Liberty Street Economics

April 20, 2022

Inflation Persistence: How Much Is There and Where Is It Coming From?

Martín Almuzara and Argia Sbordone

The surge in inflation since early 2021 has sparked intense debate. Would it be short-lived or prove to be persistent? Would it be concentrated within a few sectors or become broader? The answers to these questions are not so clear-cut. In our view, one should ask how much of the inflation is persistent and how much of it is broad-based. In this post, we address this question through a quantitative lens. We find that the large ups and downs in inflation over the course of 2020 were largely the result of transitory shocks, often sector-specific. In contrast, sometime in the fall of 2021, inflation dynamics became dominated by the trend component, which is persistent and largely common across sectors.

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

April 18, 2022

Expected Home Price Increases Accelerate over the Short Term but Remain Stable over the Medium Term

Fatima-Ezzahra Boumahdi, Leo Goldman, Andrew Haughwout, Ben Hyman, Haoyang Liu, and Jason Somerville

Photo: Still life of a keyring with keys, a small house and red price tag on turquoise colored background

The Federal Reserve Bank of New York’s 2022 SCE Housing Survey shows that expected changes in home prices in the year ahead increased relative to the corresponding timeframe in the February 2021 survey, while five-year expectations remained unchanged. Households reported that they would be less likely to buy if they were to move compared to the year-ago survey, marking the first annual decline since the series began in 2014. This drop was driven by current renters, who were much less likely to buy compared to renters in the 2021 survey. Renters also reported that they expect rents to be sharply higher twelve months from now, with the expected rate of increase more than twice that reported a year ago. The expected price of rent five years ahead also rose compared to expectations a year ago, but at a more moderate pace.

Posted at 11:00 am in Expectations, Housing | Permalink

April 12, 2022

The Fed’s Balance Sheet Runoff: The Role of Levered NBFIs and Households

Marco Cipriani, James Clouse, Lorie Logan, Antoine Martin, and Will Riordan

Photo: Finance and banking concept. Euro coins and us dollar banknote close-up. Abstract image of Financial system with selective focus, toned, double exposure.

In a Liberty Street Economics post that appeared yesterday, we described the mechanics of the Federal Reserve’s balance sheet “runoff” when newly issued Treasury securities are purchased by banks and money market funds (MMFs). The same mechanics would largely hold true when mortgage-backed securities (MBS) are purchased by banks. In this post, we show what happens when newly issued Treasury securities are purchased by levered nonbank financial institutions (NBFIs)—such as hedge funds or nonbank dealers—and by households.

Posted at 7:00 am in Central Bank, COVID-19 Facilities, Federal Reserve, Monetary Policy, Nonbank (NBFI) | Permalink | Comments (1)

April 11, 2022

The Fed’s Balance Sheet Runoff and the ON RRP Facility

Marco Cipriani, James Clouse, Lorie Logan, Antoine Martin, and Will Riordan

A 2017 Liberty Street Economics post described the balance sheet effects of the Federal Open Market Committee’s decision to cease reinvestments of maturing securities—that is, the mechanics of the Federal Reserve’s balance sheet “runoff.” At the time, the overnight reverse repo (ON RRP) facility was fairly small (less than $200 billion for most of July 2017) and was not mentioned in the post for the sake of simplicity. Today, by contrast, take-up at the ON RRP facility is much larger (over $1.5 trillion for most of 2022). In this post, we update the earlier analysis and describe how the presence of the ON RRP facility affects the mechanics of the balance sheet runoff.

Posted at 7:00 am in Central Bank, COVID-19 Facilities, Federal Reserve, Monetary Policy, Repo | Permalink | Comments (3)

April 4, 2022

Climate Change and Financial Stability: The Weather Channel

Kristian Blickle and Donald Morgan

Climate change could affect banks and the financial systems they anchor through various channels: increasingly extreme weather is one (Financial Stability Board, Basel Committee on Bank Supervision). In our recent staff report, we size up this channel by studying how U.S. banks, large and small, fared against disasters past. We find even the most destructive disasters had insignificant or small effects on bank stability and small and positive effects on bank income. We conjecture that recovery lending after disasters helps stabilize larger banks while smaller, local banks’ knowledge of “unmarked” (flood) hazards may help them navigate disaster risk. Federal disaster aid seems not to act as a bank stabilizer.

Posted at 7:00 am in Bank Capital, Banks, Climate Change | Permalink

March 30, 2022

How Have the Euro Area and U.S. Labor Market Recoveries Differed?

