Measures of regional economic sentiment, extracted from the Beige Book using natural language processing methods, consistently delivered reliable real-time forecasts of US recessions from the mid-1980s through the COVID-19 pandemic recession. Since then, recession risk probabilities have been choppy, with several false alarms. We attribute this unreliability to a post-2021 disconnect between measures of economic activity and the sentiment of business and community leaders.
Different survey-based measures of consumer inflation expectations have diverged in recent months. This Economic Commentary compares these measures and the survey questions underlying them. Our analysis suggests that the divergences across survey-based measures of inflation expectations can be attributed to various features and sample characteristics specific to each survey.
The COVID-19 pandemic caused changes for business across all industries, though the effects were unequal. As lockdown restrictions aimed at mitigating the spread of COVID-19 were relaxed, nominal wage growth rose sharply in leisure and hospitality and in trade and transportation, the two industries with the highest concentration of low-wage workers. In fact, wage growth was most pronounced for workers in the bottom 50 percent of the wage distribution who changed jobs into one of these industries.
The Federal Reserve's Federal Open Market Committee (FOMC) influences market interest rates by changing the administered rates that it controls, such as the interest rates on overnight repurchase and reverse repurchase agreements. This requires an ample level of bank reserves. Quantitative tightening (QT) reduces the level of reserves. To guard against supply and demand shocks that drive reserves too low, the FOMC may need to hold a buffer above the point at which reserves become scarce. In this Economic Commentary, I present evidence based on inventory theory that the estimated buffer might be relatively small, though the true number is uncertain. Treating the Federal Reserve's balance sheet as inventory helps to estimate the level of reserves needed to stay above the scarce threshold.
Tracing the evolution of labor demand in the United States, this Economic Commentary reveals that the disproportionate rise in relative productivity of college-educated labor that shaped the latter half of the 20th century has plateaued since 2000. Our analysis suggests that technical change in the 21st century no longer favors college graduates and that further growth in the employment share of college-educated workers will likely lower the premium that college-educated workers receive compared with non-college-educated workers.
I document residual seasonality in five measures of PCE inflation: headline, core, market-based core, median, and trimmed mean. While these measures are all computed from seasonally adjusted data, I show that each of these measures has had low average monthly inflation in November and December and high average monthly inflation in January from 1987 through the beginning of 2025. The difference in inflation rates from November and December to January is economically and statistically significant. This timing for residual seasonality often gives the impression that monthly inflation is low at the end of the calendar year and jumps to start the year.
From 1980 through 2015, the share of clerical jobs in the employed labor force declined more significantly in large and expensive cities than in smaller cities. Moreover, the remaining workers performing these occupations in large and expensive cities had, on average, higher education levels and were more likely to perform tasks usually done by managerial and professional personnel when compared to their small-city counterparts. In this Economic Commentary, we show how these patterns are related to the uneven adoption of information communication technologies (ICT) across geographies and discuss adoption's impact on clerical jobs' tasks and worker requirements.
Productivity growth has shown a notable pickup since the fourth quarter of 2019, and some commentators cite artificial intelligence and other factors as reasons why technological progress can sustain this faster pace. Motivated by this consideration, we use a model designed to detect trend shifts to examine the behavior of productivity growth in the postwar period. The model allows for shifts between high- and low-growth productivity regimes and estimates the probability of being in one regime or the other. We find that recent data provide tentative support for a higher trend growth rate, with the model estimating about a 40 percent probability that the economy is in a high-growth productivity regime.
In this Economic Commentary, we look at how households sort into neighborhoods in different metro areas and analyze these patterns by race, ethnicity, and income. We find that in many metros, Black households face a significant tradeoff between a neighborhood's Black population share and its socioeconomic status (SES), with many high-income Black households residing in lower SES neighborhoods than is the case for white households of similar income. A similar pattern exists for Hispanic households. Because a neighborhood's SES correlates with the labor market outcomes of the children who grow up there, these sorting patterns could, over time, act to limit workforce productivity, and individual earnings, by restraining skill acquisition for youth residing in under-resourced areas.
Over the past ten years, the Federal Open Market Committee (FOMC) has repeatedly emphasized that future policy is data dependent. In this Economic Commentary, we investigate how financial markets expected future interest rates to change with the release of new data on inflation and labor market conditions. We find that the surprises in economic indicators have a stronger effect on the 2-year Treasury yield than on the expected federal funds rate to be set in the next FOMC meeting. This implies that markets understand that under the data-dependent approach, policy decisions do not heavily rely on the most recent data or short-run fluctuations, but, rather, rely more on the persistent trend of the economy. In addition, we observe that expected future interest rates have become more sensitive to surprises in inflation after 2022, suggesting that the FOMC's determination to reduce inflation has been well-understood by the markets.
