7 posts from "May 2025"
May 29, 2025
How Uncertain Is the Estimated Probability of a Future Recession?
Since World War II, the U.S. economy has experienced twelve recessions—one every sixty-four months, on average. Though infrequent, these contractions can cause considerable pain and disruption, with the unemployment rate rising by at least 2.5 percentage points in each of the past four recessions. Given the consequences of an economic downturn, businesses and households are perennially interested in the near-term probability of a recession. In this post, we describe our research on a related issue: how much uncertainty is there around recession probability estimates from economic models?
May 28, 2025
Who’s Paying Those Overdraft Fees?
One criticism of overdraft credit is that the fees seem borne disproportionately by low-income, Black, and Hispanic households. To investigate this concern, we surveyed around 1,000 households about their overdraft activity. Like critics, we find that these groups do tend to overdraft more often. However, when we control for respondents’ credit scores along with their socioeconomic characteristics, we discover that only their credit score predicts overdraft activity. While it’s not altogether surprising that credit constrained households overdrew more often, it’s noteworthy that socioeconomic characteristics did not help in predicting overdrafts. This more textured picture of overdraft activity helps inform the ongoing debate about overdraft credit and its users.
May 21, 2025
Nonbanks and Banks: Alone or Together?
Nonbank financial institutions (NBFIs) constitute a variety of entities—fintech companies, mutual funds, hedge funds, insurance companies, private debt providers, special purpose vehicles, among others—that have become important providers of financial intermediation services worldwide. But what is the essence of nonbank financial intermediation? Does it have any inherent advantages, and how does it interact with that performed by banks? In this Liberty Street Economics post, which is based on our recent staff report, we provide a model-based survey of recent literature on nonbank intermediation, with an emphasis on how it competes, or cooperates, with traditional banks.
May 20, 2025
Why Does the U.S. Always Run a Trade Deficit?
The obvious answer to the question of why the United States runs a trade deficit is that its export sales have not kept up with its demand for imports. A less obvious answer is that the imbalance reflects a macroeconomic phenomenon. Using national accounting, one can show deficits are also due to a persistent shortfall in domestic saving that requires funds from abroad to finance domestic investment spending. Reducing the trade imbalance therefore requires both more exports relative to imports and a narrowing of the gap between saving and investment spending.
May 15, 2025
The College Economy: Educational Differences in Labor Market Outcomes
It is intuitive that workers with higher levels of education tend to earn more than workers with less education. However, it is also true that workers with more education are much more likely to be employed, and this employment advantage of education has, if anything, grown in recent years. In this post, we document profound differences in labor market outcomes by educational attainment. Drawing on the Economic Heterogeneity Indicators, we find that the gap in employment rates between workers who have completed college and workers who have not is 12 percentage points—which is larger than the employment gaps between workers of different races/ethnicities or between men and women—and is wider than the pre-pandemic gap. Moreover, most of this gap and its recent movements are driven by differences in labor force participation rates rather than by differences in unemployment rates. Fostering higher labor force participation of workers without a college degree thus would be quite helpful in promoting maximum employment.
May 13, 2025
Student Loan Delinquencies Are Back, and Credit Scores Take a Tumble
This morning, the Center for Microeconomic Data at the New York Fed released the Quarterly Report on Household Debt and Credit updated through the first quarter of 2025. Over the first quarter, overall household debt rose by $167 billion. An increase of $199 billion in mortgage balances and modest increases in home equity lines of credit (HELOC) and student loans were offset by declines in auto loans and credit card debt of $13 billion and $29 billion, respectively. The decline in credit card balances is a typical seasonal pattern associated with consumers paying down holiday spending from the fourth quarter, but the auto loan decline was atypical, the first such decline since the third quarter of 2020. The rates at which auto loans and credit cards became seriously delinquent improved slightly, while mortgage and HELOC transition rates edged up but remained low. However, the delinquency rate for student loans stands out: it surged from below 1 percent to nearly 8 percent, as the pause on reporting delinquent federal student loans ended. In this post, we focus on student loan delinquency, including which borrowers are past due and what it might mean for their access to credit.
May 12, 2025
Who Finances Real Sector Lenders?
The modern financial system is complex, with funding flowing not just from the financial sector to the real sector but within the financial sector through an intricate network of financial claims. While much of our work focuses on understanding the end result of these flows—credit provided to the real sector—we explore in this post how accounting for interlinkages across the financial sector changes our perception of who finances credit to the real sector.
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