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This edition was written by Tristan Loa, Andrew Rosin, Jack Spira, and David Wessel.
Using loan-level data with more than 74 million observations, Benjamin J. Keys of the University of Pennsylvania and Philip Mulder of the University of Wisconsin, Madison, construct a ZIP code-level dataset of homeowners’ insurance premiums. They find that average annual inflation-adjusted premiums increased by 28% between 2014 and 2024. Between 2017 and 2024, the authors estimate, higher construction costs drove 35% of the increase, while 20% of the premium growth was driven by higher disaster risk, with premium increases concentrated in the highest risk areas. While a one standard deviation increase in disaster risk was associated with a $220 increase in insurance premiums in 2017, a similar increase in 2024 was associated with a $615 premium hike. The authors argue that the heightened sensitivity of premiums to disaster risk reflects higher costs of capital for reinsurance and catastrophe bonds. Higher premiums are also capitalized into home prices, reducing home price growth in ZIP codes most exposed to climate risk, they find.
Examining product-level data on U.S. imports, Laura Alfaro of Harvard and Davin Chor of Dartmouth document what they term a "Great Reallocation" in U.S. trade over the past eight years. Following the import tariffs levied against China in President Trump’s first term, China's share of U.S. imports fell from 21% in 2017 to 13% in 2024. Overall U.S. imports rose during this period, with a greater share coming from Vietnam, Mexico, and other countries. Some of the reallocation away from China occurred only later, from 2022 to 2024, suggesting that some importers, particularly those constrained by long-term contracting requirements or established business relationships, adjusted only after it became clear the tariffs were likely to persist. Following the new Liberation Day tariffs announced in April 2025, China’s share of U.S. imports fell further to 9% through July, roughly matching its level when China joined the World Trade Organization in 2001.
Combining daily prices from major retailers with product-level tariff rates and countries of origin, Alberto Cavallo of Harvard, Paola Llamas of Northwestern, and Franco M. Vazques of Universidad de San Andres find that between March and September 2025, the price of imported goods rose 5.4% relative to pre-tariff trends, while prices of domestic goods increased 3%. The authors find that tariff pass-through to retail prices increased gradually over time, reaching 14% to 20% by six months and contributing about 0.7 percentage points to the all-items Consumer Price Index (CPI-U). This implies that the year-over-year change in CPI-U in August 2025 would have been 2.2% without tariffs, rather than the reported 2.9%. Chinese imports saw the largest price increases, while Canadian and Mexican goods experienced smaller changes due to lower tariff rates and USMCA exemptions. The authors attribute incomplete price adjustments to consumer backlash concerns, inventory front-loading, trade diversion, exemptions, implementation delays, and uncertainty about the measures' scope and duration. Given the ongoing uncertainty about tariffs, the authors suggest that tariff pass-through may accumulate over time, exerting persistent upward pressure on inflation.
"This is an exciting time to be a bank regulator, which is not something I imagined to be possible before arriving here. And we are still very much in the early innings of change. As I said before, the right level of bank reserves in the system is ultimately a function of that regulatory environment. As we right-size the regulations, my hope is that it will allow us to further reduce the size of the balance sheet, relaxing the grip of regulatory dominance. Given emergent funding market signals, I supported ending the runoff of the Fed's balance sheet immediately at the FOMC's October meeting rather than waiting until December 1, though the difference between October 29 and December 1 is not enormous," says Federal Reserve Board Governor Stephen Miran.
"Indeed, as we make more progress peeling back regulations, I expect the optimal level of reserves may drop below where it is now, at least relative to GDP or the size of the banking system. It is possible that in the future, it will be appropriate to resume shrinking the balance sheet; stopping runoff today does not necessarily mean stopping it forever. That would also enable us to reduce our interest payments on reserves. If we go far enough with removing regulations, we may be able to limit perceptions that the Fed is picking winners and losers through regulations, asset purchases, and credit allocation decisions. But before further reductions in the balance sheet, we first have to get the regulations right and ensure that bank balance sheets are flexible enough for an environment with a smaller Federal Reserve footprint."
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