Liberty Street Economics

May 18, 2026

Honey, Who Shrunk the U.S. Income Surplus?

Matthew Higgins and Thomas Klitgaard

AI created illustration of a forefinger and thumb holding a tiny 100 dollar bill U.S. Map of the U.S. on a blue field in the background. Done in Pop Art style.

Foreign holdings of U.S. financial assets are immense, with official estimates putting their current market value at $69 trillion. U.S. holdings of foreign assets are also impressive but much smaller, at $41 trillion. The shortfall in U.S. foreign assets relative to foreign liabilities has been mounting for decades. Yet U.S. investment income receipts—in profits, dividends, and interest—comfortably exceeded income payments until recently. We show that the fading of the net investment income surplus stems from the upward shift in interest rates in the aftermath of the pandemic along with the continued net sales of U.S. assets to foreign investors.

Posted at 7:00 am in Balance of Payments, International Economics | Permalink | Comments (0)

May 14, 2026

Do Job Postings Show Early Labor‑Market Effects of AI?

Richard Audoly, Miles Guerin, and Giorgio Topa

Asian Business woman working busy with massive stacks of documents check and review preparation data report or organizing paperwork workplace stress and administrative overload

As generative AI tools become more widely used, a key issue is the technology’s impact on labor demand. Where might we find evidence of that impact? In this post, we examine whether early evidence of AI’s effect on the labor market appears in firms’ job postings. We combine an occupational measure of AI exposure with detailed U.S. job-posting data from Lightcast, which aggregates listings from company career pages, national and local job boards, and job-listing aggregators. Using this data, we test whether postings for AI-exposed occupations declined disproportionately since the release of ChatGPT in late 2022. We find that, while overall hiring has slowed since then, the evidence from job postings provides little indication of a distinct AI-driven decline in labor demand.

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

May 12, 2026

Federal Student Loan Defaults Return After Pandemic Pause

Zara Jacob, Donghoon Lee, Daniel Mangrum, Joelle W. Scally, and Wilbert van der Klaauw

Image of back of college students in cap and gowns

During 2026:Q1, household debt balances increased slightly, by $18 billion, to reach $18.8 trillion, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. Amid upticks in mortgage, HELOC, and auto balances and a seasonal decline in credit card balances, student loan balances remained unchanged. However, the share of student loan balances past due increased, nearing pre-pandemic levels at just over 10 percent. In this post, we focus on which borrowers entered default on their federal student loans over the past two quarters. We find that the average borrower entering default is nearly 40 years old, was not past due on their student loans prior to the pandemic, and is more likely to live in the South. While defaulted borrowers are more likely to be past due on other forms of debt, the overall scope of student loan defaults is still relatively low, suggesting that fears of broader contagion to other credit products are premature.

Posted at 11:00 am in Student Loans | Permalink | Comments (0)

May 11, 2026

Will Mounting Supply Chain Strains Hamstring the AI Investment Boom?

Hunter L. Clark, Jeffrey B. Dawson, and Shad Turney

Aerial view of data centers in Ashburn, Virginia.

The conflict in the Middle East has precipitated a global supply shock—the third in six years following the pandemic in 2020 and Russia’s invasion of Ukraine in 2022. The current shock raises the specter of spillovers to the U.S. through both prices and physical shortages of goods. A critical conduit for spillovers through these channels is via Asian supply chains, especially from middle- to lower-middle income countries in southeast Asia, which are key suppliers for goods needed for the AI infrastructure build-out in the U.S. These countries are also heavily reliant on Middle East energy imports. This post examines key factors related to these Asian supply chain vulnerabilities.

Posted at 7:00 am in International Economics, Supply Chain | Permalink | Comments (0)

May 8, 2026

Stress and Strain from NBFIs to Banks

Viral V. Acharya, Nicola Cetorelli, and Bruce Tuckman

image of a bank crumbled within a wrench

Do the recent stresses in the NBFI space—notably the bankruptcies of Tricolor and First Brands, and the decision of Blue Owl Capital Corp II (OBDC II) to end its redemption program and return capital through a wind-down of the fund—create distress for banks? The general sentiment is that the recent stresses are unlikely to amount to systemic concerns, although it does not mean there might not be “some stress and strain” for banks and that policymakers are “watching carefully” for exposure across banks. In a series of previous posts, we showed that shocks to nonbank financial institutions (NBFIs) directly impact banks that have exposures to NBFIs. In this post, we show that bank stocks have been directly impacted by NBFIs yet again. In short, NBFI troubles do result in “stress and strain” for banks.

