Liberty Street Economics

Look for our next post on September 19.

September 4, 2025

Are Businesses Scaling Back Hiring Due to AI?

Jaison R. Abel, Richard Deitz, Natalia Emanuel, Ben Hyman, and Nick Montalbano

Generative AI virtual assistant tools for prompt engineer and user for ease of engage artificial intelligence AI technology help people to work with generative AI functions by prompting the AI snugly

The swift advancement of artificial intelligence (AI) has sparked significant concern that this new technology will replace jobs and stifle hiring. To explore the effects of AI on employment, our August regional business surveys asked firms about their adoption of AI and if they had made any corresponding adjustments to their workforces. Businesses reported a notable increase in AI use over the past year, yet very few firms reported AI-induced layoffs. Indeed, for those already employed, our results indicate AI is more likely to result in retraining than job loss, similar to our findings from last year. That said, AI is influencing recruiting, with some firms scaling back hiring due to AI and some firms adding workers proficient in its use. Looking ahead, however, layoffs and reductions in hiring plans due to AI use are expected to increase, especially for workers with a college degree.

Posted at 10:00 am in Labor Market, New Jersey, New York, Regional Analysis | Permalink | Comments (0)

September 3, 2025

Economic Capital: A New Measure of Bank Solvency

Beverly Hirtle and Matthew Plosser

Financial stability: A classic bank building with columns, financial symbols, and charts, showcasing the reliability and trustworthiness of a bank

Bank supervisors, industry analysts, and academic researchers rely on a range of metrics to track the health of both individual banks and the banking system as a whole. Many of these metrics focus on bank solvency—the likelihood that a bank will be able to repay its obligations and thus retain its funding and continue to supply services to consumers, businesses, and other financial institutions. We draw on our recent research to describe a new solvency metric that is more forward-looking, more timely, and more comprehensive in its assessment of solvency than many current measures.

Posted at 7:00 am in Bank Capital | Permalink | Comments (0)

September 2, 2025

What Is Natural Disaster Clustering—and Why Does It Matter for the Economy?

Jacob Kim-Sherman and Lee Seltzer

Photo of Large Fire Overtaking California Homes

Understanding the economic and financial consequences of natural disasters is a major concern for researchers and policymakers. The way in which overlapping natural disaster systems interact, as exemplified by the recent fires in Los Angeles being exacerbated by strong winds, is a major area of study in environmental science but has received comparatively little attention in the economics literature. Examining these potential interactions would likely be important for financial institutions, since such assessments would, in many instances, increase the estimated financial impact of a given natural disaster. In our recent Staff Report, we develop a method of identifying disaster systems in natural disaster data, such as the Spatial Hazard Events and Loss Database (SHELDUS), and use it to argue that the economics and finance literatures may have overlooked some sources of systemic risk.

Posted at 7:00 am in Macroeconomics | Permalink | Comments (0)

August 25, 2025

Are Financial Markets Good Predictors of R‑Star?

Sophia Cho and John C. Williams

Photo: Stock market graph trading analysis investment financial, stock exchange financial or forex graph stock market graph chart business crisis crash loss and grow up gain and profits win up trend.

Recently, there has been renewed attention on the natural rate of interest—often referred to as “r-star”—and whether it has risen from the historically low levels that prevailed before the COVID-19 pandemic. The natural interest rate is the real (inflation-adjusted) interest rate expected to prevail when supply and demand in the economy are in balance and inflation is stable. Some commentators claim that the prior decline in r‑star has reversed, pointing to the recent rise in future real interest rates implied by the bond market. But before declaring the death of this “low r‑star” era, a natural question to ask is: how reliable are market-based measures of r‑star? In this Liberty Street Economics post, we evaluate whether such measures provide additional information on future real interest rates beyond what is already contained in macroeconomic model-based estimates of r-star. Our findings suggest they do not, and we conclude that reports of the death of low r-star are greatly exaggerated.

Posted at 11:00 am in Inflation, Macroeconomics, Monetary Policy | Permalink | Comments (2)

August 13, 2025

How Firms Spread Good Management

Nicholas Bloom, Jonathan Hartley, Raffaella Sadun, Rachel Schuh, and John Van Reenen

Photo: Factory Digitalization: Two Industrial Engineers Use Tablet Computer, Big Data Statistics Visualization, Optimization of High-Tech Electronics Facility. Industry 4.0 Machinery Manufacturing Products

What is good management, and how is it transmitted across firms and plants? In a recent paper, we use survey and administrative data, coupled with a structural model of management, to explore these questions. We show that well-managed manufacturing firms—that is, firms that adopt more structured management practices described below—not only open and acquire more plants, but also close and sell more plants. Through this process, the firms transmit their management practices to new plants. These facts, taken together, imply that acquisitions can increase aggregate productivity by allowing well-managed firms to take over poorly managed plants and improve their management practices.

