“…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
“There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
“…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
“Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
“…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
“…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
“…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
AI Summary.A study of more than 37,000 US banks from 1865 to 2023 finds that most bank failures follow a gradual, multi-year deterioration in solvency, as credit losses erode income and capital before a run or a supervisory closure. The authors reject runs on otherwise solvent banks as a plausible cause for at least 80% of failures before deposit insurance.
Sergio Correia, Stephan Luck, and Emil VernerFederal Reserve Bank of New York
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A study covering most US commercial banks from 1865 – 2023 finds that 80% of pre-FDIC bank failures resulted from “rising asset losses” and “deteriorating solvency,” not mere bank runs.
Do bank failures result from gradual solvency deterioration rather than runs?
Core argument: Drawing on more than 37,000 U.S. banks from 1865 to 2023, the authors reject bank runs as a plausible cause of failure for at least 80% of pre-FDIC failures, concluding runs on otherwise solvent banks were not a common cause.
This paper studies failing banks using data on more than 37,000 banks from the United States spanning 1865-2023. Our findings suggest that most bank failures are the result of a deterioration of a bank’s solvency - [which] is typically gradual and takes place over several years. The realization of credit risk reduces income and erodes capital buffers. The erosion of a bank’s profitability and capitalization ultimately results either in a bank run or a supervisory decision to close the bank, the former being more common in the historical data. Both depositors and supervisors seem to be slow to react to information about fundamentals, making bank failures highly predictable. [Though] our empirical approach does not allow us to identify the exact cause of failure, our evidence allows us to reject bank runs as a plausible cause of bank failure for a robust majority of at least 80% of pre-FDIC failures. Hence bank runs on otherwise solvent banks are not a plausible common cause of bank failures for most bank failures in the history of the U.S.
Takeaways by Macro Roundup® AI
Drawing on more than 37,000 U.S. banks from 1865 to 2023, the authors reject bank runs as a plausible cause of failure for at least 80% of pre-FDIC failures, concluding runs on otherwise solvent banks were not a common cause.
Most bank failures follow a gradual deterioration of solvency over several years, as the realization of credit risk reduces income and erodes capital buffers before a bank run or a supervisory closure.
Depositors and supervisors appear slow to react to information about bank fundamentals, making bank failures highly predictable, with runs more common than supervisory closures in the historical data.
Related Articles:
Deposit Insurance, Uninsured Depositors, and Liquidity Risk During Panics— Commercial banks located near a post office that accepted federally insured deposits were more likely to close during the Great Depression, and this effect weakened sharply after deposit insurance was extended to commercial banks. The authors interpret this as a competitive liquidity effect arising from incomplete insurance coverage.
The Puzzling Persistence of Financial Crisis— Financial crises are costly, with average declines of 5.5% of real GDP and median fiscal costs of 16% of real GDP to resolve distressed banks. The authors identify four categories of causal factors: politically motivated risk subsidies such as government support for housing credit, shifts in investor risk preferences, investor learning, and fraud.
Credit Allocation and Macroeconomic Fluctuations— Credit expansions disproportionately channel credit to non-tradable sector firms and households, and the authors find that the sectoral allocation of credit predicts future GDP paths and the likelihood of systemic banking crises. Credit growth to non-tradable industries predicts boom-bust output patterns and elevated financial fragility, while credit to tradable industries is associated with higher future productivity growth.
AI Summary.Bank and nonbank credit often move in opposite directions, and the authors find they predict downside growth risk differently: a one-standard-deviation increase in bank credit raises the probability of real GDP growth below -2% two years later by 2.5 percentage points against a 6% baseline, while the same increase in nonbank credit lowers it by 1.9 percentage points.
Nina Boyarchenko and Leonardo EliasFederal Reserve Bank of New York
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A @NewYorkFed analysis of 33 countries over 1966-2020 finds 1 s.d. higher growth rate in bank credit increases the probability of real GDP growth below -2% in two years’ time by 2.5 percentage points, while nonbank credit has the opposite effect.
Do bank and nonbank credit booms predict different downside growth risks?
