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10 posts from April 2020

April 17, 2020

Treasury Market Liquidity during the COVID-19 Crisis



Treasury Market Liquidity during the COVID-19 Crisis

A key objective of recent Federal Reserve policy actions is to address the deterioration in financial market functioning. The U.S. Treasury securities market, in particular, has been the subject of Fed and market participants’ concerns, and the venue for some of the Fed’s initiatives. In this post, we evaluate a basic metric of market functioning for Treasury securities— market liquidity—through the first month of the Fed’s extraordinary actions. Our particular focus is on how liquidity in March 2020 compares to that observed over the past fifteen years, a period that includes the 2007-09 financial crisis.

Continue reading "Treasury Market Liquidity during the COVID-19 Crisis" »

Posted by Blog Author at 12:01 PM in Balance of Payments, Banks, Central Bank, Corporate Finance, Financial Markets, Pandemic | Permalink | Comments (1)

April 16, 2020

How Widespread Is the Impact of the COVID-19 Outbreak on Consumer Expectations?



How Widespread Is the Impact of the COVID-19 Outbreak on Consumer Expectations?

In a recent blog post, we showed that consumer expectations worsened sharply through March, as the COVID-19 epidemic spread and affected a growing part of the U.S. population. In this post, we document how much of this deterioration can be directly attributed to the coronavirus outbreak. We then explore how the effect of the outbreak has varied over time and across demographic groups.

Continue reading "How Widespread Is the Impact of the COVID-19 Outbreak on Consumer Expectations?" »

Posted by Blog Author at 11:00 AM in Expectations, Household, Household Finance, Labor Economics, Pandemic | Permalink | Comments (0)

New York Fed Surveys: Business Activity in the Region Sees Historic Plunge in April



New York Fed Surveys: Business Activity in the Region Sees Historic Plunge in April

Indicators of regional business activity plunged to historic lows in early April, as efforts to slow the spread of the coronavirus kept many people at home and shut down large parts of the regional economy, according to the Federal Reserve Bank of New York’s two business surveys. The headline index for both surveys plummeted to nearly -80, well below any historical precedent including the depths of the Great Recession. About 60 percent of service firms and more than half of manufacturers reported at least a partial shutdown of their operations thus far. Layoffs were widespread, with half of all businesses surveyed reporting lower employment levels in early April.

Continue reading "New York Fed Surveys: Business Activity in the Region Sees Historic Plunge in April" »

Posted by Blog Author at 8:31 AM in Employment, Pandemic, Regional Analysis | Permalink | Comments (0)

April 15, 2020

The COVID-19 Pandemic and the Fed’s Response



The COVID-19 Pandemic and the Fed’s Response

The Federal Reserve has taken unprecedented actions to mitigate the effects of the COVID-19 pandemic on U.S. households and businesses. These measures include cutting the Fed’s policy rate to the zero lower bound, purchasing Treasury and mortgage-backed securities (MBS) to promote market functioning, and establishing several liquidity and credit facilities. In this post, we briefly review the developments motivating these actions, summarize what the Fed has done and why, and compare the Fed’s response with its response to the 2007-09 financial crisis.

Continue reading "The COVID-19 Pandemic and the Fed’s Response" »

Posted by Blog Author at 4:11 PM in Crisis, Federal Reserve, FOMC, Great Recession, Monetary Policy, Pandemic | Permalink | Comments (0)

April 10, 2020

Helping State and Local Governments Stay Liquid



Helping State and Local Governments Stay Liquid

This post is part of an ongoing series on the credit and liquidity facilities established by the Federal Reserve to support households and businesses during the COVID-19 outbreak.

On April 9, the Federal Reserve announced up to $2.3 trillion in new support for the economy in response to the coronavirus pandemic. Among the initiatives is the Municipal Liquidity Facility (MLF), intended to support state and local governments. The details of the facility are described in the term sheet. The state and local sector is a unique but very important part of the economy. This post lays out some of the economics of the sector and the needs that the facility intends to satisfy.

Continue reading "Helping State and Local Governments Stay Liquid" »

Posted by Blog Author at 4:25 PM in Central Bank, Fiscal Policy, Monetary Policy, Pandemic | Permalink | Comments (0)

The Coronavirus Shock Looks More like a Natural Disaster than a Cyclical Downturn



The Coronavirus Shock Looks More like a Natural Disaster than a Cyclical Downturn

It’s tempting to compare the economic fallout from the coronavirus pandemic to prior business cycle downturns, particularly the Great Recession. However, such comparisons may not be particularly apt—as evidenced by the unprecedented surge in initial jobless claims over the past three weeks. Recessions typically develop gradually over time, reflecting underlying economic and financial conditions, whereas the current economic situation developed suddenly as a consequence of a fast-moving global pandemic. A more appropriate comparison would be to a regional economy suffering the effects of a severe natural disaster, like Louisiana after Hurricane Katrina or Puerto Rico after Hurricane Maria. To illustrate this point, we track the recent path of unemployment claims in the United States, finding a much closer match with Louisiana after Katrina than the U.S. economy following the Great Recession.