Posted at 7:00 am in Microeconomics | Permalink | Comments (0)

August 11, 2025

Who Is Still on First? An Update of Characteristics of First‑Time Homebuyers

Donghoon Lee and Joseph Tracy

Photo: young couple with boy child bringing moving boxes into a newly purchased home that is blue clapboard and white trimmed windows. Boy is bringing his mother, who is standing in the doorway, a plant that looks like lavender.

Following the COVID-19 health crisis, home prices and mortgage rates rose sharply. This created concerns that first-time homebuyers (FTBs) would be disadvantaged and would lose ground. Earlier this year, we documented that the share of purchase mortgages by FTBs, as well as their share of home purchases, have actually increased slightly over the past couple of years. It appears that FTBs are holding their own in this challenging housing market. This raises the question of whether the characteristics of FTBs have changed. In a 2019 post, we described the characteristics of these buyers over the period from 2000 to 2016. In this post, we provide an update through 2024.

Posted at 7:00 am in Household Finance, Housing | Permalink | Comments (2)

August 7, 2025

Flood Risk and Flood Insurance

Kristian S. Blickle, Evan Perry, and João A.C. Santos

An aerial view shows floodwater surrounding homes on April 07, 2025 in East Prairie, Missouri. Thunderstorms, heavy rains, high winds and tornadoes have plagued the region for the past several days, causing widespread damage before moving east. (Photo by Scott Olson/Getty Images)

Recent natural disasters have renewed concerns about insurance markets for natural disaster relief. In January 2025, wildfires wreaked havoc in residential areas outside of Los Angeles. Direct damage estimates for the Los Angeles wildfires range from $76 billion to $131 billion, with only up to $45 billion of insured losses (Li and Yu, 2025). In this post, we examine the state of another disaster insurance market: the flood insurance market. We review features of flood insurance mandates, flood insurance take-up, and connect this to work in a related Staff Report that explores how mortgage lenders manage their exposure to flood risk. Mortgages are a transmission channel for monetary policy and also an important financial product for both banks and nonbank lenders that actively participate in the mortgage market.

Posted at 7:00 am in Banks, Climate Change, Housing | Permalink

August 5, 2025

A Check‑In on the Mortgage Market

Andrew F. Haughwout, Donghoon Lee, Jonathan Lee, Joelle Scally, and Wilbert van der Klaauw

Photo: Panorama of sunlit small suburban houses on a tree-lined street in the summer

Debt balances continued to march upward in the second quarter of 2025, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. Mortgage balances in particular saw an increase of $131 billion. Following a steep rise in home prices since 2019, several housing markets have seen dips in prices and concerns were sparked about the state of the mortgage market. Here, we disaggregate mortgage balances and delinquency rates by type and region to better understand the landscape of the current mortgage market, where any ongoing risks may lie, regionally and by product.

Posted at 11:00 am in Banks, Household Finance, Housing | Permalink | Comments (2)

July 16, 2025

How Shadow Banking Reshapes the Optimal Mix of Regulation

Kinda Hachem

Photo: Imposing bank facade with columns bathed in dramatic light in black setting, conveying shadow banking. Ai generated image.

Decisions that are privately optimal often impose externalities on other agents, giving rise to regulations aimed at implementing socially optimal outcomes. In the banking industry, regulations are particularly heavy, plausibly reflecting a view by regulators that the relevant externalities could culminate in financial crises and destabilize the broader economy. Over time, the toolkit for regulating banks and bank-like institutions has expanded, as has banks’ restructuring of activities into shadow banking to lessen the regulatory burden. This post, based on our recent Staff Report, explores the optimal mix of prudential tools for bank regulators in a wide range of environments.

Posted at 7:00 am in Nonbank (NBFI) | Permalink

July 14, 2025

Who Lends to Households and Firms?

Nina Boyarchenko and Leonardo Elias

Decorative illustration of bank building with columns in bright green on a dark green background with dots and globe around it and lights streaming out.

The financial sector in the U.S. economy is deeply interconnected. In our previous post, we showed that incorporating information about this network of financial claims leads to a substantial reassessment of which financial sectors are ultimately financing the lending to the real sector as a whole (households plus nonfinancial firms). In this post, we delve deeper into the differences between the composition of lending to households and nonfinancial firms in terms of direct lending as well as the patterns of “adjusted lending” that we compute by accounting for the network of claims financial subsectors have on each other.

Posted at 7:00 am in Banks, Credit, Household Finance, Nonbank (NBFI) | Permalink

Markets & Policy Implementation

Liberty Street Economics

Are Businesses Scaling Back Hiring Due to AI?

Economic Capital: A New Measure of Bank Solvency

What Is Natural Disaster Clustering—and Why Does It Matter for the Economy?

Are Financial Markets Good Predictors of R‑Star?

How Firms Spread Good Management

Who Is Still on First? An Update of Characteristics of First‑Time Homebuyers

Flood Risk and Flood Insurance

A Check‑In on the Mortgage Market

How Shadow Banking Reshapes the Optimal Mix of Regulation

Who Lends to Households and Firms?

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