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Speech
Remarks on the Economic Outlook and Monetary Policy
St. Louis Fed President Alberto Musalem shared his views on the U.S. economy and monetary policy at the 41st annual National Association for Business Economics (NABE) Economic Policy Conference in Washington, D.C. He gave a speech, “Remarks on the Economic Outlook and Monetary Policy,” and participated in a moderated Q&A.
Speech
Panel remarks at the Brookings Institution
Remarks at The Fed at a crossroads: Where to go next?, Brookings Institution, Washington, D.C.
Report
Monetary policy, financial conditions, and financial stability
We review a growing literature that incorporates endogenous risk premiums and risk taking in the conduct of monetary policy. Accommodative policy can create an intertemporal trade-off between improving current financial conditions and increasing future financial vulnerabilities. In the United States, structural and cyclical macroprudential tools to reduce vulnerabilities at banks are being implemented, but they may not be sufficient because activities can migrate and there are limited tools for nonbank intermediaries and for borrowers. While monetary policy itself can influence ...
Report
Forecasting Macroeconomic Risks
We construct risks around consensus forecasts of real GDP growth, unemployment, and inflation. We find that risks are time-varying, asymmetric, and partly predictable. Tight financial conditions forecast downside growth risk, upside unemployment risk, and increased uncertainty around the inflation forecast. Growth vulnerability arises as the conditional mean and conditional variance of GDP growth are negatively correlated: downside risks are driven by lower mean and higher variance when financial conditions tighten. Similarly, employment vulnerability arises as the conditional mean and ...
Working Paper
Corporate Bond Market Distress
We link bond market functioning to future economic activity through a new measure, the Corporate Bond Market Distress Index (CMDI). The CMDI coalesces metrics from primary and secondary markets in real time, offering a unified measure to capture access to debt capital markets. The index correctly identifies periods of distress and predicts future realizations of commonly used measures of market functioning, while the converse is not the case. We show that disruptions in access to corporate bond markets have an economically material, statistically significant impact on the real economy, even ...
Report
The Federal Reserve and market confidence
We discover a novel monetary policy shock that has a widespread impact on aggregate financial conditions and market confidence. Our shock can be summarized by the response of long-horizon yields to Federal Open Market Committee (FOMC) announcements; not only is it orthogonal to changes in the near-term path of policy rates, but it also explains more than half of the abnormal variation in the yield curve on announcement days. We find that our shock is positively related to changes in real interest rates and market volatility, and negatively related to market returns and mortgage issuance, ...
Speech
Rising to the Challenge: Central Banking, Financial Markets, and the Pandemic
Remarks at the 16th Meeting of the Financial Research Advisory Committee for the Treasury’s Office of Financial Research (delivered via videoconference).
Discussion Paper
Is Higher Financial Stress Lurking around the Corner for China?
Despite China’s tighter financial policies and the Evergrande troubles, Chinese financial stress measures have been remarkably stable around average levels. Chinese financial conditions, though, are affected by global markets, making it likely that low foreign financial stress conditions are blurring the state of Chinese financial markets. In this post, we parse out the domestic component of a Chinese financial stress measure to evaluate the downside risk to future economic activity.
Speech
The U.S. economic outlook and the implications for monetary policy: remarks at Money Marketeers of New York University, New York City
Remarks at Money Marketeers of New York University, New York City.
Journal Article
Monetary Policy and Financial Conditions
Financial conditions indexes summarize a broad range of financial indicators with the goal of measuring how financial markets affect economic activity. Evidence from event studies with high-frequency data supports the view that monetary policy is a key driver of financial conditions. The effects are evident, not only around monetary policy announcements but also, indirectly, around macroeconomic data releases. The impact of inflation surprises on financial conditions has strengthened over the past year, likely due to the perceived implications for the future course of monetary policy.