The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
The New York Fed engages with individuals, households and businesses in the Second District and maintains an active dialogue in the region. The Bank gathers and shares regional economic intelligence to inform our community and policy makers, and promotes sound financial and economic decisions through community development and education programs.
How does monetary policy affect spending in the economy? The economic literature suggests two main channels of monetary transmission: the money or interest rate channel and the bank lending channel. The first view focuses on changes in real interest rates resulting from a shift in monetary policy and corresponding responses in consumption, saving, and investment. The second view focuses on changes in the supply of bank credit resulting from an altered policy stance and concomitant changes in spending.
Over the last decade, the federal funds market has evolved to accommodate new policy tools such as interest on reserves and the overnight reverse repo facility. Trading motives have also responded to the expansion in aggregate reserves as the result of large-scale asset purchases. These changes have affected market participants differently since, for instance, not all institutions are required to keep reserves at the Fed and some are not eligible to earn interest on reserves. Differential effects have changed the profile of participants willing to borrow and lend in this market, and this shift provides an opportunity to study how unconventional policy actions shape participant incentives. In today’s post, we take a detailed look at regulatory filings to identify the main players in today’s fed funds market and understand how their roles have evolved.
Credit conditions tightened considerably in the second half of 2015 and U.S. growth slowed. We estimate the extent to which tighter credit conditions last year were responsible for the slowdown using the FRBNY DSGE model. We find that growth would have slowed substantially more had the Federal Reserve not delayed liftoff in the federal funds rate.
Stefano Eusepi, Erica Moszkowski, and Argia Sbordone
The May 2016 forecast of the Federal Reserve Bank of New York’s (FRBNY) dynamic stochastic general equilibrium (DSGE) model remains broadly in line with those of our two previous semiannual reports (see our May 2015 and December 2015 posts). In the past year, the headwinds that contributed to slower growth in the aftermath of the financial crisis finally began to abate. However, the widening of credit spreads associated with swings in financial markets in the second half of 2015 and the first few months of this year have had a negative impact on economic activity. Despite this setback, the model expects a rebound in growth in the second half of the year, so that the medium-term forecast remains, as in the December post, one of steady, gradual economic expansion. The model also continues to predict gradual progress in the inflation rate toward the Federal Open Market Committee’s (FOMC) long-run target of 2 percent.
Luis Armona, Wilbert van der Klaauw, and Basit Zafar
The Federal Reserve Bank of New York today released results from its February 2015 Survey of Consumer Expectations Credit Access Survey, which provides information on consumers' experiences with and expectations about credit demand and credit access. The survey shows little change in application rates for credit over the last twelve months, but a decline in rejection rates, in particular for credit card limit increases. The expectations component of the survey shows an increase in the average likelihood of consumers applying for credit over the next twelve months for all five credit products; the increase is most pronounced for mortgage refinances and higher credit card limits.
Today, we are releasing new data on consumers’ experiences and expectations regarding credit demand. We’ve been collecting these data every four months since mid-2013, as part of our Survey of Consumer Expectations (SCE). Other data sources describing consumer credit either provide aggregates that are an interaction of credit supply and demand (such as the FRBNY Consumer Credit Panel), or show only short-term changes in supply and demand (as reported by the supply side in the Senior Loan Officer Opinion Survey), or are too infrequent to provide a real-time picture of changes in consumer credit demand and access (Survey of Consumer Finances). The goal of the SCE Credit Access Survey—which will henceforth be published every four months—is to fill this void. In this blog post, we provide an overview of the survey and highlight some of its features.
Recent activity in the U.S. housing market has been widely perceived as disappointing. For instance, sales of both new and existing homes were about 5 percent lower over the first half of 2014 than over the first half of 2013. From a longer-term perspective, a striking statistic is that the homeownership rate in the United States has fallen from 69 percent in 2005 to 65 percent in the first quarter of 2014. This decrease in homeownership is particularly pronounced for younger households, implying that many of them are remaining renters for longer than in the past. In this post, we use survey evidence to shed some light on what is driving this sluggish transition from renting to homeownership.
During the decade prior to 1772, Britain made the most of an expansion in colonial lands that required significant capital investment across the East and West Indies and North America. As commodities like tobacco flowed from colonial lands to Britain, merchandise and basic supplies flowed back to the colonies. With capital scarce in the American colonies, colonial planters were eager to borrow cheap capital from British creditors. But because planters often maintained open lines of credit through multiple trade channels, creditors had no way of knowing a particular planter’s indebtedness. So when two banks in London failed, contagion spread and the credit boom suddenly ended. In this edition of Crisis Chronicles, we learn the perils of private indebtedness and offer an inverse comparison of today’s “originate-to-distribute” mortgage market.
During the economic boom and credit expansion that followed the Seven Years’ War (1756-63), Berlin was the equivalent of an emerging market, Amsterdam’s merchant bankers were the primary sources of credit, and the Hamburg banking houses served as intermediaries between the two. But some Amsterdam merchant bankers were leveraged far beyond their capacity. When a speculative grain deal went bad, the banks discovered that there were limits to how much risk could be effectively hedged. In this issue of Crisis Chronicles, we review how “fire sales” drove systemic risk in funding markets some 250 years ago and explain why this could still happen in today’s tri-party repo market.
in the euro area periphery such as Greece, Italy, Portugal, and Spain saw
large-scale capital flight in 2011 and the first half of 2012. While events
unfolded much like a balance of payments crisis, the contraction in domestic
credit was less severe than would ordinarily be caused by capital flight of
this scale. Why was that? An important reason is that much of the capital
flight was financed by credits to deficit countries’ central banks, with those
credits extended collectively by other central banks in the euro area. This balance of payments financing was
paired with policies to supply liquidity to periphery commercial banks. Absent
these twin lifelines,
periphery countries would have had to endure even steeper recessions from the
sudden withdrawal of foreign capital.
Liberty Street Economics features insight and analysis from economists working at the intersection of research and policy. The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Donald Morgan.
The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.
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