Edward Conard

Top Ten New York Times Bestselling Author

  • “…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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, January 17, 2024

AI Summary. The Federal Reserve runs an "ample reserves" framework, adjusting policy mainly through short-term interest rates while keeping bank reserves slightly above the level banks need. Although its balance sheet has shrunk, shifts among its non-reserve liabilities have left reserve levels little changed, and officials differ over how to interpret those shifts.

Joseph Wang Fed Guy Blog
Date Posted:

.@FedGuy12 writes that “The balance of evidence continues to suggest a late 2024 taper that could continue well into 2025.” He suggests that the taper is likely to start in Q4.

Has shrinking the central bank balance sheet actually reduced bank reserves?

Core argument: Bank reserves at the Federal Reserve stand near 2022 levels despite quantitative tightening, as reserves shift between the reverse repo facility and the Treasury General Account even while the overall balance sheet shrinks.

The Fed operates an “ample reserves” framework, but is not sure how to view non-reserve liabilities. Under the framework, the Fed primarily adjusts monetary policy through changes in short-term interest rates and provides the banking system with a bit more reserves than it actually needs. Reserves are just deposits commercial banks hold at the Fed. Although QT has been shrinking the overall size of the Fed’s balance sheet, the composition of the Fed’s liabilities is dynamic. Reserves can move into the RRP and into the TGA (and vice versa), so reserve levels today are around 2022 levels despite QT. Fed officials unanimously note that reserve levels are far above ample, but have diverged on how they view changes in the RRP. These differences have led to different potential QT timelines.

Takeaways by Macro Roundup® AI

  1. Bank reserves at the Federal Reserve stand near 2022 levels despite quantitative tightening, as reserves shift between the reverse repo facility and the Treasury General Account even while the overall balance sheet shrinks.
  2. The Fed's "ample reserves" framework adjusts monetary policy mainly through short-term interest rates while supplying the banking system slightly more reserves than it needs, leaving the treatment of non-reserve liabilities unsettled.
  3. Fed officials unanimously judge reserve levels to be far above ample but diverge on how to interpret changes in the reverse repo facility, producing different potential timelines for quantitative tightening.

Related Articles:

  • Is the Fed Preparing to Taper Its Bond Redemptions? — Federal Reserve officials aim both to shrink the central bank's bond holdings, especially mortgage bonds, on the view that portfolio size and composition affect how others price risky assets, and to reduce bank reserves to "ample" rather than "abundant" levels. Aggregate reserve estimates may overstate ampleness by ignoring concentration across institutions.

AI Summary. China's population fell for a second year, dropping by more than 2 million to 1.41 billion, according to the National Statistics Bureau. Births totaled 9.02 million, the lowest since the founding of the People's Republic of China in 1949, while deaths rose to 11.1 million, the highest since 1960.

Bloomberg Staff Bloomberg
Date Posted:

China’s population declined by 2.1mm in 2023, more than double the 2022 decline. China recorded just over 9mm births last year, the lowest since 1949.

Is China's population shrinking as births fall and deaths rise?

Core argument: China's population fell by more than 2 million to 1.41 billion in 2023, a second consecutive annual decline and more than double the drop in 2022, according to the National Statistics Bureau.

The number of people in the world’s second-largest economy fell for a second year by over 2 million to 1.41 billion in 2023, according to data released by the National Statistics Bureau on Wednesday. The drop more than doubled that in 2022, when the Chinese population shrank for the first time since 1961, the final year of the Great Famine under former leader Mao Zedong. A total of 9.02 million babies were born in 2023, the lowest since the founding of the People’s Republic of China in 1949. Deaths rose to 11.1 million, almost 700,000 more than the previous year and the highest since 1960. The bureau doesn’t break down deaths by cause, but Covid-related fatalities likely contributed to the rise after authorities abruptly ended strict pandemic curbs in December 2022 and led to an explosion of infections.

Takeaways by Macro Roundup® AI

  1. China's population fell by more than 2 million to 1.41 billion in 2023, a second consecutive annual decline and more than double the drop in 2022, according to the National Statistics Bureau.
  2. Births in China totaled 9.02 million in 2023, the lowest since the founding of the People's Republic of China in 1949, while deaths rose by almost 700,000 to 11.1 million, the highest since 1960.
  3. The National Statistics Bureau does not break down deaths by cause, though Covid-related fatalities likely contributed to the 2023 rise after authorities abruptly ended strict pandemic curbs in December 2022 and infections exploded.

