could help bring down inflation, which at 9.1% is the highest in two generations.

Still, many economists think a recession is on the horizon, with inflation eating away at Americans' ability to spend and the Federal Reserve rapidly pushing up borrowing costs. Last week, Bank of America's economists became the latest to forecast a "mild recession" later this year.

And Larry Summers, the treasury secretary under President Bill Clinton, said on CNN's "GPS" Sunday that "there's a very high likelihood of recession," as the Fed lifts interest rates to combat inflation. Those higher borrowing costs are intended to reduce consumer spending on homes and cars and slow business borrowing, which can lead to a downturn.

On Wednesday, the Federal Reserve is likely to announce its second 0.75% point increase in its short-term rate in a row, a hefty increase that it hasn't otherwise implemented since 1994. That will put the Fed's benchmark rate in a range of 2.25% to 2.5%, the highest level since 2018. Fed policymakers are expected to keep hiking until its rate reaches about 3.5%, which would be the highest since 2008.

The Fed's hikes have torpedoed the housing market, as mortgage rates have doubled in the past year to 5.5%. Sales of existing homes have fallen for five straight months. On Tuesday, the government is expected to report that sales of new homes dropped in June.

Fewer home sales also means less spending on items that typically come with purchasing a new house, such as furniture, appliances, curtains, and kitchenware.

Many other countries are also grappling with higher inflation, and slower growth overseas could weaken the U.S. economy. Europe is facing the threat of recession, with soaring inflation and a central bank that just last week raised interest rates for the first time in 11 years.

European Central Bank President Christine Lagarde also sought to minimize recession concerns in an news conference last Thursday.

"Under the baseline scenario, there is no recession, neither this year nor next year," Lagarde said. "Is the horizon clouded? Of course it is."

Markets sold off worldwide on mounting signs the global economy is weakening just as central banks raise the pressure even more with additional hikes to interest rates. The Dow Jones Industrial Average closed at its lowest point of the year Friday. The S&P 500 fell 1.7%, close to its 2022 low. Energy prices also closed sharply lower as traders worried about a possible recession—Treasury yields, which affect rates on mortgages and other kinds of loans, held at multiyear highs. U.K. government bond yields snapped higher after that country's new government announced a sweeping plan of tax cuts.

Stocks tumbled worldwide Friday on more signs the global economy is weakening, just as central banks raise the pressure even more with additional interest rate hikes.

The S&P 500 fell 2% in afternoon trading, adding a dismal cap on what's already been a rough week. It's close to its low point of the year in mid-June.

European stocks fell just as sharply or more after preliminary data there suggested business activity had its worst monthly contraction since the start of 2021. Adding to the pressure was a new plan announced in London to cut taxes, which sent U.K. yields soaring because it could ultimately force its central bank to raise rates even more sharply.

The Federal Reserve and other central banks around the world aggressively hiked interest rates this week to undercut high inflation, with more big increases promised for the future. But such moves also brake their economies, threatening recessions as growth slows worldwide. Besides Friday's discouraging data on European business activity, a separate report suggested U.S. activity is also still shrinking, though not quite as bad as in earlier months.

"Financial markets are now fully absorbing the Fed's harsh message that there will be no retreat from the inflation fight," Douglas Porter, chief economist at BMO Capital Markets, wrote in a research report.

Crude oil prices tumbled to their lowest levels since early this year on worries that a weaker global economy will burn less fuel. Cryptocurrency prices also fell sharply because higher interest rates tend to hit hardest the investments that look the priciest or the riskiest.

Even gold fell in the worldwide rout, as bonds paying higher yields make investments that pay no interest look less attractive. Meanwhile, the U.S. dollar has been moving sharply higher against other currencies. That can hurt profits for U.S. companies with lots of overseas business, as well as put a financial squeeze on much of the developing world.

The Dow Jones Industrial Average fell 505 points, or 1.7%, to 29,572 and the Nasdaq fell 1.9% as of 3:43 p.m. Eastern. Smaller company stocks did even worse. The Russell 2000 fell 3%. U.S. crude oil prices slid 5.7% and weighed heavily on energy stocks.

More than 90% of stocks in the S&P 500 were in the red, with technology companies, retailers and banks among the biggest weights on the benchmark index. The major indexes are on pace for their fifth weekly loss in six weeks.

