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Journal Article
Tracking Labor Market Stress
State-level unemployment claims can provide a real-time measure of national labor market conditions and the overall state of the economy. A rapid and widespread buildup of stress in state labor markets usually signals the start of a recession. In mid-2024, some widely followed indicators of recession risk flashed red. However, analysis of state-level data indicates that labor market declines were not as widespread as they had been in previous recessions. Applying this analysis to the latest data suggests that the labor market has remained stable through mid-2025.
Journal Article
The Economic Effects of Tariffs
The United States announced new, higher tariff rates this year. Tariffs can affect supply chains, investment, and firms’ input costs, resulting in supply-side effects such as higher inflation and higher unemployment. However, tariffs can also affect spending, the demand side of the economy. Weaker demand translates to higher unemployment but lower inflation. Estimates using 40 years of international data show that, following a change in tariffs, initially the unemployment rate increases and inflation declines. Over time, however, the unemployment rate returns to normal levels while ...
Journal Article
The Effects of Tariffs on the Components of Inflation
Tariffs are usually applied to imported goods—but in an interconnected economy, their effects can be felt in the prices of other goods and services. Estimates using data across multiple advanced economies show that inflation declines right after tariffs are imposed. This initial decline reflects decreased demand, visible in declining prices for energy such as oil, a primary commodity typically exempt from tariffs. After the initial tariff shock, inflation gradually picks up, driven first by goods and later by services, one of the more persistent categories of inflation.
Journal Article
Diagnosing recessions
The beginnings and ends of recessions are officially dated about 12 months after the fact. A common rule of thumb declares recessions as two quarters of consecutive negative GDP growth, but this is very inaccurate. A better option is to apply medical diagnostic evaluation methods to the business conditions indexes of the Chicago and Philadelphia Federal Reserve Banks, which suggests the recent recession ended sometime between June and August 2009.
Journal Article
Will the jobless rate drop take a break?
In January, the U.S. Bureau of Labor Statistics significantly reduced its projections for medium-term labor force participation. The revision implies that recent participation declines have largely been due to long-term trends rather than business-cycle effects. However, as the economy recovers, some discouraged workers may return to the labor force, boosting participation beyond the Bureau?s forecast. Given current job creation rates, if workers who want a job but are not actively looking join the labor force, the unemployment rate could stop falling in the short term.>
Journal Article
Future recession risks: an update
In 2010, statistical experiments based on components of the Conference Board?s Leading Economic Index showed a significant possibility of a U.S. recession over a 24-month period. Since then, the European sovereign debt crisis has aggravated international threats to the U.S. economy. Moreover, the Japanese earthquake and tsunami demonstrated that the U.S. economy is vulnerable to outside disruptions. Updated forecasts suggest that the probability of a U.S. recession has remained elevated and may have increased over the past year, in part because of foreign financial and economic crises.
Journal Article
Monetary Policy Medicine: Large Effects from Small Doses?
If inflation increases rapidly, how do we know that higher interest rates will bring prices under control? And how do we know how much of the monetary ?medicine? to administer? Economics relies primarily on observational data to answer such questions, while medical research uses randomized controlled trials to evaluate treatments. Applying that method to economics, the long history of international finance turns out to be an excellent laboratory to conduct monetary experiments. These experiments suggest that interest rates have sizable effects on the economy.
Journal Article
Private credit and public debt in financial crises
Recovery from a recession triggered by a financial crisis is greatly influenced by the government?s fiscal position. A financial crisis puts considerable stress on the government?s budget, sometimes triggering attacks on public debt. Historical analysis shows that a private credit boom raises the odds of a financial crisis. Entering such a crisis with a swollen public debt may limit the government?s ability to respond and can result in a considerably slower recovery.
Journal Article
Monetary policy when the spyglass is smudged
An accurate measure of economic slack is key to properly calibrating monetary policy. Two traditional gauges of slack have become harder to interpret since the Great Recession: the gap between output and its potential level, and the deviation of the unemployment rate from its natural rate. As a consequence, conventional policy rules based on these measures of slack generate wide-ranging policy rate recommendations. This variability highlights one of the challenges policymakers currently face.
Journal Article
Riders on the Storm
A country?s interest rate often reflects more than just the policy stance of its central bank. Movements in the global neutral rate of interest and the domestic neutral rate also play a significant role. Estimates from international models for Japan, Germany, the United Kingdom, and the United States show that central bank policy explains less than half of the variation in interest rates. The rest of the time, the central bank is catching up to trends dictated by productivity growth, demographics, and other factors outside of its control.