Continue reading "The Coronavirus Shock Looks More like a Natural Disaster than a Cyclical Downturn" »

Posted by Blog Author at 7:00 AM in Employment, Labor Market, Pandemic, Regional Analysis | Permalink | Comments (4)

April 08, 2020

How Does Supervision Affect Bank Performance during Downturns?



LSE_How Does Supervision Affect Bank Performance during Downturns?

Supervision and regulation are critical tools for the promotion of stability and soundness in the financial sector. In a prior post, we discussed findings from our recent research paper which examines the impact of supervision on bank performance (see earlier post How Does Supervision Affect Banks?). As described in that post, we exploit new supervisory data and develop a novel strategy to estimate the impact of supervision on bank risk taking, earnings, and growth. We find that bank holding companies (BHCs or “banks”) that receive more supervisory attention have less risky loan portfolios, but do not have lower growth or profitability. In this post, we examine the benefits of supervision over time, and especially during banking industry downturns.

Continue reading "How Does Supervision Affect Bank Performance during Downturns?" »

Posted by Blog Author at 7:00 AM in Bank Capital, Banks, Crisis, Federal Reserve, Financial Institutions, Great Recession, Pandemic, Recession, Systemic Risk | Permalink | Comments (0)

April 06, 2020

Coronavirus Outbreak Sends Consumer Expectations Plummeting



Coronavirus Outbreak Sends Consumer Expectations Plummeting


The New York Fed’s Center for Microeconomic Data released results today from its March 2020 Survey of Consumer Expectations (SCE), which provides information on consumers' economic expectations and behavior. In particular, the survey covers respondents’ views on how income, spending, inflation, credit access, and housing and labor market conditions will evolve over time. The March survey, which was fielded between March 2 and 31, records a substantial deterioration in financial and economic expectations, including sharp declines in household income and spending growth expectations. As shown in the first two columns of the table below, the median expected year-ahead growth in income and spending declined from 2.7 percent and 3.1 percent in February to 2.1 percent and 2.3 percent in March, respectively. Similarly, expectations about home price growth plunged from 3.1 percent in February to 1.3 percent in March. The March reading for one-year home price growth expectations came in about 1.4 percentage points below the previous low for the series, which stretches back to June 2013.

Continue reading "Coronavirus Outbreak Sends Consumer Expectations Plummeting" »

Posted by Blog Author at 11:00 AM in Expectations, Household, Household Finance, Pandemic | Permalink | Comments (0)

How the Fed Managed the Treasury Yield Curve in the 1940s



https://libertystreeteconomics.newyorkfed.org/2020/04/how-the-fed-managed-the-treasury-yield-curve-in-the-1940s.html

The coronavirus pandemic has prompted the Federal Reserve to pledge to purchase Treasury securities and agency mortgage-backed securities in the amount needed to support the smooth market functioning and effective transmission of monetary policy to the economy. But some market participants have questioned whether something more might not be required, including possibly some form of direct yield curve control. In the first half of the 1940s the Federal Open Market Committee (FOMC) sought to manage the level and shape of the Treasury yield curve. In this post, we examine what can be learned from the FOMC’s efforts of seventy-five years ago.

Continue reading "How the Fed Managed the Treasury Yield Curve in the 1940s" »

Posted by Blog Author at 7:00 AM in Economic History, Fed Funds, Federal Reserve, Financial Markets, Fiscal Policy, FOMC, Pandemic, Treasury | Permalink | Comments (0)

April 02, 2020

The Value of Opacity in a Banking Crisis



The Value of Opacity in a Banking Crisis

During moments of heightened economic uncertainty, authorities often need to decide on how much information to disclose. For example, during crisis periods, we often observe regulators limiting access to bank‑level information with the goal of restoring the public's confidence in banks. Thus, information management often plays a central role in ending financial crises. Despite the perceived importance of managing information about individual banks during a financial crisis, we are not aware of any empirical work that quantifies the effect of such policies. In this blog post, we highlight results from our recent working paper, demonstrating that in a crisis, a policy of suppressing information about banks' balance sheets has a significant and positive effect on deposits.

Continue reading "The Value of Opacity in a Banking Crisis" »

Posted by Blog Author at 7:00 AM in Economic History, Financial Institutions, Financial Markets, Pandemic | Permalink | Comments (0)

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