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Adam Shapiro, research advisor at the Federal Reserve Bank of San Francisco, stated his views on the current economy and the outlook as of November 9, 2017.
After eight years of economic recovery, inflation remains below the FOMC’s target. Dissecting the underlying price data by spending category reveals that low inflation largely reflects prices that are relatively insensitive to overall economic conditions. Notably, modest increases in health-care prices, which have been held down by mandated cuts to the growth of Medicare payments, have helped moderate overall inflation. Further slow growth in health-care prices is likely to remain a drag on inflation.
This paper develops a New Keynesian model with a time-varying natural rate of interest (r-star) and a zero lower bound (ZLB) on the nominal interest rate. The representative agent contemplates the possibility of an occasionally binding ZLB that is driven by switching between two local rational expectations equilibria, labeled the "targeted" and "deflation" solutions, respectively. Sustained periods when the real interest rate remains below the central bank's estimate of r-star can induce the agent to place a substantially higher weight on the deflation equilibrium, causing it to occasionally become self-fulfilling. I solve for the time series of stochastic shocks and endogenous forecast rule weights that allow the model to exactly replicate the observed time paths of the U.S. output gap and quarterly inflation since 1988. In model simulations, raising the central bank's inflation target to 4% from 2% can reduce, but not eliminate, the endogenous switches to the deflation equilibrium.
PCE Inflation Dispersion statistics present a more detailed summary of the personal consumption expenditure price index (PCEPI), a measure of U.S. inflation. Included are measures of the distribution of price changes across categories and diffusion indices.
The Tech Pulse Index is an index of coincident indicators of activity in the U.S. information technology sector. It can be interpreted as a summary statistic that tracks the health of the tech sector in a timely manner.
Total Factor Productivity (TFP) presents a real-time, quarterly data series for the U.S. business sector, adjusted for variations in factor utilization—labor effort and capital’s workweek.
The Treasury yield premium model decomposes nominal bond yields of various maturities into three components: expectations of the average future short-term interest rate, a term premium, and a model residual.
The Wage Rigidity Meter offers a closer examination of the annual wage changes of U.S. workers that have not changed jobs over the year.
This page provides estimates of weather-adjusted employment change in the United States for the past six months. The estimates are aggregated from county-level estimates of weather’s employment effects, which were derived from a county-level analysis of the short-run effects of unusual weather on employment growth.