Liberty Street Economics

September 8, 2023

Reintroducing the New York Fed Staff Nowcast

Martin Almuzara, Katie Baker, Hannah O’Keeffe, and Argia Sbordone

Decorative photo: blue image of close up of machinery building computer circuit boards.

“Nowcasts” of GDP growth are designed to track the economy in real time by incorporating information from an array of indicators as they are released. In April 2016, the New York Fed’s Research Group launched the New York Fed Staff Nowcast, a dynamic factor model that generated estimates of current quarter GDP growth at a weekly frequency. The onset of the COVID-19 pandemic sparked widespread economic disruptions—and unprecedented fluctuations in the economic data that flow into the Staff Nowcast. This posed significant challenges to the model, leading to the suspension of publication in September 2021. Taking advantage of recent developments in time-series econometrics, we have since developed a more robust version of the Staff Nowcast model, one that better handles data volatility. In this post, we discuss the model’s new features, present estimates of current quarter GDP growth, and evaluate how the Staff Nowcast would have performed during the pandemic period. Today’s post marks the resumption of regular New York Fed Staff Nowcast releases, to be published each Friday.

Posted at 11:45 am in Forecasting, Macroeconomics | Permalink

September 7, 2023

How Large Are Inflation Revisions? The Difficulty of Monitoring Prices in Real Time

Richard Audoly, Martín Almuzara, Richard Crump, Davide Melcangi, and Roshie Xing

decorative: us dollar folded into a question mark with penny as the dot at the bottom on a turquoise background.

With prices quickly going up after the COVID-19 pandemic, inflation releases have rarely been as present in the public debate as in recent years. However, since inflation estimates are frequently revised, how precise are the real-time data releases? In this Liberty Street Economics post, we investigate the size and nature of revisions to inflation. We find that inflation estimates for a given month can change substantially as subsequent data vintages are released. As an example, consider March 2009. With the economy contracting amid the Global Financial Crisis, the twelve-month inflation rate for personal consumption expenditures (PCE) excluding food and energy dropped from an initial estimate of 1.8 percent to 0.8 percent in the current series. The difference is dramatic and points to the difficulty of monitoring inflation in real time. Our results suggest that there is significant uncertainty in measuring inflation, and the key features of the recent spike and subsequent moderation of inflation may look quite different in hindsight once further revisions have taken place.

Posted at 7:00 am in Inflation, Macroeconomics | Permalink

September 6, 2023

Leader‑Follower Dynamics in Shareholder Activism

Doruk Cetemen, Gonzalo Cisternas, Aaron Kolb, and S. “Vish” Viswanathan

wooden figures in triangular formation with the lead figure colored red.

Activist shareholders play a central role in modern corporations, influencing the capital structure, business strategy, and governance of firms. Such “blockholders” range from investors who actively jawbone or break up firms to index funds that are largely passive in that they limit themselves to voting. In between, however, is a key group of blockholders that have historically focused on trading but have embraced activism as an established business strategy in the past few decades. Campaigns involving such “trading” blockholders have become ubiquitous, increasingly targeting large-capitalization firms; further, their attacks feature multiple activists, each with individual stakes that, in isolation, are unable to control targets. In this post, we ask three questions: (1) How do trading activists build stakes before an attack, while anticipating that other investors may have similar incentives? (2) Does the nature of strategic trading change relative to settings where activism is unlikely to occur? (3) Are there trade-offs between trading and the firm’s long-term value?

Posted at 7:00 am in Financial Markets, Stocks | Permalink

August 23, 2023

Businesses Want Remote Work, Just Not as Much

Jaison R. Abel, Richard Deitz, Dan Garcia, and Ben Hyman

Photo of African American woman sitting at their desk looking at two screens; one screen has images of many people on a remote call, the other screen has a spreadsheet open.

The enormous increase in remote work that occurred during the pandemic was a response to a temporary public health crisis. Now that the pandemic has passed, just how much remote work will persist and how much are businesses comfortable with? Results from our August regional business surveys indicate that more than 20 percent of all service work and 4 percent of all manufacturing work is currently being done remotely, nearly identical to what was reported a year ago, and this amount of remote work is expected to persist in the year ahead. However, on average, service sector businesses would prefer that about 15 percent of work be done remotely. Indeed, nearly a quarter of service firms have increased requirements for employees to work on-site over the past year and about one in six plan to make further adjustments toward in-person work next year. Ultimately, the degree and persistence of remote work will largely depend on the tightness of the labor market, as businesses report that while remote work does have its downsides, it has been particularly helpful for attracting and retaining workers.

Posted at 7:00 am in Labor Market, Pandemic, Regional Analysis | Permalink

August 17, 2023

Consumers’ Perspectives on the Recent Movements in Inflation

Felix Aidala, Olivier Armantier, Fatima Boumahdi, Gizem Kosar, Devon Lall, Jason Somerville, Giorgio Topa, and Wilbert van der Klaauw

Editors Note: The title of this post has been changed from the original. August 17, 2023, 10:35 a.m.

