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China in the global economy. SF Fed President John Williams talks with Zheng Liu, Mark Spiegel, and Fernanda Nechio of the international research team about China's economic slowdown and how it's affecting global economic activity
In the 2015 annual report, What We've Learned...and why it matters, we share our research findings about the slowdown in China's economic growth and its effects on the U.S. economy, emerging market economies, and global commodity markets. Cyclical and structural factors underlie the slowdown. We discuss the impact of trends in exports and investment, and the country's transformation from a manufacturing-based economy to a service-based economy. We believe China's days of 10 percent economic growth likely are over.
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
Have long-term inflation expectations declined?
Based on surveys of professional forecasters, expectations for price inflation 5 to 10 years ahead have edged down over the past few years. This decline seems to be primarily driven by revised expectations from forecasters who overestimated inflation in the aftermath of the Great Recession. Currently, the median survey-based expectation for long-term inflation is close to its pre-recession level and appears well anchored at the Fed?s 2% longer-run inflation objective.
Journal Article
How Much Do We Spend on Imports?
When U.S. shoppers buy something imported, are they also paying for local inputs? How much of what is ?Made in the U.S.A.? actually is? These questions require accounting for both the U.S. components in the price of imported goods and the use of imported inputs in U.S. production. Estimates show that nearly half of spending on imports stays in the United States, paying for the local components of these goods. Over 10 cents of every dollar U.S. consumers spend reflects the cost of imports at various stages of production.
Journal Article
Demographic Transition and Low U.S. Interest Rates
Interest rates have been trending down for more than two decades. One possible explanation is the dramatic worldwide demographic transition, with people living longer and population growth rates declining. This demographic transition in the United States?particularly the steady increase in life expectancy?put significant downward pressure on interest rates between 1990 and 2016. Because demographic movements tend to be long-lasting, their ongoing effects could keep interest rates near the lower bound longer. This has the potential to limit the scope for central banks to respond to future ...
Journal Article
Inflation: Stress-Testing the Phillips Curve
The well-known Phillips curve describes inflation as a persistent process that depends on public expectations of future inflation and economic slack, a measure of how stretched the economy?s resources are. The role of each component has changed over time. In particular, maintaining the public?s expectations that the Federal Reserve is committed to an inflation target of 2% has grown in importance over the slack component, in part because realigning expectations is costly to undo. Such considerations are important as the Federal Reserve evaluates its future policy options.
Journal Article
Inflationary Effects of Trade Disputes with China
Imports from China are an important part of overall U.S. imports of consumer and investment goods. Thus, tariffs on these imports are likely to have sizable effects on consumer, producer, and investment prices in this country. Tariffs implemented thus far may have contributed an estimated 0.1 percentage point to consumer price inflation and 0.4 percentage point to price inflation for business investment goods. If implemented, an across-the-board 25% tariff on all Chinese imports would raise consumer prices an additional 0.3 percentage point and investment prices an additional 1.0 percentage ...
Journal Article
Household expectations and monetary policy
Helping the public understand how monetary policy is conducted is an important goal for the Federal Reserve. One way to measure people?s understanding is through surveys that show household expectations for the economy. Responses from the Michigan survey show some groups of households appear to hold beliefs consistent with basic features of U.S. policy. In particular, households with higher incomes and more education appear to better grasp how interest rates relate to inflation and unemployment, particularly during times of labor market weakness.
Journal Article
Interpreting deviations from Okun’s Law
The traditional relationship between unemployment and output growth known as Okun?s law appeared to break down during the Great Recession. This raised the question of whether this rule of thumb was still meaningful as a forecasting tool. However, recent revisions to GDP data show that its relation with unemployment followed a fairly typical cyclical pattern compared with past deep recessions and slow recoveries. The comparatively common patterns suggest that rumors of the death of Okun?s law during the Great Recession were greatly exaggerated.