May 28, 2026

The Hutchins Roundup brings the latest thinking in fiscal and monetary policy to your inbox. Have something you'd like us to include in the next Roundup? Email us and we'll take a look.

This edition was written by Chase Parry, Andrew Rosin, Jack Spira, and Louise Sheiner

Free community college leads to higher enrollment, degree attainment

Tennessee Promise began as a free community college program in Knox County in 2009, expanded to other parts of the state in 2012, and became the first statewide tuition-free community college program in the U.S. in 2015. Paige Schoonover of Saint Mary’s College of California and co-authors find that the program increased post-secondary enrollment by 5.4 percentage points among 18- and 19-year-olds—with larger effects for non-white and rural students—and increased associate’s degree attainment among 20- and 21-year-olds by 3.1 percentage points. Although the program diverted some students from four-year to two-year institutions, the authors find no evidence that it reduced bachelor’s degree attainment, as more students appear to have used community college as a pathway to a four-year college. Using reasonable assumptions about the returns to education, the authors estimate that the additional tax revenue generated by students' increased education attainment will more than offset the program’s costs.

Political myopia and low borrowing costs drive up public debt in crises

Conventional economic theory suggests that rational policymakers would optimally strive to maintain a stable level of public debt over time, adjusting taxes as needed to absorb economic shocks. Modeling the evolution of government borrowing in recent decades, Tatiana Kirsanova of the University of Glasgow and co-authors find that the rapid increases in public debt following the Global Financial Crisis and the COVID-19 pandemic are best explained by changes in policymaker myopia—the various factors that encourage deficit spending—and by flight-to-safety episodes that lower real interest rates and reduce the cost of borrowing. Other factors that have been shown to affect the steady-state level of public debt, including the maturity structure of debt, don’t explain the observed historical changes. The authors warn that large increases in public debt can give rise to an inflationary bias: higher-than-expected inflation reduces the real value of public debt, such that policymakers are disincentivized to fight inflation when real interest rates normalize after a crisis episode.

Rate hikes work better against inflation when supply chains are strained

The post-pandemic inflation surge raised a key question for central banks: Were aggressive rate hikes the right response to high inflation caused by supply-chain disruptions rather than excess demand? Xiwen Bai of Tsinghua University and co-authors argue that supply-chain disruptions improve the trade-off monetary policymakers face when choosing how much to hike rates. In their model, transportation bottlenecks limit the flow of goods from producers to retailers, leaving upstream producers with spare capacity while downstream retailers face shortages. This makes the supply curve steeper: when a rate hike drives down consumer demand, more of the adjustment shows up as lower prices rather than falling output. Using monthly aggregate data from 2017 to 2023, the authors find evidence consistent with this mechanism. When global shipping congestion was elevated, a contractionary policy shock produced nearly twice the decline in goods prices as when congestion was lower, with a smaller reduction in output and a more persistent price response. The authors caution that the evidence is only suggestive, because the sample is short, includes only one major disruption, and coincides with fiscal stimulus and pandemic-era sectoral shifts.

Brent oil prices still elevated

Front month futures contract on Intercontinental Exchange

Chart courtesy of The Financial Times

Quote of the week

"Conventional wisdom says that monetary policy should look through the inflationary effects of a temporary supply shock. The logic is straightforward. Monetary policy works with a lag. It takes time—say 12 to 18 months—for monetary policy tightening to impact inflation. By that time, the effect of a temporary shock to prices is likely to have already subsided. So that's the conventional wisdom," says Anna Paulson, President and CEO of the Philadelphia Fed.

"But does the conventional wisdom apply today? To answer this question, I'm assessing whether there are forces in the economy now that could amplify these supply shocks and lead to broader and more lasting inflationary pressures. I'm focused on three factors.

"The first factor is the strength of economic activity...I am monitoring business investment and the possibility that strong stock market returns fuel consumption. But overall, the pace of economic activity does not appear to be adding materially to inflationary pressures.

"The second important factor is inflation expectations. If households and businesses anticipate that supply shocks will leave a lasting impact on inflation, then monetary policy might need to be tightened to align inflation expectations with our 2 percent goal... Surveys and market pricing show that short-term inflation expectations have, quite understandably, moved up. But longer-term expectations have remained stable...

"A third important factor is the stance of monetary policy. If monetary policy were accommodative—if it were actively pushing growth higher—then I would be more worried that the supply shocks we are experiencing could lead to persistent inflation. But in my view, monetary policy is mildly restrictive and that restrictiveness is helping to keep the effects of both tariffs and the price increases associated with the conflict in the Middle East in check. Taking these three factors together, I believe the current stance of monetary policy is appropriate."

Join us for an event

The Hutchins Center on Fiscal and Monetary Policy invites you to attend two events:

The Powell years at the Fed: A retrospective on June 2, from 9:30 a.m. to 12:15 p.m. EDT. Both in-person and live stream attendance options are available. 

15th Annual Municipal Finance Conference on July 21, from 9:30 a.m. to 6:30 p.m., and July 22, from 9:00 a.m. to 12:45 p.m. EDT. Both in-person and live stream attendance options are available.

About the Hutchins Center on Fiscal and Monetary Policy at Brookings

The mission of the Hutchins Center on Fiscal and Monetary Policy is to improve the quality and efficacy of fiscal and monetary policies and public understanding of them.