Liberty Street Economics
Liberty Street Economics
Look for our next post on February 2, 2018.
January 17, 2018

Did Import Competition Boost Household Debt Demand?

LSE_Did Import Competition Boost Household Debt Demand?t

In the years preceding the Great Recession, the United States experienced a dramatic rise in household debt and an unprecedented increase in import competition. In a recent staff report, we outline a link between these two seemingly unrelated phenomena. We argue that the displacement of workers exposed to import competition fueled their demand for mortgage credit, which left many households more vulnerable to the eventual downturn in the housing market.

January 16, 2018

What about Spending on Consumer Goods?

LSE_What about Spending on Consumer Goods?

In a recent Liberty Street Economics post, I showed that one major category of consumer spending—spending on discretionary services such as recreation, transportation, and household utilities—behaved very differently in the 2007-09 recession and subsequent recovery than in previous business cycles: specifically, it fell more steeply and has recovered much more slowly. This finding prompted one of the editors of this blog to inquire whether consumer goods spending has also departed markedly from its behavior in past cycles. To answer that question, I examined the decline of expenditures on consumer durable goods and nondurable goods across recessions as well as the pace of recovery during long expansions like the current one.

Posted by Blog Author at 7:00 AM in Great Recession , Macroecon | Permalink | Comments ( 0 )

January 12, 2018

Beginning to Gauge Maria’s Effect on Puerto Rico’s Economy

LSE_Beginning to Gauge Maria’s Effect on Puerto Rico’s Economy

Just two weeks after most of Puerto Rico dodged the proverbial bullet, missing the brunt of Hurricane Irma, the island was devastated by Maria—one of the ten strongest Atlantic hurricanes on record. Making landfall on September 20, 2017, the storm caused not only massive physical destruction and tragic loss of life but also widespread and persistent power outages, shortages of potable (and even nonpotable) running water, and disruptions to telecommunications and travel, among other issues. With the storm boosting costs and disrupting activity, the short-term economic impact is clearly significant. But an even greater concern is that the adverse short-term effects of the storm, overlaid on an already shrinking economy, may evolve into long-term adverse effects. In this post, we focus on the magnitude, duration, breadth and nature of the economic disruptions, as measured mostly by employment.

Posted by Blog Author at 7:00 AM in Regional Analysis | Permalink | Comments ( 0 )

January 10, 2018

The ‘Banking Desert’ Mirage

LSE_The ‘Banking Desert’ Mirage

Unbanked households are often imagined to live in urban neighborhoods devoid of banks, but is that really the case? Our map of U.S. banking deserts reveals that most are not in urban areas, where financial exclusion may be endemic, but in actual deserts—largely in the sparsely populated, rural West. Across states, we find that the share of the population in a banking desert is unrelated to the share that is unbanked. If distance from a bank is not what causes financial exclusion, then motivating banks to locate closer to the unbanked may not promote financial inclusion.

January 09, 2018

Fiscal Implications of the Federal Reserve’s Balance Sheet Normalization

LSE_Fiscal Implications of the Federal Reserve’s Balance Sheet Normalization

In the wake of the global financial crisis, the Federal Reserve dramatically increased the size of its balance sheet—from about $900 billion at the end of 2007 to about $4.5 trillion today. At its September 2017 meeting, the Federal Open Market Committee (FOMC) announced that—effective October 2017—it would initiate the balance sheet normalization program described in the June 2017 addendum to the FOMC’s Policy Normalization Principles and Plans.

January 08, 2018

Balance Sheet Normalization: When Will Agency MBS Holdings Decline?

LSE_Balance Sheet Normalization: When Will Agency MBS Holdings Decline?

