Global Trends in Interest Rates

Marco Del Negro, Domenico Giannone, Marc Giannoni, Andrea Tambalotti, Brandyn Bok, and Eric Qian



Long-term government bond yields are at their lowest levels of the past 150 years in advanced economies. In this blog post, we argue that this low-interest-rate environment reflects secular global forces that have lowered real interest rates by about two percentage points over the past forty years. The magnitude of this decline has been nearly the same in all advanced economies, since their real interest rates have converged over this period. The key factors behind this development are an increase in demand for safety and liquidity among investors and a slowdown in global economic growth.

Just Released: August Regional Survey—Businesses See Tariffs Raising Prices

By Jason Bram and Richard Deitz

This week, we published our August surveys of regional manufacturers and service firms. Our Supplemental Survey Report, released this morning, reveals how these businesses view the effects of recent trade policy on their costs, prices, sales, and profits. The results suggest that recent tariffs are raising both input costs and selling prices for local businesses, and these effects appear to be more widespread for manufacturers than for service firms.

Just Released: A Monthly Underlying Inflation Gauge

Robert Rich



Today marks the launch of the monthly publication of the Underlying Inflation Gauge (UIG). We are reporting two UIG measures, described recently on Liberty Street Economics, that are constructed to provide an estimate of the trend, or persistent, component of inflation. One measure is derived using a large number of disaggregated price series in the consumer price index (CPI), while the second measure incorporates additional information from macroeconomic and financial variables.

Measuring Trend Inflation with the Underlying Inflation Gauge

Marlene Amstad, Simon Potter, and Robert Rich



Consumers, financial market participants, and policymakers are particularly interested in the trend, or persistent, component of inflation. But this variable is not observed, which has resulted in a variety of proposed proxy measures. Because each measure has its own strengths and weaknesses, a consensus about a preferred candidate has not emerged. Here, we introduce the Underlying Inflation Gauge (UIG) as a measure of trend inflation. Among its attractive features, the UIG is derived from a large data set that extends beyond price variables and displays greater forecast accuracy than various measures of core inflation.

Why Did the Recent Oil Price Declines Affect Bond Prices of Non-Energy Companies?

Brandon Li and Asani Sarkar



Oil prices plunged 65 percent between July 2014 and December of the following year. During this period, the yield spread—the yield of a corporate bond minus the yield of a Treasury bond of the same maturity—of energy companies shot up, indicating increased credit risk. Surprisingly, the yield spread of non‑energy firms also rose even though many non‑energy firms might be expected to benefit from lower energy‑related costs. In this blog post, we examine this counterintuitive result. We find evidence of a liquidity spillover, whereby the bonds of more liquid non‑energy firms had to be sold to satisfy investors who withdrew from bond funds in response to falling energy prices.

From the Vault: Does Forward Guidance Work?

Anna Snider

In recent months, there have been some high-profile assessments of how far the Federal Reserve has come in terms of communicating about monetary policy since its “secrets of the temple” days. While observers say the transition to greater transparency “still seems to be a work in progress,” they note the range of steps the Fed has taken over the years to shed light on its strategy, including issuing statements to announce and explain policy changes following Federal Open Market Committee (FOMC) meetings, post-meeting press conferences and minutes, FOMC-member speeches and testimony, and “forward guidance” in all its variants.

How Do People Revise Their Inflation Expectations?

Olivier Armantier, Giorgio Topa, Wilbert van der Klaauw, and Basit Zafar



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 households' 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.

What Drives Forecaster Disagreement about Monetary Policy?

Richard K. Crump and Stefano Eusepi



What can disagreement teach us about how private forecasters perceive the conduct of monetary policy? In a previous post, we showed that private forecasters disagree about both the short-term and the long-term evolution of key macroeconomic variables but that the shape of this disagreement differs across variables. In contrast to their views on other macroeconomic variables, private forecasters disagree substantially about the level of the federal funds rate that will prevail in the medium to long term but very little on the rate at shorter horizons. In this post, we explore the possible explanations for what drives forecasts of the federal funds rate, especially in the longer run.

Just Released: Recent Developments in Consumer Credit Card Borrowing

Graham Campbell, Andrew F. Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw



The Federal Reserve Bank of New York’s Center for Microeconomic Data today released its Quarterly Report on Household Debt and Credit for the second quarter of 2016. It showed that overall household debt increased modestly over the period, with subdued mortgage originations and moderate but continued increases in non-housing related credit—particularly auto loans and credit cards. The total outstanding credit card balance now stands at $729 billion, up $17 billion from the first quarter, but still well below the peak of $866 billion reached in the fourth quarter of 2008. Credit card delinquency rates have continued to improve since peaking in 2008. We have previously “looked under the hood” of auto loans, and in this post, we present analysis that provides new insight into credit card debt by examining trends in credit card issuance and usage. The Quarterly Report and the following analyses are based on data from the New York Fed’s Consumer Credit Panel, which is a nationally representative sample drawn from Equifax credit reports.

Restoring Economic Growth in Puerto Rico: Introduction to the Series

Hunter L. Clark, Giacomo De Giorgi, and Andrew F. Haughwout




The difficult economic and financial issues facing the Commonwealth of Puerto Rico have remained very much in the news since our post on options for addressing its fiscal problems appeared last fall. That post was itself a follow-up on a series of analyses, starting with a 2012 report that detailed the economic challenges facing the Commonwealth. In 2014, we extended that analysis with an update where we focused more closely on the fiscal challenges facing the Island. As the problems deepened, we have continued to examine important related subjects ranging from positive revisions in employment data, to the credit conditions faced by small businesses, to understanding emigration, and to considering how the Commonwealth’s public debts stack up. In most of this work, we have focused on how policymakers could help to address the immediate issues facing the Island and its people. The U.S. Congress and the Obama Administration took action in June to provide a framework to help address Puerto Rico’s fiscal crisis. But much remains to be done to address these ongoing problems, which represent a significant impediment to economic growth in the short run. It also seems important to revisit the question of the prospects for reviving longer-run growth in the Commonwealth. These concerns were underscored by projections published by the International Monetary Fund (IMF) in the April edition of the World Economic Outlook that forecast Puerto Rico’s real GDP and population to decline through 2021.