Related Articles:

  • A Revolution Is Coming for China’s Families — Prolonged below-replacement fertility in China is projected to produce a "kin crash" in which rising generations have fewer living relatives than ever before in Chinese history. The authors argue this shrinking of extended family networks will erode the Chinese family's role in protecting people from adversity and helping them seize opportunity.
  • China’s Age Of Malaise — More than 300,000 Chinese people emigrated in a single year, more than double the pace of a decade earlier, with some traveling overland through a half-dozen countries to reach the US. US authorities at the southern border recorded 17,894 encounters with Chinese migrants over ten months, a thirteenfold increase from the prior year.
  • China’s Collapsing Birth and Marriage Rates Reflect a People’s Deep Pessimism — China recorded about 9.6m births, roughly half the 17.9m recorded six years earlier, and millions of young people have joined movements expressing alienation from work ("lying flat") and from Chinese society itself ("let it rot"). A viral video of a man telling pandemic enforcers "we are the last generation" spread the despairing hashtag #Lastgeneration.

AI Summary. China is expected to report hitting its roughly 5% growth target, but the author estimates actual growth was closer to 1.5%, citing a shrinking property sector, limited consumer spending, a falling trade surplus, and strained local government finances. A cyclical recovery to about 3.0–3.5% is projected as property bottoms out, with structural slowdown continuing.

Daniel Rosen, Logan Wright, Charlie Vest, and Rogan Quinn Rhodium Group
Date Posted:

Though China officially reported a 5.2% GDP growth in 2023, an analysis by @rhodium_group argues the growth rate was likely closer to 1.5%. They forecast a growth rate of 3-3.5% this year.

Is China's reported growth far above its actual growth?

Core argument: China's actual 2023 GDP growth was closer to 1.5%, well below the "around 5%" target Beijing will almost certainly claim to have hit.

Despite clear evidence that it was slowed down by unexpected economic headwinds this year, China will almost certainly claim to have hit its “around 5%” GDP growth target for 2023. The realities of a still-shrinking property sector, limited consumer spending, falling trade surplus, and battered local government finances mean that actual growth in 2023 was more like 1.5%. Looking ahead, China may see a cyclical recovery to perhaps 3.0-3.5% growth in 2024 as property bottoms out, although structural slowdown will naturally remain the dominant story for years to come.

Takeaways by Macro Roundup® AI

  1. China's actual 2023 GDP growth was closer to 1.5%, well below the "around 5%" target Beijing will almost certainly claim to have hit.
  2. A still-shrinking property sector, limited consumer spending, a falling trade surplus, and battered local government finances held back China's 2023 growth.
  3. China may see a cyclical recovery to roughly 3.0–3.5% growth in 2024 as property bottoms out, though structural slowdown is expected to remain the dominant story for years to come.

Related Articles:

  • What Will It Take for China’s GDP to Grow at 4–5 Percent Over the Next Decade? — China accounts for 18% of global GDP, 13% of global consumption, and 31% of global manufacturing. The author estimates that if China grew 4–5% annually for a decade while keeping manufacturing's role in its economy, its share of global manufacturing would reach 36–39%, requiring the rest of the world to let manufacturing's share of its output fall by 0.5–1.0pp.
  • The Global Constraints To Chinese Growth — China accounts for 18% of global GDP but 13% of global consumption and 32% of global investment, with each dollar of Chinese investment offset by only $1.3 of consumption versus $4.1 outside China. If China grew 4-5% annually for a decade while relying on investment, its share of global investment would rise to 37%.
  • Can China Reduce Its Internal Balances Without Renewed External Imbalances? — China's headline goods trade surplus is about 5% of its GDP, with the underlying surplus in manufactured goods close to 10% of GDP. The author argues that if China relies on interest rate cuts, exchange rate liberalization, and a weak yuan to offset its property downturn, its trade surplus could reach record levels relative to trading partners' output.

AI Summary. China's National Bureau of Statistics resumed publishing a youth jobless rate, reporting 14.9% unemployment among 16-to-24-year-olds under a revised method that excludes students. The bureau says the adjusted measure better reflects the employment status of young people seeking work after graduation.