Decorative image: Woman loading groceries into trunk of car

Inflation in the U.S. has experienced unusually large movements in the last few years, starting with a steep rise between the spring of 2021 and June 2022, followed by a relatively rapid decline over the past twelve months. This marks a stark departure from an extended period of low and stable inflation. Economists and policymakers have expressed differing views about which factors contributed to these large movements (as reported in the media here, here, here, and here), leading to fierce debates in policy circles, academic journals, and the press. We know little, however, about the consumer’s perspective on what caused these sudden movements in inflation. In this post, we explore this question using a special module of the Federal Reserve Bank of New York’s Survey of Consumer Expectations (SCE) in which consumers were asked what they think contributed to the recent movements in inflation. We find that consumers think supply-side issues were the most important factor behind the 2021-22 inflation surge, while they regard Federal Reserve policies as the most important factor behind the recent and expected future decline in inflation.

Posted at 7:00 am in Expectations, Inflation, Monetary Policy | Permalink

August 16, 2023

What Makes Cryptocurrencies Different?

Anders Brownworth, Jon Durfee, Michael Lee, and Antoine Martin

Decorative photo: B for Bitcoin symbol on dark blue background with 0s and 1s floating and lines connected to dots to imply network.

Permissionless blockchains, which support the most popular cryptocurrency networks like Bitcoin and Ethereum, have shown that it is possible to transfer value without relying on centralized trusted third parties, something that is new and remarkable (although perhaps most clearly useful for less developed financial markets). What makes permissionless blockchains able to transfer value without relying on a small number of trusted third parties is the combination of several components that all need to work together. The components themselves are not particularly new, but the combination of these components is more than the sum of its parts. In this post, we provide a high-level overview of these components and how they interact, taking Bitcoin as an example.

Posted at 7:00 am in Cryptocurrencies, Financial Markets | Permalink | Comments (2)

August 14, 2023

The Federal Reserve’s Two Key Rates: Similar but Not the Same?

Gara Afonso, Marco Cipriani, Gabriele La Spada, and Peter Prastakos

photo of the federal reserve building in Washington DC.

Since the global financial crisis, the Federal Reserve has relied on two main rates to implement monetary policy—the rate paid on reserve balances (IORB rate) and the rate offered at the overnight reverse repo facility (ON RRP rate). In this post, we explore how these tools steer the federal funds rate within the Federal Reserve’s target range and how effective they have been at supporting rate control.

Posted at 7:00 am in Central Bank, Fed Funds, Federal Reserve, Monetary Policy | Permalink

August 10, 2023

The Evolution of Short‑Run r* after the Pandemic

Katie Baker, Logan Casey, Marco Del Negro, Aidan Gleich, and Ramya Nallamotu

Decorative: U.S. dollars and surgical masks in a still life.

This post discusses the evolution of the short-run natural rate of interest, or short-run r*, over the past year and a half according to the New York Fed DSGE model, and the implications of this evolution for inflation and output projections. We show that, from the model’s perspective, short-run r* has increased notably over the past year, to some extent outpacing the large increase in the policy rate. One implication of these findings is that the drag on the economy from recent monetary policy tightening may have been limited, rationalizing why economic conditions have remained relatively buoyant so far despite the elevated level of interest rates.

Posted at 7:00 am in DSGE, Macroeconomics, Monetary Policy | Permalink

August 9, 2023

The Post‑Pandemic r*

Katie Baker, Logan Casey, Marco Del Negro, Aidan Gleich, and Ramya Nallamotu

The debate about the natural rate of interest, or r*, sometimes overlooks the point that there is an entire term structure of r* measures, with short-run estimates capturing current economic conditions and long-run estimates capturing more secular factors. The whole term structure of r* matters for policy: shorter run measures are relevant for gauging how restrictive or expansionary current policy is, while longer run measures are relevant when assessing terminal rates. This two-post series covers the evolution of both in the aftermath of the pandemic, with today’s post focusing especially on long-run measures and tomorrow’s post on short-run r*.

Posted at 7:00 am in DSGE, Forecasting, Pandemic | Permalink | Comments (1)

August 8, 2023

Credit Card Markets Head Back to Normal after Pandemic Pause

Andrew Haughwout, Donghoon Lee, Daniel Mangrum, Joelle Scally, and Wilbert van der Klaauw

Decorative photo: man's hand pulling out a yellow credit card from a wallet with several other credit cards.

Total household debt balances increased by $16 billion in the second quarter of 2023, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. This reflects a modest rise from the first quarter. Credit card balances saw the largest increase of all debt types—$45 billion—and now stand at $1.03 trillion, surpassing $1 trillion in nominal terms for the first time in the series history. After a sharp contraction in the first year of the pandemic, credit card balances have seen seven quarters of year-over-year growth. The second quarter of 2023 saw a brisk 16.2 percent increase from the previous year, continuing this strong trend. With credit card balances at historic highs, we consider how lending and repayment have evolved using the New York Fed’s Consumer Credit Panel (CCP), which is based on anonymized Equifax credit report data.

Posted at 11:00 am in Household Finance | Permalink | Comments (2)

Markets & Policy Implementation

Liberty Street Economics

Reintroducing the New York Fed Staff Nowcast

How Large Are Inflation Revisions? The Difficulty of Monitoring Prices in Real Time

Leader‑Follower Dynamics in Shareholder Activism

Businesses Want Remote Work, Just Not as Much

Consumers’ Perspectives on the Recent Movements in Inflation

What Makes Cryptocurrencies Different?

The Federal Reserve’s Two Key Rates: Similar but Not the Same?

The Evolution of Short‑Run r* after the Pandemic

The Post‑Pandemic r*

Credit Card Markets Head Back to Normal after Pandemic Pause

Economic Inequality

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