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6 posts from January 2018January 17, 2018
Did Import Competition Boost Household Debt Demand?
In the years preceding the Great Recession, the United States experienced a dramatic rise in household debt and an unprecedented increase in import competition. In a recent staff report, we outline a link between these two seemingly unrelated phenomena. We argue that the displacement of workers exposed to import competition fueled their demand for mortgage credit, which left many households more vulnerable to the eventual downturn in the housing market.
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January 16, 2018
What about Spending on Consumer Goods?
In a recent Liberty Street Economics post, I showed that one major category of consumer spending—spending on discretionary services such as recreation, transportation, and household utilities—behaved very differently in the 2007-09 recession and subsequent recovery than in previous business cycles: specifically, it fell more steeply and has recovered much more slowly. This finding prompted one of the editors of this blog to inquire whether consumer goods spending has also departed markedly from its behavior in past cycles. To answer that question, I examined the decline of expenditures on consumer durable goods and nondurable goods across recessions as well as the pace of recovery during long expansions like the current one.
January 12, 2018
Beginning to Gauge Maria’s Effect on Puerto Rico’s Economy
Just two weeks after most of Puerto Rico dodged the proverbial bullet, missing the brunt of Hurricane Irma, the island was devastated by Maria—one of the ten strongest Atlantic hurricanes on record. Making landfall on September 20, 2017, the storm caused not only massive physical destruction and tragic loss of life but also widespread and persistent power outages, shortages of potable (and even nonpotable) running water, and disruptions to telecommunications and travel, among other issues. With the storm boosting costs and disrupting activity, the short-term economic impact is clearly significant. But an even greater concern is that the adverse short-term effects of the storm, overlaid on an already shrinking economy, may evolve into long-term adverse effects. In this post, we focus on the magnitude, duration, breadth and nature of the economic disruptions, as measured mostly by employment.
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January 10, 2018
The ‘Banking Desert’ Mirage
Unbanked households are often imagined to live in urban neighborhoods devoid of banks, but is that really the case? Our map of U.S. banking deserts reveals that most are not in urban areas, where financial exclusion may be endemic, but in actual deserts—largely in the sparsely populated, rural West. Across states, we find that the share of the population in a banking desert is unrelated to the share that is unbanked. If distance from a bank is not what causes financial exclusion, then motivating banks to locate closer to the unbanked may not promote financial inclusion.
Posted by Blog Author at 7:00 AM in Federal Reserve, Financial Intermediation | Permalink | Comments (4)January 09, 2018
Fiscal Implications of the Federal Reserve’s Balance Sheet Normalization
In the wake of the global financial crisis, the Federal Reserve dramatically increased the size of its balance sheet—from about $900 billion at the end of 2007 to about $4.5 trillion today. At its September 2017 meeting, the Federal Open Market Committee (FOMC) announced that—effective October 2017—it would initiate the balance sheet normalization program described in the June 2017 addendum to the FOMC’s Policy Normalization Principles and Plans.
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January 08, 2018
Balance Sheet Normalization: When Will Agency MBS Holdings Decline?
In its September 20, 2017, statement, the Federal Open Market Committee (FOMC) said that, beginning in October 2017, it would initiate the balance sheet normalization program described in the June 2017 addendum to the Committee’s Policy Normalization Principles and Plans. Specifically, to reduce the Federal Reserve’s securities holdings, the FOMC directed the New York Fed’s Trading Desk (“the Desk”) to reinvest each month’s principal payments from Treasury securities, agency debt, and agency mortgage-backed securities (MBS) only to the extent that such payments exceed gradually rising caps. This policy implies that the size of the Federal Reserve’s securities holdings will decline in a gradual and predictable manner over time. In this post, we describe the mechanics of this process for agency MBS and explain why predicting the precise evolution of the size of the MBS portfolio is more difficult than it is for Treasury securities.
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About the BlogLiberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.
The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.
Liberty Street Economics does not publish new posts during the blackout periods surrounding Federal Open Market Committee meetings.
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