Core argument: A 1 standard deviation increase in bank credit growth raises the probability of year-on-year real GDP growth below -2% two years later by 2.5 percentage points, against a 6% baseline probability in the authors' sample.
Credit extended by the banking and nonbanking sector[s] do not always move together. One type of lending is [often] expanding while the other is contracting, which suggests a substitution between bank and nonbank lending. Overall booms in private credit can be driven by either. We find that bank and nonbank credit expansions predict differentially the downside risk to growth—that is, the probability of extreme negative real GDP growth realizations. The blue line in the chart shows that the likelihood of an extreme negative real GDP growth realization —which we define as year-on-year real GDP growth below -2%— increases following expansions in bank credit for horizons of one to three years, while at the same horizon, growth in nonbank credit actually lowers the probability of a large drop in real GDP growth. In particular, a 1 s.d. Increase in bank credit increases the probability of real GDP growth below -2% in two years’ time by 2.5 ppts relative to a baseline 6% probability in our sample. In contrast, a 1 s.d. higher growth rate in nonbank credit lowers the probability of real GDP growth below -2% in two years’ time by 1.9 ppts.
Takeaways by Macro Roundup® AI
A 1 standard deviation increase in bank credit growth raises the probability of year-on-year real GDP growth below -2% two years later by 2.5 percentage points, against a 6% baseline probability in the authors' sample.
A 1 standard deviation higher nonbank credit growth lowers the probability of real GDP growth below -2% two years later by 1.9 percentage points, the opposite sign from bank credit expansions at horizons of one to three years.
Bank and nonbank credit do not always move together, with one often expanding while the other contracts, which the authors read as substitution between the two, and private credit booms can be driven by either.
Related Articles:
Corporate Debt, Boom-Bust Cycles, and Financial Crises— Using a dataset on sectoral credit exposure for 115 economies, the authors find corporate debt accounts for two-thirds of credit expansion before financial crises and three-quarters of nonperforming loans during busts, and that corporate debt expansions predict crises similarly to household debt. Recoveries are slower after corporate debt booms.
Credit Allocation and Macroeconomic Fluctuations— Credit expansions disproportionately channel credit to non-tradable sector firms and households, and the authors find that the sectoral allocation of credit predicts future GDP paths and the likelihood of systemic banking crises. Credit growth to non-tradable industries predicts boom-bust output patterns and elevated financial fragility, while credit to tradable industries is associated with higher future productivity growth.
Private Credit: Characteristics and Risks— Private credit loans are negotiated bilaterally outside traditional regulatory requirements and are illiquid because no secondary market exists, leaving investors expected to hold them to maturity or face steep losses if they need to exit. Scarce data on this growing form of nonbank lending makes assessing its risks difficult.
AI Summary.Commercial banks located near a post office that accepted federally insured deposits were more likely to close during the Great Depression, and this effect weakened sharply after deposit insurance was extended to commercial banks. The authors interpret this as a competitive liquidity effect arising from incomplete insurance coverage.
Matthew Jaremski and Steven Sprick SchusterNational Bureau of Economic Research
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Jaremski and Schuster document that before the establishment of the FDIC, deposits fled to the safety of local insured postal banks, illustrating that lack of universal deposit coverage amplifies run risk. @ssprickschuster
Does incomplete deposit insurance coverage make uninsured banks more likely to fail?
Core argument: Matching balance sheets from over 16,000 commercial banks before the Great Depression with post offices that accepted deposits, the authors find banks operating near a deposit-accepting post office were more likely to close between 1929 and 1935.
Before the Federal Deposit Insurance Corporation (FDIC) became active in 1934, the only federally insured deposit accounts available to American households were through the U.S. Postal Savings System. To examine the role that postal savings played on bank closure, we collect the balance sheets of over 16,000 commercial banks just before the start of the Great Depression and match them with information on which post offices accepted deposits. We find banks that operated nearby a post office that accepted deposits were more likely to close between 1929 and 1935. The effect of postal savings is severely weakened after deposit insurance was installed across commercial banks in 1934. This lends evidence to the theory that we are capturing a competitive liquidity effect due to the lack of universal coverage.