Thomas Klitgaard

The initial phase of the pandemic saw the euro area and U.S unemployment rates behave quite differently, with the rate for the United States rising much more dramatically than the euro area rate. Two years on, the rates for both regions are back near pre-pandemic levels. A key difference, though, is that U.S. employment levels were down by 3.0 million jobs in 2021:Q4 relative to pre-pandemic levels, while the number of euro area jobs was up 600,000. A look at employment by industry shows that both regions had large shortfalls in the accommodation and food services industries, as expected. A key difference is the government sector, with the number of those jobs in the euro area up by 1.5 million, while the government sector in the United States shed 600,000.

Posted at 7:00 am in Euro Area, Labor Market, Pandemic, Unemployment | Permalink

March 22, 2022

Student Loan Repayment during the Pandemic Forbearance

Jacob Goss, Daniel Mangrum, and Joelle Scally

The onset of the COVID-19 pandemic brought substantial financial uncertainty for many Americans. In response, executive and legislative actions in March and April 2020 provided unprecedented debt relief by temporarily lowering interest rates on Direct federal student loans to 0 percent and automatically placing these loans into administrative forbearance. As a result, nearly 37 million borrowers have not been required to make payments on their student loans since March 2020, resulting in an estimated $195 billion worth of waived payments through April 2022. However, 10 million borrowers with private loans or Family Federal Education Loan (FFEL) loans owned by commercial banks were not granted the same relief and continued to make payments during the pandemic. Data show that Direct federal borrowers slowed their paydown, with very few making voluntary payments on their loans. FFEL borrowers, who were not covered by the automatic forbearance, struggled with their debt payments during this time. The difficulties faced by these borrowers in managing their student loans and other debts suggest that Direct borrowers will face rising delinquencies once forbearance ends and payments resume.

Posted at 10:00 am in Household Finance, Pandemic, Student Loans | Permalink | Comments (1)

March 18, 2022

The New York Fed DSGE Model Forecast—March 2022

Ozge Akinci, Marco Del Negro, Aidan Gleich, Shlok Goyal, Alissa Johnson, and Andrea Tambalotti

This post presents an update of the economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. We describe very briefly our forecast and its change since December 2021. As usual, we wish to remind our readers that the DSGE model forecast is not an official New York Fed forecast, but only an input to the Research staff’s overall forecasting process. For more information about the model and variables discussed here, see our DSGE model Q & A.

Posted at 9:00 am in DSGE, Forecasting, Inflation, Macroeconomics | Permalink

March 3, 2022

Global Supply Chain Pressure Index: March 2022 Update

Gianluca Benigno, Julian Di Giovanni, Jan Groen, and Adam Noble

Supply chain disruptions continue to be a major challenge as the world economy recovers from the COVID-19 pandemic. In a January post, we presented the Global Supply Chain Pressure Index (GSCPI) as a parsimonious global measure that encompasses several indicators used to capture supply chain disruptions. The main purpose of this post is to provide an update of the GSCPI through February 2022. In addition, we use the index’s underlying data to discuss the drivers of recent moves in the GSCPI. Finally, these data are used to create country-specific supply chain pressures indices.

Posted at 7:00 am in Inflation, Macroeconomics, Supply Chain | Permalink | Comments (1)

March 2, 2022

Disinflation Policies with a Flat Phillips Curve

Marco Del Negro, Aidan Gleich, Shlok Goyal, Alissa Johnson, and Andrea Tambalotti

Yesterday’s post analyzed the drivers of the surge in inflation over the course of 2021 through the lens of the New York Fed DSGE model. In today’s post, we use the model to study how alternative monetary policy strategies might contribute to bringing inflation back down to 2 percent. Our main finding is that there is no monetary silver bullet. Due to a flat Phillips curve—a well–documented feature of the economic environment of the last three decades—monetary policy can only achieve faster disinflation at a considerable cost in terms of forgone economic activity. This is true regardless of the systematic approach followed by the central bank in the model to pursue its objective.

Posted at 7:01 am in Inflation, Macroeconomics, Monetary Policy | Permalink

Markets & Policy Implementation

Liberty Street Economics

Inflation Persistence: How Much Is There and Where Is It Coming From?

Expected Home Price Increases Accelerate over the Short Term but Remain Stable over the Medium Term

The Fed’s Balance Sheet Runoff: The Role of Levered NBFIs and Households

The Fed’s Balance Sheet Runoff and the ON RRP Facility

Climate Change and Financial Stability: The Weather Channel

How Have the Euro Area and U.S. Labor Market Recoveries Differed?

Student Loan Repayment during the Pandemic Forbearance

The New York Fed DSGE Model Forecast—March 2022

Global Supply Chain Pressure Index: March 2022 Update

Disinflation Policies with a Flat Phillips Curve

Economic Inequality

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