Search Results
Journal Article
Why Has Monetary Policy Tightening Not Cooled the Labor Market Enough to Quell Inflation?
Despite a year of rapidly rising interest rates, labor markets remain tight, likely contributing to the persistence of inflation. We create industry-specific versions of the KC Fed’s Labor Market Conditions Indicators (LMCI) to examine labor market tightness in different sectors. We find that labor markets in the services sector—which have contributed substantially to recent labor market tightness and inflation—are less sensitive to changes in interest rates, increasing the lag for monetary policy transmission.
Working Paper
Spillovers at the Extremes: The Macroprudential Stance and Vulnerability to the Global Financial Cycle
Evidence suggests that macroprudential policy has small and insignificant effects on the volume of portfolio flows. We show, however, that these minor effects mask very different relationships across the global financial cycle. A tighter ex-ante macroprudential stance amplifies the impact of global risk shocks on bond and equity flows—increasing outflows by significantly more during risk-off episodes and increasing inflows significantly more during risk on episodes. These amplification effects are more prominent at the “extremes,” especially for extreme risk-off periods, and are larger ...
Working Paper
Unconventional Monetary Policy, (A)Synchronicity and the Yield Curve
This paper examines international spillovers from unconventional monetary policy between the United States, the euro area, the United Kingdom and Japan, and assesses the influence of asynchronous policy normalization on the slope of the yield curve. Using high frequency futures data to identify monetary policy surprises and controlling for contemporaneous news, I find that spillovers increase during periods of unconventional monetary policy and strengthen during asynchronous policy normalization. Local projections suggest persistent spillovers from the Federal Reserve, whereas other ...
Journal Article
Labor Market Cooling Has Been Uneven Across Industries
The U.S. labor market has cooled over the last two years but remains healthy overall. However, an industry-specific version of the KC Fed’s Labor Market Conditions Indicators (LMCI) suggests pockets of tightness and weakness have appeared in a few industries. Tightness appears to be limited to less labor-intensive industries, limiting upside risk to inflation. Weakness, on the other hand, has appeared in the interest-rate-sensitive information industry, which may be vulnerable to further labor market cooling.
Working Paper
How High Does High Frequency Need to Be? A Comparison of Daily and Intradaily Monetary Policy Surprises
This paper investigates the utility of daily data in measuring high-frequency monetary policy surprises, comparing various announcement-day asset price changes with their intradaily (30-minute) counterparts. We find that both frequencies are similarly distributed and often highly correlated, particularly for longer-horizon measures. Testing daily surprises for systematic contamination from non-monetary policy news, we find no evidence to suggest that contemporaneous news releases bias their measurement. Empirical applications, including high-frequency passthrough to Treasury yields and proxy ...
Journal Article
Unconventional Monetary Policy and International Interest Rate Spillovers
After the 2008 global financial crisis, advanced economies turned to unconventional monetary policies to provide additional monetary stimulus while short-term interest rates were constrained by their effective lower bound. However, the speed of economic recovery differed markedly among these economies, leading to differences in the timing and intensity of unconventional monetary policies across central banks. These differences may have generated “spillover effects” that undermined policy tightening in the United States after 2015.Karlye Dilts Stedman assesses whether monetary policies ...
Journal Article
The G-Spread Suggests Federal Reserve Restored Calm to Treasury Markets
In March, the coronavirus pandemic led to a sell-off in Treasury markets and a subsequent period of financial stress. I use one measure of Treasury market pressure, the G-spread, to gauge how liquidity in Treasury markets changed in response to the pandemic and the Federal Reserve’s interventions. I find that timely Federal Reserve interventions restored calm to the Treasury market, and that these interventions stand out in speed and scale compared with interventions in the early days of the 2007–08 financial crisis.
Working Paper
Risk-on/Risk-off: Measuring Shifts in Investor Sentiment
A new, high frequency measure of investor sentiment outperforms similar measures in forecasting investment activity in emerging markets.
Journal Article
When Normalizing Monetary Policy, the Order of Operations Matters
As economic conditions in the United States continue to improve, the FOMC may consider normalizing monetary policy. Whether the FOMC reduces the balance sheet before raising the federal funds rate (or vice versa) may affect the shape of the yield curve, with consequences for financial institutions. Drawing lessons from the previous normalization in 2015–19, we conclude that normalizing the balance sheet before raising the funds rate might forestall yield curve inversion and, in turn, support economic stability.
Journal Article
Are Firms Hoarding Cash Post-Pandemic
Cash holdings rose to record levels following the pandemic, raising concerns that firms are “hoarding” cash beyond what is needed for economic use. To investigate this claim, we examine the determinants of cash holdings at public firms pre- and post-pandemic. We find that despite significant structural changes in the economy, firms’ cash allocation incentives are mostly unchanged. Investment opportunities and profitability best explain the distribution of cash across firms today, followed by precautionary motives.