August 15, 2024

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 Sarah Ahmad, Tristan Loa, Georgia Nabors, Comfort Oshagbemi, and Louise Sheiner.  

IMF arrangements help countries regain access to international capital markets

Joseph Kogan and co-authors from the International Monetary Fund (IMF) use bond spread data and analysis of credit rating upgrades to explore how the IMF helps countries restore access to international capital markets (ICM). Analyzing 56 countries rated below investment grade between 2002 and 2022, they find that global financial conditions, such as commodity price swings, and a country’s debt/GDP ratio are the main determinants of access to ICM. They also find that IMF arrangements help countries gain access to ICM: spreads decline by 46% on average in the four years after approval. An examination of credit upgrades suggests that the fiscal reforms implemented under IMF arrangements matter more for ICM access than the IMF’s role as a liquidity provider of last resort.

Household spending of excess savings drove pandemic-era inflation

During the COVID-19 pandemic, U.S. households accumulated excess savings equal to about 10% of pre-crisis GDP. Bence Bardoczy and co-authors from the Federal Reserve Board find that the increase in demand fueled by households spending their excess savings explained up to 40% of the surge in inflation observed between the first half of 2020 and the second half of 2021. The authors also find that while fiscal transfers contributed to inflationary pressure early in the pandemic, they helped stabilize economic activity substantially. Without fiscal transfers, consumption would have contracted about 10 percentage points more in the second quarter of 2020.

Black and Hispanic buyers pay a premium on home purchases

Using a dataset of 40 million repeat home sales across the United States from 2000 to 2020, Sébastien Box-Couillard of the University of Illinois and Peter Christensen of the University of California, Santa Cruz find that Black and Hispanic homebuyers pay on average 3% more than their white counterparts for the same property. These price premiums are higher when minority homebuyers purchase from sellers of a different racial or ethnic group. The premiums paid by Black and Hispanic buyers are also more pronounced in areas with fewer home listings and in neighborhoods where a larger portion of residents share the buyer’s race or ethnicity, holding all else constant. Further, Black homebuyers pay larger premiums in highly segregated cities, likely because segregation constrains the housing searches of Black homebuyers to those neighborhoods with a higher share of Black households. A one standard deviation decrease in a city’s segregation level would eliminate more than two-thirds of the premium paid by Black buyers.

CPI falls below 3% for the first time since early 2021

Chart courtesy of The Wall Street Journal

Quote of the week

“The rise in the unemployment rate to 4.3% has certainly refocused attention on the employment side of the Fed’s mandate. Across many indicators, there has been a noticeable cooling of the labor market from the historically tight conditions of 2023 and 2022. But overall, the labor market still appears healthy," says Jeff Schmid, President of the Federal Reserve Bank of Kansas City. 

"Looking much broader than the unemployment rate alone, the labor market still appears to be quite strong by this measure. This aligns with my discussions with district contacts, which generally acknowledge a cooling of the market but not a sense of widespread disruptions or declines. At this point, the cooling of the labor market can be viewed as a necessary condition for the easing of inflation that we have experienced. Imbalances in the labor market were a key factor keeping inflation high, and a looser market was needed to bring inflation down. However, this story could change if conditions were to weaken considerably more. 

The path of policy will be determined by the data and the strength of the economy. With the tremendous shocks that the economy has endured so far this decade, I would not want to assume any particular path or endpoint for the policy rate. This is to say the data and the performance of the economy should guide policy rather than a presumption that we must return to some pre-pandemic perception of normal."

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.