Takeaways by Macro Roundup® AI
Matching balance sheets from over 16,000 commercial banks before the Great Depression with post offices that accepted deposits, the authors find banks operating near a deposit-accepting post office were more likely to close between 1929 and 1935.
Before the FDIC became active in 1934, the U.S. Postal Savings System offered the only federally insured deposit accounts available to American households.
The effect of nearby postal savings on bank closure weakened substantially after deposit insurance was extended to commercial banks in 1934, which the authors read as evidence of a competitive liquidity effect stemming from the lack of universal coverage.
Related Articles:
The Evolution of Banking in the 21st Century: Evidence and Regulatory Implications— An examination of 25 years of US banking trends finds deposits—especially uninsured deposits—have grown rapidly while banks have shifted from information-intensive lending toward longer-term securities such as mortgage-backed securities and long-term Treasuries. The authors argue these trends favor strengthening liquidity regulation over expanding deposit insurance to reduce bank-run risk.
Ameridollars— Dollar deposits in U.S. banks are de facto fully protected by the U.S. government, but that protection does not extend to the trillions of dollar deposits held at foreign banks, which are supervised by home-country regulators that typically cannot insure dollar deposits. Even U.S. branches of foreign banks tend to lack federal deposit insurance.
In Today’s Banking Crisis, Echoes of the ’80s— Unrealized securities losses at recently failed banks reflect the risk of borrowing short and lending long, echoing thrifts that became insolvent as the Federal Reserve raised rates; between 1980 and 1994, 1,617 banks and 1,295 thrifts closed or received government assistance. Uninsured depositors fled fast enough to limit losses, illustrating market discipline.
AI Summary.Traditional bank balance sheet lending has declined as a share of credit intermediation, with credit increasingly channeled through arms-length transactions such as securitization. A structural model attributes falling lending shares to lower securitization costs, savers' behavior driving bank balance sheet size, and implicit bank costs and subsidies shaping balance sheet composition.
Greg Buchak, Gregor Matvos, Tomasz Piskorski and Amit SeruNational Bureau of Economic Research
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Bank balance sheet lending has declined from 60% of total private lending in 1970 to 35% in 2023. Private credit is increasingly intermediated through arms-length transactions such as securitization. @NBERpubs
Why has bank balance sheet lending declined as a share of credit?
Core argument: Traditional bank-led credit intermediation has declined sharply since the 1970s, with private credit increasingly intermediated through arms-length transactions such as securitization.
The role of traditional bank-led intermediation has declined sharply since the 1970s. Private credit is increasingly intermediated through arms-length transactions such as securitization. A structural model explores what can explain these shifts [and simulates] implications for macroprudential policies. Declines in securitization cost account for changes in aggregate lending quantities. Savers, rather than borrowers, are the main drivers of bank balance sheet size. Implicit banks’ costs and subsidies explain shifting bank balance sheet composition. Together, these forces explain the fall in the overall share of informationally sensitive bank lending in credit intermediation. Raising capital or liquidity requirements decreases lending in both early (1960s) and recent (2020’s) scenarios, but the effect is less pronounced in the latter. The substitution of bank balance sheet loans with debt securities in response to these policies explains why we observe only a fairly modest decline in aggregate lending despite a large contraction of bank balance sheet lending.
Takeaways by Macro Roundup® AI
Traditional bank-led credit intermediation has declined sharply since the 1970s, with private credit increasingly intermediated through arms-length transactions such as securitization.
A structural model attributes changes in aggregate lending quantities to declines in securitization costs, bank balance sheet size mainly to savers rather than borrowers, and shifting balance sheet composition to implicit bank costs and subsidies.
Raising capital or liquidity requirements decreases lending in both 1960s and 2020s scenarios, though less markedly in the latter, as substitution of bank balance sheet loans with debt securities limits the decline in aggregate lending.
Related Articles:
The Evolution of Banking in the 21st Century: Evidence and Regulatory Implications— An examination of 25 years of US banking trends finds deposits—especially uninsured deposits—have grown rapidly while banks have shifted from information-intensive lending toward longer-term securities such as mortgage-backed securities and long-term Treasuries. The authors argue these trends favor strengthening liquidity regulation over expanding deposit insurance to reduce bank-run risk.