Amanda Leeand and Orange Wang South China Morning Post
Date Posted:

China resumed publishing the jobless rate for the 16-24 cohort of 14.9% at the end of last year, adjusted to exclude students. This is down from 21.3% when it was last published in June. @SCMPNews

Does a revised youth unemployment measure clarify China's jobs picture?

Core argument: China's jobless rate for the 16–24 age group stood at 14.9% in December, according to the National Bureau of Statistics, which resumed publication of the youth unemployment figure on Wednesday.

China resumed the release of its youth jobless rate on Wednesday. The jobless rate for the 16 to 24 age group stood at 14.9% in December, according to the National Bureau of Statistics (NBS), who said the adjusted figure does not include students. “[The revised number] will more accurately reflect the employment and unemployment status of the youth who are in need of a job after graduation, and the whole picture of employment and unemployment of the youth from their graduation to stable work,” the NBS said.

Takeaways by Macro Roundup® AI

  1. China's jobless rate for the 16–24 age group stood at 14.9% in December, according to the National Bureau of Statistics, which resumed publication of the youth unemployment figure on Wednesday.
  2. The National Bureau of Statistics said its revised youth jobless measure excludes students, which it argues more accurately reflects the employment status of young people seeking work after graduation.

Related Articles:

  • China Stops Reporting Youth Unemployment as Economic Pressures Mount — China has said it will stop publishing youth unemployment data, which reached 21.3% and was omitted from a subsequent broader data release, alongside other data pointing to weakness in its economic recovery.
  • The Root of China’s Growing Youth Unemployment Crisis — China's government has long encouraged university enrollment, raising higher-education student numbers from 22m to 383m and expanding graduate-school capacity, with master's candidates up 25% in one year. The author argues that boosting graduate numbers while restricting the services sector and subsidizing construction is bad economics and worse social policy.
  • China Cannot Allow Jobless Young To ‘Lie Flat’ — China's job mix has shifted toward low-pay, low-skill, informal work at the expense of higher-paid, high-skill manufacturing and construction jobs, with the informal-to-formal ratio flipping from 40:60 to 60:40 over 15 years, according to a Stanford University estimate. Younger workers are over-represented in low-pay sectors and gig work.

AI Summary. After controlling for each industry's pre-pandemic productivity trend, there is essentially no statistically significant relationship between how easily an industry's work can be done remotely and its excess productivity growth during the pandemic.

John Fernald, Ethan Goode, Huiyu Li, and Brigid Meisenbacher Federal Reserve Bank of San Francisco
Date Posted:

John Fernald @sffed finds little evidence that the shift to remote/hybrid work associated with the pandemic has “either substantially held back or boosted the rate of productivity growth.”

Does remote work boost industry productivity growth?

Core argument: After subtracting each industry's average annualized productivity growth for 2006–2019 from its pandemic average, the relationship between teleworkability and excess pandemic productivity growth is essentially flat and not statistically significant.

To better isolate the association with the shift to remote work during the pandemic, Figure 3 controls for pre-pandemic trends by removing each industry’s average annualized productivity growth for 2006–2019 from its pandemic average. Hence, the vertical axis now captures the amount by which an industry’s pandemic productivity growth exceeded or fell short of its pre-pandemic pace. In Figure 3, the nearly flat blue line reflects that there is essentially no relationship between teleworkability and excess pandemic productivity growth. Although the association is still slightly positive, the relationship is much weaker than in Figure 2 and is not statistically significant.

Takeaways by Macro Roundup® AI

  1. After subtracting each industry's average annualized productivity growth for 2006–2019 from its pandemic average, the relationship between teleworkability and excess pandemic productivity growth is essentially flat and not statistically significant.
  2. The association between industry teleworkability and productivity growth remains slightly positive once pre-pandemic trends are controlled for, but is much weaker than in the uncontrolled comparison.

