58 posts on "inflation"
December 23, 2024
Every Dollar Counts: The Top 5 Liberty Street Economics Posts of 2024
High prices and rising debt put pressure on household budgets this year, so it’s little wonder that the most-read Liberty Street Economics posts of 2024 dealt with issues of financial stress: rising delinquency rates on credit cards and auto loans, the surge in grocery prices, and the spread of “buy now, pay later” plans. Another top-five post echoed this theme in an international context: Could the U.S. dollar itself be under stress as central banks seemingly turn to other reserve currencies? Read on for details on the year’s most popular posts.
December 20, 2024
The New York Fed DSGE Model Forecast—December 2024
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 September 2024. 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.
November 12, 2024
Banking System Vulnerability: 2024 Update
After a period of relative stability, a series of bank failures in 2023 renewed questions about the fragility of the banking system. As in previous years, we provide in this post an update of four analytical models aimed at capturing different aspects of the vulnerability of the U.S. banking system using data through 2024:Q2 and discuss how these measures have changed since last year.
October 9, 2024
A New Indicator of Labor Market Tightness for Predicting Wage Inflation
A key question in economic policy is how labor market tightness affects wage inflation and ultimately prices. In this post, we highlight the importance of two measures of tightness in determining wage growth: the quits rate, and vacancies per searcher (V/S)—where searchers include both employed and non-employed job seekers. Amongst a broad set of indicators, we find that these two measures are independently the most strongly correlated with wage inflation. We construct a new index, called the Heise-Pearce-Weber (HPW) Tightness Index, which is a composite of quits and vacancies per searcher, and show that it performs best of all in explaining U.S. wage growth, including over the COVID pandemic and recovery.
July 3, 2024
On the Distributional Consequences of Responding Aggressively to Inflation
This post discusses the distributional consequences of an aggressive policy response to inflation using a Heterogeneous Agent New Keynesian (HANK) model. We find that, when facing demand shocks, stabilizing inflation and real activity go hand in hand, with very large benefits for households at the bottom of the wealth distribution. The converse is true however when facing supply shocks: stabilizing inflation makes real outcomes more volatile, especially for poorer households. We conclude that distributional considerations make it much more important for policy to take into account the tradeoffs between stabilizing inflation and economic activity. This is because the optimal policy response depends very strongly on whether these tradeoffs are present (that is, when the economy is facing supply shocks) or absent (when the economy is facing demand shocks).
June 24, 2024
Deciphering the Disinflation Process
U.S. inflation surged in the early post-COVID period, driven by several economic shocks such as supply chain disruptions and labor supply constraints. Following its peak at 6.6 percent in September 2022, core consumer price index (CPI) inflation has come down rapidly over the last two years, falling to 3.6 percent recently. What explains the rapid shifts in U.S. inflation dynamics? In a recent paper, we show that the interaction between supply chain pressures and labor market tightness amplified the inflation surge in 2021. In this post, we argue that these same forces that drove the nonlinear rise in inflation have worked in reverse since late 2022, accelerating the disinflationary process. The current episode contrasts with periods where the economy was hit by shocks to either imported inputs or to labor alone.
May 16, 2024
Is the Recent Inflationary Spike a Global Phenomenon?
In the aftermath of the COVID-19 pandemic, inflation rose almost simultaneously in most economies around the world. After peaking in mid-2022, inflation then went into decline—a fall that was just as universal as the initial rise. In this post, we explore the interrelation of inflation dynamics across OECD countries by constructing a measure of the persistence of global inflation. We then study the extent to which the persistence of global inflation reflects broad-based swings, as opposed to idiosyncratic country-level movements. Our main finding is that the spike and subsequent moderation in global inflation in the post-pandemic period were driven by persistent movements. When we look at measures of inflation that include food and energy prices, most of the persistence appears to be broad-based, suggesting that international oil and commodity prices played an important role in global inflation dynamics. Excluding food and energy prices in the analysis still shows a broad-based persistence, although with a substantial increase in the role of country-specific factors.
May 15, 2024
Do Unexpected Inflationary Shocks Raise Workers’ Wages?
The past year’s steady decline in nominal wage growth now appears in danger of stalling. Given ongoing uncertainty in Ukraine and the Middle East, this seems an opportune moment to revisit the conventional wisdom about the relationship between inflation and wages: if an unexpected increase in energy costs drives up the cost of living, will workers demand higher wages, reversing the recent moderation in wage growth? In new work with Justin Bloesch and Seung Joo Lee examining those concerns, our analysis shows that the pass-through of such inflationary shocks to wages is weak.
March 5, 2024
Expectations and the Final Mile of Disinflation
In the aftermath of the COVID-19 pandemic, the U.S. economy experienced a swift recovery accompanied by a sharp rise in inflation. Inflation has been gradually declining since 2022 without a notable slowdown in the labor market. Nonetheless, inflation remains above the Federal Reserve’s 2 percent target and the path of the so-called final mile remains uncertain, as emphasized by Chair Powell during his press conference in January. In this post, we examine the unemployment-inflation trade-off over the past few years through the lens of a New Keynesian Phillips curve, based on our recent paper. We also provide model-based forecasts for 2024 and 2025 under various labor market scenarios.
September 22, 2023
The New York Fed DSGE Model Forecast— September 2023
Editor's note: We have updated the "date of forecast" row in the forecast comparison table to display the correct year (2023, not 2024). (September 25, 2023, 5:01 p.m.)
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 June 2023. 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.
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