Fiscal Dominance and the Return of Zero-Interest Bank Reserve Requirements— Fiscal dominance requires governments to fund deficits at the margin with non-interest-bearing debt, and the revenue from inflation taxation—both expected and unexpected—is limited. The authors argue a US fiscal dominance episode could end the payment of interest on bank reserves and restore requirements that banks hold large zero-interest reserves against deposits.
AI Summary.An examination of 25 years of US banking trends finds deposits—especially uninsured deposits—have grown rapidly while banks have shifted from information-intensive lending toward longer-term securities such as mortgage-backed securities and long-term Treasuries. The authors argue these trends favor strengthening liquidity regulation over expanding deposit insurance to reduce bank-run risk.
Samuel Hanson, Victoria Ivanshina, Laura Nicolae, Jeremy Stein, Adi Sunderam and Daniel TarulloBrookings Papers On Economic Activity
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Deposits – especially uninsured deposits that create run risk – have risen sharply, while banks with the most rapid growth in deposits have shifted assets away from lending towards longer-term MBS and Treasuries. @lauramnicolae
Should regulators strengthen liquidity rules rather than expand deposit insurance?
Core argument: Bank deposits, especially uninsured deposits, have grown rapidly on the liability side of bank balance sheets over the last twenty-five years, according to an examination of banking industry trends.
To inform the ongoing discussion of the appropriate regulatory response to [such events as] the failures of three regional banks 2023, we examine trends in the banking industry over the last twenty-five years. On the liability side of bank balance sheets, deposits—and especially uninsured deposits—have grown rapidly. On the asset side, there has been a notable shift away from the information-intensive lending traditionally associated with banks and towards longer-term securities such as MBS and long-term Treasuries. We assess the main regulatory options to reduce the risk of destabilizing bank runs—expanding deposit insurance and strengthening liquidity regulation— and argue that the industry trends we document favor the latter option. Regulators may be more comfortable tightening liquidity requirements on uninsured deposits, insofar as the substantial increase in those deposits in recent decades has not been correlated with an increase in information-intensive lending.
Takeaways by Macro Roundup® AI
Bank deposits, especially uninsured deposits, have grown rapidly on the liability side of bank balance sheets over the last twenty-five years, according to an examination of banking industry trends.
On the asset side, banks have shifted away from the information-intensive lending traditionally associated with them and toward longer-term securities such as mortgage-backed securities and long-term Treasuries.
Documented industry trends favor strengthening liquidity regulation over expanding deposit insurance to reduce the risk of destabilizing bank runs, since the increase in uninsured deposits has not been correlated with an increase in information-intensive lending.
Related Articles:
All Clear— Data and commentary indicate the banking panic has ended and had only a limited effect on credit availability, with overall bank lending little changed and still growing, reflecting problems at a few poorly managed banks rather than a systemic crisis. Recognition that the banking sector is not collapsing has already prompted some repricing of expected interest rate cuts.
Frankenstein’s Monster— Unrealized losses on bank balance sheets are consistent with a rising interest rate cycle and become a problem only when large deposit outflows force those losses to be realized. Lending rules allowing banks to borrow against securities at book value help, but do not address underwater loans or deposits leaving for higher money market yields.
In Today’s Banking Crisis, Echoes of the ’80s— Unrealized securities losses at recently failed banks reflect the risk of borrowing short and lending long, echoing thrifts that became insolvent as the Federal Reserve raised rates; between 1980 and 1994, 1,617 banks and 1,295 thrifts closed or received government assistance. Uninsured depositors fled fast enough to limit losses, illustrating market discipline.
AI Summary.The Swiss National Bank has begun the developed-market rate-cutting cycle with other central banks expected to follow, while fiscal policy remains loose and longer-dated yields stable. With steady growth, low unemployment, and central banks no longer restraining markets, the backdrop remains benign for risk assets and speculative psychology appears to be taking hold.