Related Articles:

  • Remote Work, Three Years Later — Remote work has reduced office utilization but not yet office occupancy, because most firms are locked into long-duration leases. Baseline estimates suggest remote work will exert 0.8 percentage points of upward pressure on the office vacancy rate near-term, 2.3 more over the following five years, and 1.8 thereafter.
  • Work From Home and the Office Real Estate Apocalypse — The authors estimate New York City office values fell 45% in 2020 and 39% in the longer run, a $453bn value destruction, with lower-quality buildings hit hardest as tenants shifted to higher-quality space. They argue this has implications for local public finances and financial sector stability.
  • The Geography of Working From Home Begins to Shift Again — Areas with the highest shares of people working from home are mostly central cities of metropolitan areas or places hosting large corporate headquarters, including Cupertino, California and Redmond, Washington, home to Apple and Microsoft. Working from home appears most popular in places close to concentrations of offices and other workplaces.

AI Summary. The implied expected annual return on US stocks is estimated at 8.48%, with an equity risk premium of 4.60%, based on current prices and forecast earnings. The author compares these figures with historical estimates of expected returns and risk premiums going back to 1960.

Aswath Damodaran Musings On Markets
Date Posted:

In 2023, American stocks accounted for $9.5T of $14T increase in global market capitalization. Going into 2024, the S&P 500 is priced to earn 8.5% and has an ERP of 4.6%. @AswathDamodaran

How do current expected stock returns compare with historical estimates?

Core argument: At the start of 2024, US stocks carried an expected annual return of 8.48% and an implied equity risk premium of 4.60%, following higher prices and a more upbeat earnings forecast as fear lifted.

At the start of 2024, the lifting of fear has led to higher prices, a more upbeat forecast of earnings and an expected return of 8.48%, and an equity risk premium of 4.60%. I do compute this expected return and the equity risk premium at the start of each month, and the last 24 months have been a roller coaster ride. To the question of whether 8.48% is a reasonable expectation for an annual return for US stocks, and 4.60% a sufficient equity risk premium, I looked at the historical estimates for these numbers going back to 1960.

Takeaways by Macro Roundup® AI

  1. At the start of 2024, US stocks carried an expected annual return of 8.48% and an implied equity risk premium of 4.60%, following higher prices and a more upbeat earnings forecast as fear lifted.
  2. Damodaran computes the expected return and equity risk premium at the start of each month, and describes the last 24 months of those estimates as a roller coaster ride.
  3. To assess whether an 8.48% expected return and a 4.60% equity risk premium are reasonable, Damodaran examines historical estimates of both measures going back to 1960.

Related Articles:

  • The Big Picture: Back to the Future — The secular backdrop has shifted from disinflationary to more inflationary, with interest rates no longer near zero and real rates no longer negative. Household balance sheets are as healthy as they have been in 20 years, leaving room to borrow, while the public sector is as indebted as it has ever been.
  • Macro Outlook 2024: The Hard Part Is Over — Goldman Sachs projects limited recession risk, holding a 15% US recession probability, and expects tailwinds to global growth including strong real household income growth, a smaller drag from monetary and fiscal tightening, recovering manufacturing, and central banks more willing to cut rates if growth slows. It projects core inflation falling to 2–2½%.
  • It’s Mostly a Paper Moon: Alternative Investments Review — Venture capital financing has tightened: the median time between funding rounds has lengthened, more startups have shut down through bankruptcy, and the share of "down rounds" — new financing at a lower valuation — rose from 8% to nearly 20%, with those rounds cutting post-money valuations by more than 50%.

AI Summary. An index of aggregated company revenue growth by region shows the US led not by growing fastest each year — it had the fastest regional growth in only 3 of the last 10 years — but through steady growth with roughly 20% lower volatility than Europe or Japan. Regressing relative equity returns on relative revenue growth showed no statistical significance.

Dan Rasmussen and Chris Satterthwaite Verdad
Date Posted:

American equity’s outperformance isn’t due to stronger American revenue growth. Looking at the US, Japan, and Europe, @verdadcap found that regressing relative equity returns against relative revenue growth had no statistical significance.

Does faster regional revenue growth explain higher equity returns?

Core argument: The US posted the fastest regional revenue growth in only 3 of the last 10 years, but sustained strong growth throughout the decade with about 20% lower volatility than Europe or Japan, according to an aggregated index of year-over-year revenue growth.

