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.
-
Do Low Survey Response Rates Threaten Data Dependence?
Sylvain Leduc, Luiz Edgard Oliveira, Caroline Paulson
Monetary policy is forward-looking and dependent on policymakers’ economic outlook. When the outlook is deemed highly uncertain, policymakers may put more weight on incoming data when making monetary policy considerations. However, falling survey response rates suggest employment and inflation data may have become less reliable. Analysis of payroll employment and consumer price inflation data shows…
-
Current Perceptions About Monetary Policy
Michael Bauer, Carolin Pflueger, Adi Sunderam
Surveys of professional economic forecasters and financial market data can reveal public perceptions about the future conduct of monetary policy. Current estimates suggest that both professional forecasters and investors expect the Federal Reserve to respond strongly and systematically to changes in economic conditions. The current perceived responsiveness to inflation is particularly high relative to past…
-
Ben Bernanke: Solving a Crisis, Changing the Fed
Mary C. Daly
Ben Bernanke’s contributions to economic thinking have been vast, from his extensive study of the Great Depression to groundbreaking research on the interplay of finance and the macroeconomy and the usefulness of unconventional monetary policy tools. His research helped guide his tenure as Federal Reserve Chair and his role in putting the U.S. economy on…
-
Pandemic-Era Demand Squeezed Housing Inventories
Valeska Fresquet Kohan, John Mondragon, Adam Shapiro
The housing market experienced historically low levels of inventory along with rapid price growth in the two years following the onset of the pandemic. Analysis of national and county-level housing data suggests this price surge was fueled by heightened demand rather than low supply. The inflow of new listings remained at pre-pandemic levels, but the…
-
Examining the Performance of FOMC Inflation Forecasts
Hamza Abdelrahman, Luiz Edgard Oliveira, Kevin J. Lansing
Calendar-year inflation forecasts from Federal Open Market Committee meeting participants typically start near 2% and then are revised in response to incoming data. Before the pandemic when actual inflation was mostly below 2%, participants consistently lowered their forecasts over time. From 2021 onward when inflation surged to 40-year highs, participants consistently raised their forecasts over…
-
Pandemic-Era Liquid Wealth Is Running Dry
Hamza Abdelrahman, Luiz Edgard Oliveira, Adam Shapiro
Households accumulated more liquid assets beginning in 2020 than would have been expected without the pandemic. These “extra” liquid assets have dissipated, but their evolution has differed significantly by income group. While middle- and lower-income households hold substantially less liquid wealth than implied by pre-pandemic projections, the level for higher-income households remains close to its…
-
Bank Franchise as a Stabilizing Force
Simon H. Kwan, Zinnia Martinez
The banking shock of 2023 stemmed from banks’ exposure to interest rate risk by gathering short-term funds to invest in long-term assets. When interest rates rose rapidly during the monetary tightening cycle, banks incurred significant capital losses on their long-term assets, some of which were unrealized on their financial statements. However, bank franchise value—the present…
-
Anatomy of the Post-Pandemic Monetary Tightening Cycle
Andrew Foerster, Zinnia Martinez
The Federal Reserve tightened monetary policy rapidly between 2021 and 2023. In addition, a weekly proxy federal funds rate shows that markets perceived the policy stance as tightening significantly even in weeks without explicit policy changes. The proxy rate uses financial market data to infer the broad stance of monetary policy as determined by funds…
-
Why Are Overall Profits Outpacing Financing Costs?
Anton Bobrov, Carter Davis, Alexandre Sollaci, James Traina
Since the 1980s, decreasing interest rates have reduced the cost of financing for publicly traded corporations, which in turn has lowered their cost of capital by more than a third. Data show that their profits have likewise declined. At the same time, however, economy-wide corporate profits have increased substantially. Combining these data indicates that the…
-
Economic Effects of Tighter Lending by Banks
Vasco Cúrdia
Banks tightened the criteria used to approve loans over the past year. Analysis shows that their tighter lending standards can be partially explained by economic conditions that reduce demand for loans and increase their potential risk, such as policy rate increases and a slowing economy. The unexplained part may reflect a restrained credit supply, specifically…