70 posts on "Monetary Policy"
June 30, 2022
How Equitable Has the COVID Labor Market Recovery Been?
One of the two monetary policy goals of the Federal Reserve System— one-half of our dual mandate—is to aim for “maximum employment.” However, labor market outcomes are not monolithic, and different demographic and economic groups experience different labor market outcomes. In this post, we analyze heterogeneity in employment rates by race and ethnicity, focusing on the COVID-19 recession of March-April 2020 and its aftermath. We find that the demographic employment gaps temporarily increased during the onset of the pandemic but narrowed back by spring 2022 to close to where they were in 2019. In the second post of this series, we will focus on heterogeneity in inflation rates, the second part of our dual mandate.
June 24, 2022
How Could Oil Price and Policy Rate Hikes Affect the Near‑Term Inflation Outlook?
Since the start of the year, oil prices have risen sharply owing to worsening expectations regarding global oil supply. We’ve also had an acceleration of inflation in the United States and the euro area, as well as a sharp steepening of the expected paths of policy rates in both economies. These factors, combined with the potential for a slowdown in growth, have made the inflation outlook quite uncertain. In this post, we combine the demand and supply oil price decomposition from the New York Fed’s Oil Price Dynamics Report with yield curve data to quantify the likely path of inflation in the United States and the euro area over the next twelve months. Based on our analysis, we anticipate that inflation will likely remain elevated through the second quarter of 2023, despite payback for the inflationary impact of current negative oil supply shocks during the second half of 2022 and the disinflationary effects of tighter monetary policy.
Posted at 7:00 am in Forecasting, Inflation, Macroeconomics, Monetary Policy | Permalink | Comments (2)
June 1, 2022
How Is the Corporate Bond Market Responding to Financial Market Volatility?
The Russian invasion of Ukraine increased uncertainty around the world. Although most U.S. companies have limited direct exposure to Ukrainian and Russian trading partners, increased global uncertainty may still have an indirect effect on funding conditions through tightening financial conditions. In this post, we examine how conditions in the U.S. corporate bond market have evolved since the start of the year through the lens of the U.S. Corporate Bond Market Distress Index (CMDI). As described in a previous Liberty Street Economics post, the index quantifies joint dislocations in the primary and secondary corporate bond markets and can thus serve as an early warning signal to detect financial market dysfunction. The index has risen sharply from historically low levels before the invasion of Ukraine, peaking on March 19, but appears to have stabilized around the median historical level.
Posted at 7:00 am in Corporate Finance, Financial Markets, Monetary Policy | Permalink | Comments (2)
April 12, 2022
The Fed’s Balance Sheet Runoff: The Role of Levered NBFIs and Households
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
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)
March 18, 2022
The New York Fed DSGE Model Forecast—March 2022
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.
March 2, 2022
Disinflation Policies with a Flat Phillips Curve
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.
January 11, 2022
How the Fed’s Overnight Reverse Repo Facility Works
Daily take-up at the overnight reverse repo (ON RRP) facility increased from less than $1 billion in early March 2021 to just under $2 trillion on December 31, 2021. In the second post in this series, we take a closer look at this important tool in the Federal Reserve’s monetary policy implementation framework and discuss the factors behind the recent increase in volume.
Posted at 7:00 am in Bank Capital, Banks, Central Bank, COVID-19 Facilities, Credit, Crisis, Fed Funds, Federal Reserve, Financial Institutions, Monetary Policy, Pandemic, Repo | Permalink
January 10, 2022
How the Federal Reserve’s Monetary Policy Implementation Framework Has Evolved
In a series of four posts, we review key elements of the Federal Reserve’s monetary policy implementation framework. The framework has changed markedly in the last two decades. Prior to the global financial crisis, the Fed used a system of scarce reserves and fine-tuned the supply of reserves to maintain rate control. However, since then, the Fed has operated in a floor system, where active management of the supply of reserves no longer plays a role in rate control, but rather the Fed’s administered rates influence the federal funds rate. In this first post, we discuss the salient features of the implementation framework in a stylized way.
Posted at 7:00 am in Central Bank, Fed Funds, Federal Reserve, Monetary Policy | Permalink | Comments (1)
January 7, 2022
The Effect of Inequality on the Transmission of Monetary and Fiscal Policy
Monetary policy can have a meaningful impact on inequality, as recent theoretical and empirical studies suggest. In light of this, how should policy be conducted? And how does inequality affect the transmission of monetary policy? These are the topics covered in the second part of the recent symposium on “Heterogeneity in Macroeconomics: Implications for Policy,” hosted by the new Applied Macroeconomics and Econometrics Center (AMEC) of the New York Fed on November 12.
Posted at 7:00 am in Equitable Growth, Fiscal Policy, Inequality, Macroeconomics, Monetary Policy | Permalink
RSS Feed
Follow Liberty Street Economics