We aggregate the revenue of all companies in each region and create a daily updated index of year-over-year revenue growth. Our indexed revenue growth data shows that the US has won not necessarily by growing fastest every year (the US had the fastest regional growth in only 3 out of the last 10 years) but rather by having strong growth throughout the decade, with about 20% lower volatility than Europe or Japan. But what’s perhaps most interesting is that regressing relative equity returns against relative revenue growth had no statistical significance. The fastest-growing equity markets did not concurrently earn the highest equity returns within each year. To understand why, examine the chart below, which shows average revenue growth versus average equity returns by region by year.

Takeaways by Macro Roundup® AI

  1. The US posted the fastest regional revenue growth in only 3 of the last 10 years, but sustained strong growth throughout the decade with about 20% lower volatility than Europe or Japan, according to an aggregated index of year-over-year revenue growth.
  2. Regressing relative equity returns against relative revenue growth showed no statistical significance, and the fastest-growing equity markets did not concurrently earn the highest equity returns within each year.
  3. The index aggregates the revenue of all companies in each region into a daily updated measure of year-over-year revenue growth, compared against average equity returns by region by year.

Related Articles:

  • Driving with the Rear-View Mirror — Federal Reserve policymakers' median estimate of the equilibrium real policy rate is 0.5%; on that basis, repeating the past decade's equity returns over cash would require a real equity total return of 12.4%. With a dividend yield of 1.5%, the author argues that under even extreme earnings-growth scenarios valuations would have to exceed the Tech Bubble peak.
  • The Big Picture: Back to the Future — The secular backdrop has shifted from disinflationary to more inflationary, with interest rates no longer near zero and real rates no longer negative. Household balance sheets are as healthy as they have been in 20 years, leaving room to borrow, while the public sector is as indebted as it has ever been.
  • Macro Outlook 2024: The Hard Part Is Over — Goldman Sachs projects limited recession risk, holding a 15% US recession probability, and expects tailwinds to global growth including strong real household income growth, a smaller drag from monetary and fiscal tightening, recovering manufacturing, and central banks more willing to cut rates if growth slows. It projects core inflation falling to 2–2½%.

Thursday, January 18, 2024

AI Summary. Wages for most U.S. private-sector workers are rising slightly faster than 4.5% a year, even as job-market churn measures such as the quits rate and detrended job openings rate have returned to or fallen below pre-pandemic norms. That income growth coincides with nominal retail spending rising about 6–7% a year.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein writes that 6% annual nominal GDP growth and 4.5% wage growth are likely inconsistent with the Fed’s target of 2% inflation.

Is wage growth staying strong even as job-market churn normalizes?

Core argument: Wages for most U.S. private-sector workers are still rising slightly faster than 4.5% a year, a stability in nominal pay growth that contrasts with the normalization of job market churn measures that previously tracked wage pressures.

For most workers in the U.S. private sector, wages are still rising slightly faster than 4.5% a year. This remarkable stability in nominal pay growth stands in stark contrast to the ongoing normalization of measures of job market churn that had previously been good indicators of wage pressures. The share of workers quitting their jobs for better prospects elsewhere is now lower than on the eve of the pandemic, while the detrended job openings rate is in line with pre-pandemic norms. Yet wage growth remains several percentage points faster. Unsurprisingly, the sustained income growth has been translating into robust spending growth. As of now, retail spending is rising about 6-7% a year in nominal terms.

Takeaways by Macro Roundup® AI

  1. Wages for most U.S. private-sector workers are still rising slightly faster than 4.5% a year, a stability in nominal pay growth that contrasts with the normalization of job market churn measures that previously tracked wage pressures.
  2. The share of U.S. workers quitting for better prospects is now lower than just before the pandemic and the detrended job openings rate matches pre-pandemic norms, yet wage growth runs several percentage points faster.
  3. U.S. retail spending is rising about 6–7% a year in nominal terms, as sustained income growth translates into spending growth.

Related Articles:

  • The Big Picture: Back to the Future — The secular backdrop has shifted from disinflationary to more inflationary, with interest rates no longer near zero and real rates no longer negative. Household balance sheets are as healthy as they have been in 20 years, leaving room to borrow, while the public sector is as indebted as it has ever been.
  • Macro Outlook 2024: The Hard Part Is Over — Goldman Sachs projects limited recession risk, holding a 15% US recession probability, and expects tailwinds to global growth including strong real household income growth, a smaller drag from monetary and fiscal tightening, recovering manufacturing, and central banks more willing to cut rates if growth slows. It projects core inflation falling to 2–2½%.
  • Global Natural Rates in the Long Run: Postwar Macro Trends and the Market-Implied r* in 10 Advanced Economies — Estimates for 10 advanced economies show natural interest rates have declined over the long run, though not steadily: as recently as the 1990s they ranged from 100 to 600 basis points, while by the end of the sample 4 of 10 countries had a negative natural rate and most others fell between 0 and 50 basis points.

