FRBSF Economic Letters are brief summaries of SF Fed economic research that explain in reader-friendly terms what our work means for the people we serve. This section contains Economic Letters on monetary economics and macro-finance topics.
-
Fed Communications and Inflation Expectations
Michael Bauer, Wesley Wasserburger
Monetary policy surprises—changes in various interest rates around central bank communication events—reflect new information in monetary policy actions and communications. For the Federal Reserve, surprises around Federal Open Market Committee statements and post-meeting press conferences have, in recent years, often led to meaningful market surprises that capture policy news. Event-study analysis provides new market-based evidence of monetary policy transmission: Hawkish policy surprises lower market-based inflation expectations, while dovish surprises raise them, in line with standard monetary transmission. These effects are especially strong at longer horizons.
-
The AI Moment? Possibilities, Productivity, and Policy
Mary C. Daly
AI adoption and use are still evolving, and the technology itself is changing rapidly. What we know about AI and its impact on productivity growth and the economy remains uncertain. Transformations take time. We need to look for early indicators in the data and in business to get monetary policy right. The following is adapted from remarks by the president of the Federal Reserve Bank of San Francisco to the Silicon Valley Leadership Group and San Jose State University in San Jose, California, on February 17.
-
Is the PPPLF Still Encouraging Small Business Lending?
Lora Dufresne, Mark Spiegel
The Federal Reserve designed its Paycheck Protection Program Liquidity Facility to ease liquidity issues and support small business lending during the pandemic. The liquidity facility allowed banks to pledge Paycheck Protection Program loans as risk-free collateral during the beginning of the COVID-19 pandemic. Analysis shows that, although the program has essentially ended, the positive effects on small business lending have persisted, particularly among small banks with lower liquidity, in keeping with the intent of the program.
-
The Changing Sensitivity of Interest Rates to Oil Supply News
Wataru Miyamoto, Rami Najjar, Thuy Lan Nguyen, Dmitriy Sergeyev
A decrease in oil supply drives up oil prices, which can raise unemployment and inflation. To counter adverse effects on inflation, a central bank may choose to increase its policy rate, potentially reducing economic activity further. Changing interest rates can thus shape how unexpected oil price changes affect the economy. In recent years, interest rates have become more sensitive to unexpected oil supply news. However, market-based long-term U.S. inflation expectations did not shift significantly in response to oil supply news, suggesting that the public’s inflation expectations remain well anchored.
-
Modern Central Banking: Monetary Policy Implementation and Communication
Mary C. Daly
Central banks set policy to support the economy, provide liquidity, and promote financial stability. Modern central banking requires adaptation to current demands and a framework that fosters agility and readiness. Accordingly, central banks have used their balance sheets as policy tools over the past two decades. These tools demand clear communication to the public. The following is adapted from remarks presented by the president of the Federal Reserve Bank of San Francisco at the Institute of International and European Affairs in Dublin, Ireland, on November 13.
-
Market Reactions to Tariff Announcements
Rohit Garimella, Simon Kwan, Thomas Mertens
Financial markets repriced assets across a wide range of sectors following the U.S. trade policy announcement on April 2, 2025. Analysis suggests that market participants interpreted tariffs to have direct effects not only on companies in the sectors involved but also indirect effects on overall demand. Investors expected declines in corporate profits to be persistent both in the United States and abroad. The U.S. dollar depreciated against other safe-haven currencies, which points to investors reallocating their portfolios away from the United States and toward other markets.
-
The Zero Lower Bound Remains a Medium-Term Risk
Sophia Cho, Thomas Mertens, John Williams
Financial markets—specifically derivatives—contain information about the range of probable future short-term interest rates. The information from this statistical distribution can help measure the perceived risk of interest rates returning to the zero lower bound in the future. The risk varies over time, driven mainly by the expected level of interest rates. At longer forecast horizons, a higher risk of returning to the lower bound primarily reflects a higher amount of uncertainty. Currently, the perceived risk appears slim over the next few years but is significant at longer horizons.
-
Dynamic Central Bank Communication
Mary C. Daly
Central banks have a responsibility to share information in ways that improve the public’s understanding. This communication must be consistent enough that people can follow, and dynamic enough that it can adjust to the circumstances that are faced. Federal Reserve communications over the past 30 years have evolved to become significantly more transparent. The following is adapted from remarks presented by the president of the Federal Reserve Bank of San Francisco at the Western Economic Association International 100th Annual Conference in San Francisco on June 22.
-
Do Local Economic Conditions Influence FOMC Votes?
Anton Bobrov, Rupal Kamdar, Caroline Paulson, Aditi Poduri, Mauricio Ulate
Monetary policy in the United States is determined by the Federal Open Market Committee (FOMC), a decisionmaking body that includes regional representation. Evidence shows that the economic conditions in their respective regions have influenced how presidents of the 12 regional Federal Reserve Districts voted at the FOMC meetings in past decades. Specifically, a 1 percentage point higher unemployment rate in a District relative to the national average is associated with a 9 percentage point higher probability of dissenting in favor of looser policy during the FOMC vote.