Posted at 7:00 am in Banks, Nonbank (NBFI) | Permalink | Comments (0)

May 6, 2026

Same Shock, Different Roads? A K‑Shaped Pattern at the Pump

Rajashri Chakrabarti, Thu Pham, Beck Pierce, and Maxim Pinkovskiy

AI generated: Hand Of A Woman Pumping Gas Into A Vehicle

In March 2026, energy prices surged to a four-year high, driven by the Iranian closure of the Strait of Hormuz amid the ongoing conflict in the Middle East. In this Liberty Street Economics post, we use the new consumer spending module of the Economic Heterogeneity Indicators to analyze recent changes in nominal and real gas consumption across different income groups. We find that households had very different experiences with gasoline spending: in March, high-income households increased nominal spending the most and kept real consumption essentially unchanged, while low-income households decreased real consumption of gasoline but still saw sharply increased nominal spending because of the rise in gas prices. Therefore, with the sharp increases in gasoline prices in March, a K-shaped pattern in gasoline consumption emerged—showing faster consumption growth for high-income households relative to low-income households. These gasoline consumption patterns qualitatively match those following the increase in energy prices at the beginning of the Russia-Ukraine war in spring 2022, even though the gap in consumption trends during the current episode is quantitatively larger.

Posted at 11:30 am in Household Finance, K-Shaped Economy | Permalink | Comments (0)

May 4, 2026

In What Ways Has U.S. Trade with China Changed?

Hunter L. Clark and Gregory Simitian

Illustration depicting a line from China to Vietnam and from Vietnam to the U.S.

Over the past year, U.S. trade policy with China has undergone enormous changes, but with surprisingly little effect on overall trade balances. In fact, the U.S.’s twelve-month trade deficit, while highly volatile due to import front-running early in the year, ended 2025 at $1.2 trillion, almost unchanged from 2024. At the same time, China’s trade surplus with the world actually increased from $1 trillion to $1.2 trillion. However, when looking at changes between individual countries, one sees large shifts in bilateral balances. In this post, we will focus on changing trade flows between the U.S., China, and southeast Asia.

Posted at 7:00 am in International Economics, Tariffs | Permalink | Comments (2)

May 1, 2026

Explaining the K‑Shaped Economy: What’s Behind the Divide?

Rajashri Chakrabarti, Thu Pham, Beck Pierce, and Maxim L. Pinkovskiy

split photo of two different women: one is carrying shopping bags in a high end retail store. The other is looking over a receipt from a grocery shopping as she carries the shopping cart.

In our companion post, we used a new module of our Economic Heterogeneity Indicators (EHIs) to shed light on how recent retail spending growth has been driven by high-income households. This fact is consistent with the popular press’s idea of a “K-shaped economy” in which higher-income households experience faster growth in spending than lower-income households. In this post, we dive deeper into the reasons behind this divergence by analyzing for which goods this trend holds true and ask whether it can be explained by changes in wages, inflation, or wealth. We find that, since 2023, wealth has increased the most for high-income households, while inflation has risen the most for low-income households, with both factors helping explain the fact that real retail spending rose the most for high-income households. In contrast, earnings display a more mixed pattern, though earnings of the highest earners have grown more rapidly than earnings of the lowest earners.

Posted at 10:01 am in Household Finance, Inequality, K-Shaped Economy, Microeconomics | Permalink | Comments (0)

Tracking the K‑Shaped Economy: Who’s Driving Spending?

Rajashri Chakrabarti, Thu Pham, Beck Pierce, and Maxim L. Pinkovskiy

Shopping Spree in Modern Retail Environment

Aggregate real consumer spending has risen solidly since 2023. However, it is less clear how widely shared this improvement has been across all segments of society. This is important because systematic heterogeneity may mask the dependence of aggregate growth on a relatively small group of households and thus conceal macroeconomic risks. In this post, we use consumer spending data recently added to the Economic Heterogeneity Indicators (EHIs) and find that retail spending growth has been driven by high-income households—those earning more than $125,000 per year. In the popular press, the phenomenon of higher-income households growing at a faster rate than lower-income households has been referred to as the K-shaped economy. We find that consumption has exhibited a K-shaped economy since 2023, although not in the pre-COVID period or during the post-COVID recovery.

Posted at 10:00 am in Household Finance, Inequality, K-Shaped Economy, Microeconomics | Permalink | Comments (3)

April 16, 2026

Bank Failures: The Roles of Solvency and Liquidity

Sergio Correia, Stephan Luck, and Emil Verner

Photo of a long line of customers waiting to get into a Bank, open for the first time since the federal government takeover due to the bank's subprime mortgages with people with bad or no credit history.

Do banks fail because of runs or because they become insolvent? Answering this question is central to understanding financial crises and designing effective financial stability policies. Long-run historical evidence reveals that the root cause of bank failures is usually insolvency. The importance of bank runs is somewhat overstated. Runs matter, but in most cases they trigger or accelerate failure at already weak banks, rather than cause otherwise sound banks to fail.

Posted at 10:00 am in Bank Capital, Banks, Liquidity, Panic | Permalink

Markets & Policy Implementation

Liberty Street Economics

Honey, Who Shrunk the U.S. Income Surplus?

Do Job Postings Show Early Labor‑Market Effects of AI?

Federal Student Loan Defaults Return After Pandemic Pause

Will Mounting Supply Chain Strains Hamstring the AI Investment Boom?

Stress and Strain from NBFIs to Banks

Same Shock, Different Roads? A K‑Shaped Pattern at the Pump

In What Ways Has U.S. Trade with China Changed?

Explaining the K‑Shaped Economy: What’s Behind the Divide?

Tracking the K‑Shaped Economy: Who’s Driving Spending?

Bank Failures: The Roles of Solvency and Liquidity

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