In its September 20, 2017, statement, the Federal Open Market Committee (FOMC) said that, beginning in October 2017, it would initiate the balance sheet normalization program described in the June 2017 addendum to the Committee’s Policy Normalization Principles and Plans. Specifically, to reduce the Federal Reserve’s securities holdings, the FOMC directed the New York Fed’s Trading Desk (“the Desk”) to reinvest each month’s principal payments from Treasury securities, agency debt, and agency mortgage-backed securities (MBS) only to the extent that such payments exceed gradually rising caps. This policy implies that the size of the Federal Reserve’s securities holdings will decline in a gradual and predictable manner over time. In this post, we describe the mechanics of this process for agency MBS and explain why predicting the precise evolution of the size of the MBS portfolio is more difficult than it is for Treasury securities.

Posted by Blog Author at 7:00 AM | Permalink | Comments ( 0 )

December 20, 2017

The Fed’s Balance Sheet, Night Lights, and the Other Top LSE Posts of 2017

LSE_The Fed’s Balance Sheet, Night Lights, and the Other Top LSE Posts of 2017

In the spirit of this season of year-end lists of accomplishments, Liberty Street Economics offers a roundup of our most viewed posts. Our readers continued to gravitate toward timely, topical posts; our most popular explained how the Fed manages its enlarged balance sheet—a major focus of the FOMC, Congress, markets, and economists. Prompted by reader questions in response to their first post, the authors also penned a follow-up post. Another hit this year described an innovative indicator of economic growth—night light intensity measured via satellite—and used it to fact-check official Chinese growth estimates.

December 15, 2017

Political Polarization in Consumer Expectations

LSE_Political Polarization in Consumer Expectations

Following the 2016 presidential election, as noted on this blog and many other outlets, Americans’ political and economic outlook changed dramatically depending on partisan affiliation. Immediately after the election, Republicans became substantially more optimistic relative to Democrats. In this blog post, we revisit the issue of polarization over the past twelve months using data from the New York Fed’s Survey of Consumer Expectations (SCE)—also the focus of a detailed technical overview in the latest edition of the Bank’s journal, the Economic Policy Review. The overview walks readers through the design and implementation of the survey, as well as the computation of the various statistics released by the SCE team every month.
Posted by Blog Author at 11:00 AM in Expectations | Permalink | Comments ( 0 )

November 30, 2017

How Much Is Priced In? Market Expectations for FOMC Rate Hikes from Different Angles

LSE_2017_ Market Expectations for FOMC Rate Hikes from Different Angles

It is essential for policymakers and financial market participants to understand market expectations for the path of future policy rates because these expectations can have important implications for financial markets and the broader economy. In this post—which is meant to complement prior Liberty Street Economics posts, including Crump et al. (2014a, 2014b ) and Brodsky et al. (2016a, 2016b)—we offer some insights into estimating and interpreting market expectations for increases in the federal funds target range at upcoming meetings of the Federal Open Market Committee (FOMC).

Posted by Blog Author at 7:00 AM in Expectations , Monetary Policy | Permalink | Comments ( 0 )

November 29, 2017

Did Investor Sentiment Affect Credit Risk around the 2016 Election?

LSE_2017_Did Investor Sentiment Affect Credit Risk around the 2016 Election?

Immediately following the presidential election of 2016, both consumer and investor sentiments were buoyant and financial markets boomed. That these sentiments affect financial asset prices is not so surprising, given past stock market evidence and episodes such as the dot-com bubble. Perhaps more surprising, the risk of corporate default—which is driven mainly by firms’ financial health but also by bond liquidity—also fell following the election, as indicated by lower yield spreads. In this post, I show that, although expectations of better corporate and macroeconomic conditions were the primary drivers of lower credit risk, improved investor sentiment also contributed.

About the Blog
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 Donald Morgan, all economists in the Bank’s Research Group.

The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.

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The LSE editors ask authors submitting a post to the blog to confirm that they have no conflicts of interest as defined by the American Economic Association in its Disclosure Policy. If an author has sources of financial support or other interests that could be perceived as influencing the research presented in the post, we disclose that fact in a statement prepared by the author and appended to the author information at the end of the post. If the author has no such interests to disclose, no statement is provided. Note, however, that we do indicate in all cases if a data vendor or other party has a right to review a post.