Economic Bulletin Archive

Comparing Measures of Rental Prices Can Inform Monetary Policy

Shelter makes up one-third of the Consumer Price Index (CPI) and is important to understanding inflation developments. Comparing two measures of shelter prices—the official U.S. Bureau of Labor Statistics (BLS) dataset and the Zillow rental price index—shows that the Zillow series leads the BLS series by about six to 10 months. Changes in the Zillow series should eventually be reflected in the BLS data, so any positive gap between the two suggests that tighter monetary conditions may be needed to lower CPI inflation.

• Housing,
• Monetary Policy,
• Data and Trends,
• Economic Bulletin

Labor Constraints and Strong Demand Are Driving Robust Food Services Inflation

Although headline inflation has slowed in recent months, inflation for core services has remained elevated since the first half of 2021. Inflation for food services in particular has been significantly higher than inflation for goods and other services. We argue that food services inflation has been elevated by the sector’s fast rebound in expenditures and its high dependency on labor amid labor shortages and elevated labor costs.

• Labor and Demographics,
• Economic Bulletin,
• Inflation

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Post-Pandemic Labor Shortages Have Limited the Effect of Monetary Policy on the Labor Market

The labor market has so far shown remarkable resilience to the Federal Reserve’s recent monetary policy tightening. Severe labor shortages in the post-pandemic era have led many employers to hold on to workers and hire less-skilled workers—even though they expect demand for their goods or services to weaken in the future. As a result, unemployment remains low, and labor productivity has declined.

• Labor and Demographics,
• Monetary Policy,
• Economic Bulletin

Failure of Silicon Valley Bank Reduced Local Consumer Spending but Had Limited Effect on Aggregate Spending

The failure of Silicon Valley Bank (SVB) on March 10, 2023, raised concerns that deteriorating financial market conditions would reduce consumer spending. We use high-frequency data from California to examine whether the March banking stress influenced trends in consumer spending in counties more affected or less affected by the failure of SVB. We find that while spending declined in some counties heavily exposed to the SVB failure, aggregate consumer spending was not significantly affected.

• Macroeconomics,
• Banking and Finance,
• Economic Bulletin

To Reach the Fed’s Inflation Target, Interest Rates May Have to Remain Restrictive for Some Time

The Federal Reserve has raised the federal funds rate by 500 basis points since March 2022. But how tight is the current policy stance? We account for the federal funds rate, inflation expectations, and the natural rate of interest and find that monetary policy has only been restrictive since 2023:Q1. We find that to bring inflation down to 2 percent, the Federal Reserve may have to keep the federal funds rate in restrictive territory for some time.

• Monetary Policy,
• Economic Bulletin,
• Inflation

Financial Stress May Do Relatively Little to Reduce Inflation

Financial stress has risen in the wake of recent bank failures. At the same time, the Federal Reserve has been tightening the stance of monetary policy to reduce elevated inflation. While both banking stress and tighter monetary policy can slow economic activity, historical evidence suggests that financial stress may be less effective in reducing inflation.

• Banking and Finance,
• Economic Bulletin,
• Inflation

Corporate Profits Contributed a Lot to Inflation in 2021 but Little in 2022—A Pattern Seen in Past Economic Recoveries

Corporate profits rose quickly in 2021 along with inflation, raising concerns about corporations driving up prices to increase profits. Although corporate profits indeed contributed to inflation in 2021, their contribution fell in 2022. This pattern is not unusual: in previous economic recoveries, corporate profits were the main contributor to inflation in the first year and displaced by costs in the second year.

• Macroeconomics,
• Economic Bulletin,
• Inflation

Will High Underlying Inflation Persist?

Underlying inflation—the rate of inflation that prevails after temporary imbalances in the economy are resolved—can help policymakers gauge whether current high rates of inflation are likely to persist. Using survey-based inflation expectations, we show that if current inflation forecasts are realized, underlying inflation should decline toward 2 percent in 2024. However, if inflation continues to surprise to the upside, underlying inflation may remain elevated for some time.

• Monetary Policy,
• Economic Bulletin,
• Inflation

China’s Post-COVID Recovery: Implications and Risks

China removed most of its COVID-19 restrictions in November 2022 following a year of weak growth. Despite initial uncertainty about sustained COVID-19 outbreaks, the Chinese economy has begun to rebound, driven by domestic consumption. The rebound is likely to boost global growth.

• Covid-19 Research,
• International,
• Economic Bulletin