The gap between long-term and short-term interest rates has narrowed sharply over the last year and is now dipping into negative territory. Historically that’s often been a signal that slower economic growth or even an economic recession could lie ahead.
Gap between average interest rate on 10-year Treasury bond and 3-month Treasury bill during the last month of the quarter (1953:Q2 to 2019:Q1) and May 1-24 for 2019:Q2. NBER dates for U.S. recessions shown as shaded regions.
I just finished a new paper on current U.S. monetary policy operating procedures. Here’s the abstract:
The Federal Reserve characterizes its current policy decisions in terms of targets for the fed funds rate and the size of its balance sheet. The fed funds rate today is essentially an administered rate that is heavily influenced by regulatory arbitrage and divorced from its traditional role as a signal of liquidity in the banking system. The size of the Fed’s balance sheet is at best a very blunt instrument for influencing interest rates. In this paper I compare the current operating system with the historical U.S. system and the procedures of other central banks. I then examine strategies for transitioning from the current system to one that would give the Federal Reserve better tools with which to achieve its strategic objective of influencing inflation and output.
Here’s a link to a video of my presentation of the paper at a conference at Stanford last week.
The Bureau of Economic Analysis announced today that U.S. real GDP grew at a 3.2% annual rate in the first quarter of 2019. That’s better than the 2.2% average rate since the recovery from the Great Recession began in 2009:Q3, and even a little better than the average 3.1% growth over the last 70 years.
The underlying data from which the U.S. unemployment rate and labor-force participation rate are calculated contain numerous inconsistencies– if one of the numbers economists use is correct, another must be wrong. I’ve recently completed a research paper with Hie Joo Ahn that summarizes these inconsistencies and proposes a reconciliation.
The Bureau of Economic Analysis announced yesterday that U.S. real GDP grew at a 2.6% annual rate in the fourth quarter of 2018. That’s below the 3.1% average for the U.S. economy over the last 70 years, but better than the 2.2% average rate since the recovery from the Great Recession began in 2009:Q3.
That’s the topic of a new FEDS Note that I just published with Hie Joo Ahn. Here’s what we discuss:
The U.S. unemployment rate averaged 8.4% during the first five years of recovery from the Great Recession of 2007-2009, the weakest recovery on record. But as the expansion continued, unemployment continued to decline and by 2018 reached the lowest levels in almost half a century. Why did unemployment remain so high for so long, and what factors contributed to the recent lows?
Some people are getting a little spooked by recent stock market movements. Here I offer a few thoughts.
What are the effects on the economy when the Fed raises interest rates? This is a key question in empirical research, but is notoriously hard to answer. The reason is that when the Fed raises interest rates, it usually does so in anticipation of a stronger economy or rising inflation. If we look at what happens to inflation or output following an interest rate hike, it is impossible to distinguish the effect of the Fed’s actions from the effects of the changing fundamentals that led the Fed to act in the first place. New research by a graduate student at UCSD may have finally solved this problem.
The Bureau of Economic Analysis announced today that U.S. real GDP grew at a 3.5% annual rate in the third quarter. That’s the second quarter in a row that the number has come in above the 3.1% average for the U.S. economy over the last 70 years, and is well above the 2.2% average rate since the recovery from the Great Recession began