The Federal Reserve on Wednesday lifted its benchmark rate, which affects many consumer and business loans, to a range of 3% to 3.25%. It was at virtually zero at the start of the year. The Fed also released a forecast suggesting its benchmark rate could be 4.4% by the year's end, a full point higher than envisioned in June.

Treasury yields have climbed to multiyear highs as interest rates rise. The yield on the 2-year Treasury, which tends to follow expectations for Federal Reserve action, rose to 4.19% from 4.12% late Thursday. It is trading at its highest level since 2007. The yield on the 10-year Treasury, which influences mortgage rates, slipped to 3.68% from 3.71%.

The higher rates mean Goldman Sachs strategists say most of their clients now see a "hard landing" that pulls the economy sharply lower as inevitable. The question for them is just on the timing, magnitude and length of a potential recession.

Higher interest rates hurt all kinds of investments, but stocks could stay steady as long as corporate profits grow strongly. The problem is that many analysts are beginning to cut their forecasts for upcoming earnings because of higher rates and worries about a possible recession.

"Increasingly, market psychology has transitioned from concerns over inflation to worries that, at a minimum, corporate profits will decline as economic growth slows demand," said Quincy Krosby, chief global strategist for LPL Financial.

In the U.S., the jobs market has remained remarkably solid, and many analysts think the economy grew in the summer quarter after shrinking in the first six months of the year. But the encouraging signs also suggest the Fed may have to jack rates even higher to get the cooling needed to bring down inflation.

Some key areas of the economy are already weakening. Mortgage rates have reached 14-year highs, causing sales of existing homes to drop 20% in the past year. But other areas that do best when rates are low are also hurting.

In Europe, meanwhile, the already fragile economy is dealing with the effects of war on its eastern front following Russia's invasion of Ukraine. The European Central Bank is hiking its key interest rate to combat inflation even as the region's economy is already expected to plunge into a recession. And in Asia, China's economy is contending with still-strict measures meant to limit COVID infections that also hurt businesses.

While Friday's economic reports were discouraging, few on Wall Street saw them as enough to convince the Fed and other central banks to soften their stance on raising rates. So they just reinforced the fear that rates will keep rising in the face of already slowing economies.

——

Economics Writer Christopher Rugaber and Business Writers Joe McDonald and Matt Ott contributed to this report.

Customers are still sitting down for a cold beer at Joyride Brewing in Edgewater, Colorado.

“We always talk about stopping and smelling the hops. It’s all about the joy ride of life,” said Grant Babb, the owner of Joyride Brewing.

That’s despite new state rules that state bars must serve food to stay open, and Joyride doesn't serve food.

“It makes you lose a little sleep at night, not knowing every day when you wake up if you have to do something different. It’s trying to shoot at a bullseye and just watching it constantly move,” said Babb.

Babb had to make arrangements with multiple food trucks and the restaurant down the street to stay open. That’s because the recent spike in COVID-19 cases has led the state to put its economic restart plans on hold.

“In our case, we schedule out food trucks about a month and a half in advance, and we’re working with only the food trucks we’re trusted partners with,” said Babb.

Colorado isn’t the only state backtracking due to the surge. According to a tracker from the New York Times, 15 states are pausing plans to reopen and six are reversing course and shutting some things back down.

Arizona is one of those states where bars, gyms, and theaters have been ordered closed once again. Restaurants there fear the same might happen to them soon if new COVID-19 cases aren’t curbed.

“You can’t simply turn off and turn on a restaurant operation,” said Steve Churci, the head of the Arizona Restaurant Association.

He says the toll of shutting down those businesses for a second time would be crushing.

“If you were to shut down, what happens to the suicide rate? Does that go up? What happens to the homelessness rate, people losing their homes? So, there’s a whole other sad and unfortunate contingent that would be impacted by this,” said Churci.

Churci says service industry workers employ almost a quarter-million people and the state has lost $815 million in revenue from food sales. He says in a normal year, US restaurants sell $900 billion worth of food.

“Almost a trillion-dollar industry. So, we often say we’re the cornerstone of our communities. We’re the heart and soul of America in the restaurant industry, and we are,” said Churci.

For Joyride, the losses have been heavy as well.

“We, we’re down 80 percent in the month of March, April, May. And then June, we’re still seeing a significant decrease, we’re down definitely 40 percent,” said Babb.

For Babb, the money hurt, but letting his staff go was harder.

“It’s the most painful thing you can do is tell an employee that we don’t have any work for you,” he said.

He says it will hurt even more if he has to send his staff home again.