Joseph WangFed Guy Blog
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As the global rate-cutting cycle gets underway in advanced economies @FedGuy12 expects risk assets to appreciate.
Does synchronized central bank easing create a benign backdrop for risk assets?
Core argument: The Swiss National Bank began the developed-market easing cycle with a surprise rate cut, with other central banks close behind.
The Swiss National Bank kicked off the developed market central bank cutting cycle with a surprise cut this week, but everyone else is right behind them. The macro backdrop remains benign for risk assets, where speculative psychology appears to be taking hold. Fiscal policy remains loose as the popular culture continues to demand more fiscal spending. Longer-dated yields appear to be stable, potentially responding to an imminent QT tapering. Economic growth remains steady, unemployment remains low, and most importantly the central banks are no longer standing in the way. While the declines in 2008 and 2020 understandably loom large in the memory of many speculators, that is not the only possible path for an upward price trend. There are also periods like the 1990s and 1920s where the market can rise longer and higher than anyone ever imagined.
Takeaways by Macro Roundup® AI
The Swiss National Bank began the developed-market easing cycle with a surprise rate cut, with other central banks close behind.
The macro backdrop remains benign for risk assets, with steady economic growth, low unemployment, loose fiscal policy, and central banks no longer standing in the way.
Longer-dated yields appear stable, potentially responding to an imminent tapering of quantitative tightening, while speculative psychology appears to be taking hold in risk assets.
Related Articles:
The Fed and the Secular Decline in Interest Rates— The authors find that the long-run decline in US Treasury yields since 1980 is fully accounted for by movements in a narrow window around Federal Reserve policy meetings, while yield changes outside that window prove transitory. They suggest the Federal Reserve conveys information to markets about the long-run level of interest rates.
The Fed’s Growth Optimism Puts a Floor Under Rates— Federal Reserve officials have marked up growth projections, with output growing 3.1% versus the 1% previously projected, and now expect short-term interest rates to fall by only 1.5pp after peaking rather than the 2.25pp once anticipated. Rising asset prices and the resilience of rate-sensitive sectors such as housing help explain upward revisions to "neutral" rate estimates.
Has the U.S. Economy Transitioned to a Higher Long-Run Real Interest Rate Regime?— Labor productivity growth in the U.S. nonfarm business sector has exceeded its longer-run average in three of the past five years, suggesting a possible shift to a faster productivity growth regime. Such a shift is one possible explanation for a long-run neutral real interest rate above 2%.
AI Summary.Banks' Treasury holdings have fallen as a share of assets to historically low levels, with banks preferring loans, higher-yielding securities, reserves, and agency mortgage-backed securities to meet liquidity requirements. Revising bank capital rules to revamp the leverage calculation could boost market liquidity and make banks significant Treasury buyers.
Joseph WangFed Guy Blog
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.@FedGuy12 endorses a proposed adjustment to the Basel III leverage calculations that would increase demand for Treasuries from US banks as future issuances surge.
Would changing bank capital rules turn banks into major Treasury buyers?
Core argument: Banks' Treasury holdings as a share of bank assets remain historically low, having been steadily reduced from World War II levels even as Treasury issuance climbed.
Banks were huge investors in Treasuries during World War II, but steadily reduced their holdings even as Treasury issuance climbed. The share of bank assets in Treasuries remains historically low as banks have preferred to make loans or invest in higher yielding securities. While banks are required to hold high quality liquid assets, they have chosen to meet those requirements with reserves and Agency MBS rather than Treasuries. A revision to Basel in the form of a revamped leverage calculation would not only boost liquidity across markets, but also potentially make banks significant investors in Treasuries just in time to meet increased future issuance.
Takeaways by Macro Roundup® AI
Banks' Treasury holdings as a share of bank assets remain historically low, having been steadily reduced from World War II levels even as Treasury issuance climbed.
Banks have preferred making loans or buying higher yielding securities over Treasuries, and have satisfied their high quality liquid asset requirements with reserves and Agency mortgage-backed securities instead.
A revamped leverage calculation under a Basel revision could boost liquidity across markets and potentially make banks significant investors in Treasuries in time to meet increased future issuance.