AI Summary. Global core inflation across the G10 excluding Japan plus early-hiking emerging markets is estimated at a 2.6% 1-month annualized rate, up from 1.2%, while the 3-month annualized rate fell to an estimated 2.0%. The authors expect disinflation to continue and project 5 rate cuts this year, fewer than the 6–7 priced by markets.

Jan Hatzius Goldman Sachs
Date Posted:

Noting softening US Core PCE and inflation expectations that are back at pre-pandemic levels, Jan Hatzius @GoldmanSachs argues the Fed will likely cut in March.

Will global disinflation continue despite a monthly uptick in core inflation?

Core argument: Global core inflation across the G10 ex Japan plus emerging-market early hikers is estimated to have accelerated to a 1-month annualized 2.6% in December from 1.2% in November, renewing concerns that 2023's disinflation will not last.

Global core inflation—averaged across the G10 ex Japan plus the EM early hikers—picked up to an estimated 1-month annualized rate of 2.6% in December from the rock-bottom 1.2% reading in November. This has triggered a renewed round of concerns that the disinflation of 2023 may not last, with some arguing that it was due to a one-off improvement in goods supply—and thus a one-off decline in the level of goods prices—alongside entrenched service inflation. We continue to take a more optimistic view. First, the trend is still improving, as the 3-month annualized rate fell further to an estimated 2.0% in December. Second, the adjustment in core goods prices is far from complete—for example, US used cars have only unwound 31% of their covid-related price increase. And third, we expect both service inflation and wage growth to continue slowing gradually in a lagged response to the improved supply/demand balance across the global economy. We expect “only” 5 cuts this year, below the 6-7 cuts now discounted in market pricing, and we view the chance of 50bp steps as low.

Takeaways by Macro Roundup® AI

  1. Global core inflation across the G10 ex Japan plus emerging-market early hikers is estimated to have accelerated to a 1-month annualized 2.6% in December from 1.2% in November, renewing concerns that 2023's disinflation will not last.
  2. The 3-month annualized global core inflation rate is estimated to have fallen further to 2.0% in December, and US used car prices have unwound only 31% of their covid-related increase, supporting the view that core goods adjustment is incomplete.
  3. Goldman Sachs expects 5 rate cuts this year, below the 6–7 cuts discounted in market pricing, views the chance of 50bp steps as low, and expects service inflation and wage growth to slow gradually.

Related Articles:

  • The Case For A Mistake — Because monetary policy affects inflation with long and variable lags, much recent tightening has yet to have its full effect, and the collapse in global credit creation points to weak money growth ahead. The author argues central banks over-tightened by reacting to incoming inflation rather than looking through a one-off pandemic price-level adjustment, shifting the risk toward undershooting inflation targets.
  • The Fed Prepares for Rate Cuts. But Why? — Consumer borrowing and bank lending showed signs of stabilizing or modest acceleration, which is not what one would expect if monetary policy were actually restrictive. Setting interest rates based on past inflation readings risks shifting policy from neutral to unnecessarily stimulative, since market-implied inflation expectations have not moved in over a year.
  • The Big Picture: Back to the Future — The secular backdrop has shifted from disinflationary to more inflationary, with interest rates no longer near zero and real rates no longer negative. Household balance sheets are as healthy as they have been in 20 years, leaving room to borrow, while the public sector is as indebted as it has ever been.

AI Summary. The authors estimate that the effects of monetary policy vary with the underlying level of inflation: when US inflation is below 5.5%, monetary policy has no meaningful effects on labor markets, while at inflation between 5.5% and 11% its effects on unemployment are sizable and longer-lasting.

Valeria Gargiulo, Christian Matthes, and Katerina Petrova Federal Reserve Bank of New York
Date Posted:

.@cmatthes_econ reviews data from 1970-2007 and finds when inflation is running < 5.5% per year, monetary policy has a short-lived impact on prices but no impact on labor markets, “consistent with the recent “soft landing” of the U.S. economy.”

