How Much Is Priced In? Market Expectations for FOMC Rate Hikes from Different Angles

It is essential for policymakers and financial market participants to understand market expectations for the path of future policy rates because these expectations can have important implications for financial markets and the broader economy. In this post—which is meant to complement prior Liberty Street Economics posts, including Crump et al. (2014a, 2014b ) and Brodsky et al. (2016a, 2016b)—we offer some insights into estimating and interpreting market expectations for increases in the federal funds target range at upcoming meetings of the Federal Open Market Committee (FOMC).
Understanding Permanent and Temporary Income Shocks

The earnings of 200 million U.S. workers change each year for various reasons. Some of these changes are anticipated while others are more unexpected. Although many of these changes may be due to pleasant surprises—such as receiving salary raises and promotions—others involve disappointments—such as falling into unemployment. Arguably, some of these factors have rather short-lived effects on an individual’s earnings, whereas others may have permanent effects. Many labor economists have been interested in these various shocks to earnings. How big are the more permanent shocks to earnings? How large are they relative to those that are temporary in nature? What are the sources of these shocks? In this blog post, we exploit a novel data set that enables us to explore the properties of earnings shocks: their magnitudes as well as their origins.
Just Released: Introducing the SCE Labor Market Survey

The New York Fed has just released new data on individuals’ experiences and expectations in the labor market. These data have been collected every four months since March 2014 as part of the Survey of Consumer Expectations (SCE). In this post we introduce the SCE Labor Market Survey and highlight some of its features.
Measuring Americans’ Expectations Following the 2016 Election

While consumer confidence as measured by various surveys has increased sharply since the national election, the New York Fed’s Survey of Consumer Expectations (SCE) has shown little notable change in expectations. In this post, we show that the difference may partly reflect systematic compositional changes whereby respondents who answer a survey after the election differ in important ways from those answering the survey before the election—something which the SCE largely avoids. We also show that the flat average aggregate outlook in the SCE masks substantial regional/partisan heterogeneity in shifts in expectations.
The FRBNY DSGE Model Forecast—November 2016
This post presents the latest update of the economic forecasts generated by the Federal Reserve Bank of New York’s (FRBNY) dynamic stochastic general equilibrium (DSGE) model.
Just Released: Press Briefing on the Survey of Consumer Expectations

The New York Fed’s Survey of Consumer Expectations (SCE) collects information on household heads’ economic expectations and behavior. In particular, the survey covers respondents’ views on how inflation, spending, credit access, and the housing and labor markets will evolve over time. The SCE yields important insights that inform our monetary policy decisions. This morning, President Dudley joined Bank economists to brief the press on the design of the SCE and the latest releases of survey results. President Dudley introduced the briefing by speaking about the benefits of measuring consumers’ expectations.
Performance Bonds for Bankers: Taking Aim at Misconduct

Given the long list of problems that have emerged in banks over the past several years, it is time to consider performance bonds for bankers. Performance bonds are used to ensure that appropriate actions are taken by a party when monitoring or enforcement is expensive. A simple example is a security deposit on an apartment rental. The risk of losing the deposit motivates renters to take care of the apartment, relieving the landlord of the need to monitor the premises. Although not quite as simple as a security deposit, performance bonds for bankers could provide more incentive for bankers to take better care of our financial system.
From the Vault: Does Forward Guidance Work?
This post takes a look at research assessing the effectiveness of forward guidance in monetary policy communications.
How Do People Revise Their Inflation Expectations?

The New York Fed started releasing results from its Survey of Consumer Expectations (SCE) three years ago in June 2013. The SCE is a monthly, nationally representative, internet-based survey of a rotating panel of about 1,300 household heads. Its goal, as described in a series of Liberty Street Economics posts, is to collect timely and high-quality information on consumer expectations about a broad range of topics, covering both macroeconomic variables and the household’s own situation. In this post, we look at what drives changes in consumer inflation expectations. Do people respond to changes in recent realized inflation, and to expected and realized changes in prices of salient individual commodities—like gasoline? Understanding what drives inflation expectations is important for the conduct of monetary policy, since it improves a central bank’s ability to assess its own credibility and to evaluate the impact of its policy decisions and communication strategy.