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At the outbreak of the pandemic, in March 2020, the Federal Reserve implemented a suite of facilities, including two associated with international dollar liquidity—the central bank swap lines and the Foreign International Monetary Authorities (FIMA) repo facility—to provide dollar liquidity. This post discusses recent evidence showing the contributions of these facilities to financial and economic stability, highlighting evidence from recent research by Goldberg and Ravazzolo (December 2021).
Jaison R. Abel, Jason Bram, Richard Deitz, and Jonathan Hastings
The pandemic struck the New York-Northern New Jersey region early and hard, and the economy is still struggling to recover nearly two years later. Indeed, employment fell by 20 percent in New York City as the pandemic took hold, a significantly sharper decline than for the nation as a whole, and the rest of the region wasn’t far behind, creating a much larger hole to dig out of than other parts of the country. While the region saw significant growth as the economy began to heal, growth has slowed noticeably, and job shortfalls—that is, the amount by which employment remains below pre-pandemic levels—are some of the largest in the nation. Among major metro areas, job shortfalls in New York City, Buffalo, and Syracuse rank among the five worst in the country. Thus, despite much progress, the region is struggling to recover from the pandemic recession. By contrast, employment has rebounded above pre-pandemic levels in Puerto Rico, reaching a five-year high.
In March 2020, U.S. dollar-denominated prime money market funds (MMFs) suffered heavy outflows as concerns about the COVID-19 pandemic increased in the United States and Europe. Investors redeemed their shares en masse not only from funds domiciled in the United States (“domestic”) but also from offshore funds. In this post, we use differences in the regulatory regimes of domestic and offshore funds to identify the impact of the redemption gates and liquidity fees recently introduced as part of MMF industry reforms in both the United States and Europe.
Matteo Crosignani, Thomas Eisenbach, and Fulvia Fringuellotti
More than a year into the COVID-19 pandemic, the U.S. banking system has remained stable and seems to have weathered the crisis well, in part because of effects of the policy actions undertaken during the early stages of the pandemic. In this post, we provide an update of four analytical models that aim to capture different aspects of banking system vulnerability and discuss their perspective on the COVID pandemic. The four models, introduced in a Liberty Street Economics post in November 2018 and updatedannually since then, monitor vulnerabilities of U.S. banking firms and the way in which these vulnerabilities interact to amplify negative shocks.
Andrew Haughwout, Donghoon Lee, Daniel Mangrum, Joelle Scally, and Wilbert van der Klaauw
Today, the New York Fed’s Center for Microeconomic Data released its Quarterly Report on Household Debt and Credit for the third quarter of 2021. Overall debt balances increased, bolstered primarily by a sizeable increase in mortgage balances, and for the second consecutive quarter, an increase in credit card balances. The changes in credit card balances in the second and third quarters of 2021 are remarkable since they appear to be a return to the normal seasonal patterns in balances. In a Liberty Street Economics post earlier this year we wrote about some demographic variation in these balance changes and the likely role of stimulus checks and forbearance programs in helping borrowers pay down expensive revolving debt balances. Here, we’ll take a fresh look at credit card balances and at the dynamics behind new and closing credit card accounts and limit changes, to examine how credit access and usage continue to evolve. The Quarterly Report and this analysis are based on our Consumer Credit Panel, which is itself based on Equifax credit data.
The return of U.S. real GDP to its pre-pandemic level in the second quarter of this year was driven by consumer spending on goods. Such spending was well above its pre-pandemic path, while spending on services was well below. Despite the surge in goods spending, domestic manufacturing has increased only modestly, leaving most of the increase in demand being filled by imports. While higher imports have been a drag on growth, the size of this drag has been moderated by the value created by the domestic transportation, wholesale, and retail sectors in selling these goods. Going forward, a rebalancing of consumer spending toward services could give a lift to growth, by shifting demand toward purchases with little import content.
Jaison R. Abel, Jason Bram, Richard Deitz, and Jessica Lu
As the economy continues to recover from the pandemic recession, many businesses are struggling to keep up with surging demand amid widespread supply shortages and delays. While a rare phenomenon before the pandemic, supply chain disruptions have become increasingly common, with transportation of goods becoming especially tricky due to myriad issues such as cloggedports and difficulty finding truck drivers. Indeed, such supply disruptions are expected to continue into next year. Our October regional business surveys asked firms to what extent, if any, they are being affected by supply problems and what measures they have taken in response. Difficulty obtaining supplies was nearly universal among survey respondents, affecting about 80 percent of service firms and 95 percent of manufacturers. A large share of businesses in the region have responded to the disruptions by increasing their selling prices and scaling back their operations.
While the shocks from COVID-19 were concentrated in a handful of contact-intensive industries, they had rippling effects throughout the economy, which culminated in a considerable decline in U.S. GDP. In this post, we estimate how much of the fall in U.S. GDP during the pandemic was driven by spillover effects from the productivity losses of contact-intensive industries.
As we mourn the tragic losses of the 9/11 attacks twenty years on, we thought it would be appropriate to re-examine the remarkable resilience New York City’s economy has shown over the years—a resilience that is once again being tested by the ongoing COVID-19 pandemic. In this Liberty Street Economics post, we look at how Lower Manhattan, in particular, has changed since that tragedy on a number of dimensions, and use that as a framework to think about how the city might change as a result of the COVID pandemic.
Haoyang Liu, David Lucca, Dean Parker, and Gabriela Rays-Wahba
During the pandemic, national home values and housing activity soared as mortgage rates declined to historic lows. Under the canonical “user cost” house price model, home values are held to be very sensitive to interest rates, especially at low interest rate levels. A calibration of this model can account for the house price boom with the observed decline in interest rates. But empirically, we find that home values are nowhere near as sensitive to interest rates as the user cost model predicts. This lower sensitivity is also found in prior economic research. Thus, the historical experience suggests that lower interest rates can only account for a tiny fraction of the pandemic house price boom. Instead, we find more scope for lower interest rates to explain the rise in housing activity, both sales and construction.
Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.
The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.
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