Does the impact of monetary policy depend on the inflation level?

Core argument: When U.S. inflation is below 5.5% — the case for most of the post-WWII sample — the authors' model identifies no meaningful effects of monetary policy on labor markets, a result they say is consistent with the U.S. economy's recent "soft landing.".

We find that the effects of monetary policy vary substantially with the underlying level of inflation in the economy. For most of our post-WWII sample, inflation has been less than 5.5% in the U.S., which our model identifies as a period during which monetary policy has no meaningful effects on labor markets. Even though our sample ends in 2007 due to the availability of the instrument series used to identify the effects of monetary policy, our results are consistent with the recent “soft landing” of the U.S. economy. On the other hand, when inflation is between 5.5 and 11%, the effects of monetary policy are larger and longer-lasting, since variables are much more persistent in this regime, and the effects of monetary policy on unemployment are sizable and significant.

Takeaways by Macro Roundup® AI

  1. When U.S. inflation is below 5.5% — the case for most of the post-WWII sample — the authors' model identifies no meaningful effects of monetary policy on labor markets, a result they say is consistent with the U.S. economy's recent "soft landing.".
  2. When inflation runs between 5.5% and 11%, the authors find the effects of monetary policy larger and longer-lasting because variables are much more persistent in that regime, with sizable and significant effects on unemployment.
  3. The authors' sample ends in 2007 because of the availability of the instrument series used to identify the effects of monetary policy.

Related Articles:

  • In Search of Safe Havens: The Trust Deficit and Risk-free Investments! — Plotting US Treasury bond rates against a crude fundamental risk-free rate—actual inflation plus real GDP growth—undercuts the argument that central banks set interest rates. Central banks can nudge rates at the margin but cannot override the fundamentals of inflation and real growth.
  • 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.
  • Fiscal Influences on Inflation in OECD Countries, 2020-2022 — Across 21 economies, the authors find that headline and core inflation responded positively to a measure of government spending increases scaled by pre-pandemic debt-to-GDP and average debt duration. Estimated coefficients of 0.4–0.5 suggest 40–50% of the extra spending was financed through inflation, with the rest through conventional public finance.

AI Summary. Survey data show Gen Z'ers, particularly those born since 2000, are less likely than Boomers and Gen X'ers to support free speech rights for groups with controversial views. Among Silents, Boomers, and Gen X'ers, liberals were more supportive than conservatives of free speech for racists, a pattern that reverses among Millennials and Gen Z.

Jean Twenge Generation Tech
Date Posted:

Americans born after 2000 are less likely to support free speech than previous generations; this shift is more pronounced among liberals. @jean_twenge

Have younger liberals become less supportive of free speech than conservatives?

Core argument: Gen Z'ers, particularly those born since 2000, are less likely than Boomers and Gen X'ers to support free speech rights for three groups holding controversial views.

Gen Z’ers – particularly those born since 2000 – are less likely to support free speech rights for three groups with controversial views than Boomers and Gen X’ers. Support of free speech rights for all four viewpoints steadily increased from the Greatest Generation (born 1900-1924) to the Silent Generation (1925-1945) to the Boomers. It then fell for racists but continued an upward trajectory for communists and militarists. Among Silents, Boomers, and Gen X’ers, liberals -- not conservatives – were more likely to support free speech rights for racists. Then, beginning with Millennials and accelerating for Gen Z, the lines cross, with liberals becoming much less supportive of free speech rights for racists. Boomer and Silent liberals involved in the free speech movement at UC Berkeley in the 1960s fought for more free speech. Their Gen Z liberal grandchildren are fighting for less.

Takeaways by Macro Roundup® AI

  1. Gen Z'ers, particularly those born since 2000, are less likely than Boomers and Gen X'ers to support free speech rights for three groups holding controversial views.
  2. Support for free speech rights across all four viewpoints rose steadily from the Greatest Generation (born 1900–1924) to the Silent Generation (1925–1945) to the Boomers, then fell for racists while continuing to rise for communists and militarists.
  3. Among Silents, Boomers, and Gen X'ers, liberals rather than conservatives were more likely to back free speech rights for racists, but the lines cross beginning with Millennials, with Gen Z liberals much less supportive.

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