Editor’s note: Since this post was first published, the y-axis label in the last chart has been corrected. February 15, 9:30 a.m.
The Federal Open Market Committee (FOMC) has increased the target range for the federal funds rate by 4.50 percentage points since March 16, 2022. In tightening the stance of monetary policy, the FOMC balances the risk of inflation remaining persistently high if the economy continues to run “hot” against the risk of unemployment rising as the economy cools. In this post, we review a quantitative approach to measuring the evolution of risks to real GDP growth, the unemployment rate, and inflation that is inspired by our previous work on “Vulnerable Growth.” We find that, in February, downside risks to real GDP growth and upside risks to unemployment moderated slightly, and upside risks to inflation continued to decline.
To conclude our series, we present disparities in inflation rates by U.S. census region and rural status between June 2019 and the present. Notably, rural households were hit by inflation the hardest during the 2021-22 inflationary episode. This is intuitive, as rural households rely on transportation, and especially on motor fuel, to a much greater extent than urban households do. More generally, the recent rise in inflation has affected households in the South more than the national average, and households in the Northeast by less than the national average, though this difference has decreased in the last few months. Once again, these changes in inflation patterns can be explained by transportation inflation driving a large extent of price rises during 2021 and much of 2022, with housing and food inflation lately coming to the fore.
As inflation has risen to forty-year highs, inflation inequality—disparities in the rates of inflation experienced by different demographic and economic groups– has become an increasingly important concern. In this three-part blog series, we revisit our main finding from June—that inflation inequality has increased across racial and ethnic groups—and provide estimates of differential inflation rates across groups based on income, education, age, and geographic location. We also use an updated methodology for computing inflation disparities by focusing on more disaggregated categories of spending, which corroborates our earlier findings and substantiates our conclusion that inflation inequality is a pronounced feature of the current inflationary episode.
Highlights from the Fifth Bi-annual Global Research Forum on International Macroeconomics and Finance
The COVID-19 pandemic, geopolitical tensions, and distinct economic conditions bring challenges to economies worldwide. These key themes provided a backdrop for the fifth bi-annual Global Research Forum on International Macroeconomics and Finance, organized by the European Central Bank (ECB), the Federal Reserve Board, and Federal Reserve Bank of New York in New York in November. The papers and discussions framed important issues related to the global economy and financial markets, and explored the implications of policies that central banks and other official sector bodies take to address geopolitical developments and conditions affecting growth, inflation, and financial stability. A distinguished panel of experts shared diverse perspectives on the drivers of and prospects for inflation from a global perspective. In this post, we discuss highlights of the conference. The event page includes links to videos for each session.
Today, the New York Fed introduces several new data series and interactive charts depicting findings from its Survey of Consumer Expectations (SCE). The SCE is a representative, internet-based monthly survey of a rotating panel of about 1,300 household heads in the United States. Since January 2014, we have been reporting findings from our monthly survey on U.S. households’ views on inflation, household income and spending growth, their expectations about the housing and labor market, and a range of other expectations about the economy and outcomes for their own household. In addition to publishing interactive charts showing national trends as well as trends by demographic groups (such as age, income, education, numeracy, and geography), we also post the underlying microdata online (with a nine-month lag) to make it available for research purposes. We are adding three new data series to our interactive charts today. The first two concern expectations about future inflation, and the third concerns expectations of future home price growth.
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 2022.
Annual CPI inflation reached 9.1 percent in June 2022, the highest reading since November 1981. The broad-based nature of the recent inflation readings has increased concerns that inflation may run above the Federal Reserve’s target for a longer period than anticipated. In this post we use detailed industry-level data to examine two prominent cost-push-based explanations for high inflation: rising import prices and higher labor costs. We find that the pass-through of wages and input prices to the U.S. Producer Price Index has grown during the pandemic. Both the large changes in these costs and a higher pass-through into domestic prices have contributed toward higher inflation.
The recovery since the onset of the pandemic has been characterized by a tight labor market and rising nominal wage growth. In this post, we look at labor market conditions from a more granular, sectoral point of view focusing on data covering the nine major industries. This breakdown is motivated by the exceptionality of the pandemic episode, the way it has asymmetrically affected sectors of the economy, and by the possibility of exploiting sectoral heterogeneities to understand the drivers of recent labor market dynamics. We document that wage pressures are highest in the sectors with the largest employment shortfall relative to their pre-pandemic trend path, but that other factors explain most of the wage growth differentials. We suggest that one key factor is the extent of physical contact that has had to be compensated for by offering higher wages. One implication of our analysis is that, as COVID-related factors recede, sectoral imbalances could be restored from the supply side as employment recovers back toward the pre-pandemic trend.
When inflation is high, companies may raise prices to keep up. However, market watchers and journalists have wondered if corporations have taken advantage of high inflation to increase corporate profits. We look at this question through the lens of public companies, finding that in general, increased prices in an industry are often associated with increasing corporate profits. However the current relationship between inflation and profit growth is not unusual in the historical context.
In our previous post, we discussed how the labor market recovery—the “maximum employment” half of the Federal Reserve System’s dual mandate—featured not only a return of overall employment rates to pre-pandemic levels, but also a narrowing of racial and ethnic gaps in employment rates. In this post, we take up the second half of the dual mandate—price stability—and discuss heterogeneity in inflation rates faced by different demographic groups during the rise in inflation in
2021-22. We find that, in contrast to inequalities in employment rates, disparities in inflation rates have widened during the recent inflationary episode, with Black and Hispanic Americans experiencing more inflation.