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.
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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…
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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…
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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…
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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…
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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,…
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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…
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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…
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A Rising Star: The Natural Interest Rate in the Euro Area
Jens H. E. Christensen, Sarah Mouabbi
The natural rate of interest, also known as r-star, is a key variable for analyzing fiscal and monetary policy. A novel method of measuring this rate for the euro area uses a yield curve model estimated directly on the prices of bonds that are indexed to euro-area inflation. Estimates suggest that the euro-area natural interest…
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Underlying Trends in the U.S. Neutral Interest Rate
Carlos Carvalho, Andrea Ferrero, Felipe Mazin, Fernanda Nechio
After a prolonged decline, U.S. inflation-adjusted interest rates have increased somewhat since the pandemic—possibly implying a higher new normal. As central banks attempt to tame the post-pandemic inflationary bout, whether real rates will fall back closer to pre-pandemic levels will ultimately depend on the trends in their long-term underlying determinants. Estimates suggest that the pre-pandemic…