Related Articles:
Fiscal Dominance and the Return of Zero-Interest Bank Reserve Requirements— Fiscal dominance requires governments to fund deficits at the margin with non-interest-bearing debt, and the revenue from inflation taxation—both expected and unexpected—is limited. The authors argue a US fiscal dominance episode could end the payment of interest on bank reserves and restore requirements that banks hold large zero-interest reserves against deposits.
Living with High Public Debt— High public debt ratios are likely to persist because large sustained primary budget surpluses are politically unrealistic, real interest rates are already very low, faster global growth is hard to engineer, inflation is not a sustainable route to reducing debt, and financial repression is less feasible amid liberalized markets.
In 2023 Foreign Demand for Long Term Treasuries Exceed Net Issuances— Foreign demand for long-term US Treasuries, at just over $450bn, exceeded the Treasury's net long-term issuance of just over $400bn, with that demand not coming from China. Net long-term issuance lagged the fiscal deficit—roughly 1.5% of GDP versus 6%—leaving the increase in the stock of long-term "safe" US assets modest.
AI Summary.Surprise monetary tightening is associated with significant, persistent tightening in financial conditions: a 0.1 percentage point policy surprise raises the Goldman Sachs financial conditions index by about 0.07 index points on the announcement day, with further increases over the following two weeks. Macroeconomic news, especially inflation releases, also moves financial conditions by shifting expectations about future policy.
Michael Bauer and Zoë ArnautFederal Reserve Bank of San Francisco
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New @sffed @michaelbauer_hh research suggests monetary policy is a key driver of financial conditions: a policy surprise of 0.1pp drove an increase of 0.07 index points in the Goldman Sachs Financial conditions index.
Do surprise interest rate changes tighten financial conditions persistently?
Core argument: A monetary policy surprise of 0.1 percentage point raises the Goldman Sachs Financial Conditions Index by about 0.07 index points on the day of the announcement, with further increases over the following two weeks.
Monetary policy has significant direct effects on financial conditions, as evident from the response to monetary policy surprises. [For example] a surprise monetary tightening leads to significant and persistent tightening in financial conditions. The size of the impact is moderately large: a policy surprise of 0.1 percentage point leads to an increase in the Goldman Sachs FCI by about 0.07 index points on the day of the announcement and further increases over the following two weeks. In addition, monetary policy also has indirect effects: Macroeconomic news affects financial conditions in part by shifting perceptions about the likely course of future policy. Financial market participants appear to be especially attuned to recent inflation data releases, which has led to unusually strong responses in financial conditions.
Takeaways by Macro Roundup® AI
A monetary policy surprise of 0.1 percentage point raises the Goldman Sachs Financial Conditions Index by about 0.07 index points on the day of the announcement, with further increases over the following two weeks.
Surprise monetary tightening leads to significant and persistent tightening in financial conditions, evidence of monetary policy's direct effects on those conditions.
Monetary policy also works indirectly, as macroeconomic news shifts perceptions of the likely course of future policy, and financial market participants appear especially attuned to recent inflation data releases, which has led to unusually strong responses in financial conditions.
Related Articles:
A Status Check on Bank Lending and Bank Balance Sheets— Nominal bank lending growth has slowed from 10% to 2% on a three-month annualized basis, which the authors attribute to deposit outflows and higher deposit rates alongside recession fears, noting that banks building larger loan-loss provisions slowed lending more. The authors expect the growth drag from tighter lending standards to fade.
Transitory Disinflation— Recent disinflation likely reflected both improved supply and weaker demand, but supply improvements are largely complete and an anticipated Federal Reserve pivot could revive demand at home and abroad. A weaker dollar eases global financial conditions and is typically associated with higher commodity prices, putting upward pressure on inflation.
How Fast Can the Fed Ease? The Private Sector Response to Easier Conditions Will Be a Key Factor— US households have reduced debt over the past 20 years, leaving room to borrow more if incentives improve, while companies that issued debt at low rates hold large liquidity and healthy balance sheets. That gives businesses capacity to raise investment, and business surveys indicate capital-spending sentiment is already improving.