Reciprocal deposits are deposits exchanged between banks to effectively increase deposit insurance coverage. Their use grew significantly during the banking turmoil of 2023. This Economic Commentary describes what they are, their connection to brokered deposits, how their legal treatment has changed over time, and which banks use them the most. It also discusses longer-run trends in uninsured deposits.
We study how the US shale boom decreased labor earnings inequality by increasing demand for low-skill labor in small labor markets. The similarities in the concentrated geographic distribution of investments and the labor needed to build capacity between the US shale boom and the manufacturing construction influx that has followed the passage of the IRA and CHIPS and Science Acts raise the possibility that these bills could also impact labor earnings inequality in a similar way.
Will inflation quickly return to the FOMC's target of 2 percent? I explore this question through the lens of the Verbrugge and Zaman (2023) model the VZ model - a structural model whose forecasts are competitive with hard-to-beat forecasting models. The time it takes to get to the target depends on the persistence of inflation, and theory gives mixed signals about whether inflation persistence is currently high or low. The VZ model distinguishes between two sources of inflation persistence, extrinsic and intrinsic, and implies that inflation has high intrinsic persistence. If the extrinsic forces that have lately been pushing down inflation, notably, the resolution of supply chain issues, have run their course, then the last half mile could take several years.
Higher price markups are typically associated with larger profits at the expense of labor's share of income. In this Economic Commentary, we challenge this view. The key to our argument is the reallocation of market shares toward labor-intensive firms, a reallocation caused by an increase in the prices of capital goods as a result of higher markups.
We study the large labor force increases since 2020 among disabled workers and among foreign-born workers in the United States. We show that the increase in the disabled labor force largely reflects a change in self-reported disability status among those already in the labor force rather than an actual increase in labor supply. We conjecture that immigration will likely contribute more to labor supply in 2024 than it did before the pandemic, but less than in 2020-2023.
Since the COVID-19 pandemic, the United States has experienced sharply rising then falling inflation alongside persistent labor market imbalances. This Economic Commentary interprets these macroeconomic dynamics, as represented by the Beveridge and Phillips curves, through the lens of a macroeconomic model. It uses the structure of the model to rationalize the debate about whether the US economy can expect a hard or soft landing. The model is surprised by the resiliency of the labor market as the US economy experienced disinflation. We suggest that the model's limited ability to capture this resiliency is a feature of using a linear model to forecast the historically unprecedented movements seen after the pandemic among inflation, unemployment, and vacancy rates. We explain how, by adjusting the model to mimic congestion in a tight labor market and greater wage and price flexibility in a high-inflation environment, as during the post-pandemic period, the model can then capture what has been a path consistent with a soft landing.
In this Economic Commentary, we compare characteristics of the 2000-2006 house-price boom that preceded the Great Recession to the house-price boom that began in 2020 during the COVID-19 pandemic. These two episodes of high house-price growth have important differences, including the behavior of rental rates, the dynamics of housing supply and demand, and the state of the mortgage market. The absence of changes in fundamentals during the 2000s is consistent with the literature emphasizing house-price beliefs during this prior episode. In contrast to during the 2000s boom, changes in fundamentals (including rent and demand growth) played a more dominant role in the 2020s house-price boom.
In recent years, economists and policymakers have been interested in the burden of student debt across socioeconomic groups. In this Economic Commentary, we use the two most recent waves of the Survey of Consumer Finances, collected in 2019 and 2022, to study changes in the joint distribution of student debt and two measures of “ability-to-pay,” income and net worth. We find that between 2019 and 2022, both the fraction of families with student debt and real student debt per family were essentially unchanged, and aggregate student debt fell as a fraction of aggregate income and net worth. However, over the same period, the distribution of student debt shifted toward higher-income and wealthier families, with a rise in the average student debt in the highest quintile of both income and net worth. Further, this shift was not driven by changes in the distribution of debtors, but, instead, in the amount of debt per family.
This Economic Commentary explores the connections among labor market tightness, wage inflation, and price inflation at the service sector level. Across most service sectors, sector-specific labor market tightness and nominal wage growth have been above prepandemic averages since 2022. The data suggest that a stronger positive relationship between labor market tightness and wage growth has emerged in the aftermath of the pandemic. The relationship between sector-specific wage growth and inflation is more varied. In the education and health services sector, higher wage growth is associated with higher inflation after about one year; in the leisure and hospitality services sector, the positive relationship is contemporaneous. I do not find a significant relationship between wage growth and inflation in the other service sectors, such as transportation or financial and business services.
Following the Global Financial Crisis of 2007-2008, the capital standards for banks operating in the United States were tightened as US banking regulators implemented the Basel III framework. This Economic Commentary briefly presents the key elements of Basel III relevant to bank capital and analyzes the timing of the evolution of regulatory capital ratios for US bank holding companies during that time. It shows that, on average, banks’ capital ratios increased notably between 2009 and 2012, plateauing before the new rules came into force. While larger and better-capitalized banks increased capital ratios soon after the financial crisis, it took smaller and less-well-capitalized banks longer on average to start that process.
