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This edition was written by Sarah Ahmad, Alex Conner, Tristan Loa, and Louise Sheiner.
Ryan Chahrour of Cornell and Adam Shapiro and Daniel Wilson of the Federal Reserve Bank of San Francisco use microdata from the Michigan Surveys of Consumers to estimate the effect of news on household inflation expectations. They find that exposure to news of higher inflation over a six-month period increases one-year-ahead inflation expectations by 0.4 percentage point. In contrast, news of lower inflation has no meaningful effect. A back-of-the-envelope calculation indicates that inflationary news accounts for up to 0.7 percentage point of the 3.2 percentage point increase in expectations over the pandemic. The authors theorize that the asymmetric effect of news on expectations arises because journalists are much more likely to cover inflation when inflation is high. Therefore, when households see news about inflation, regardless of the direction of the coverage, they expect that inflation is higher. This view is compounded by the content of the story if the news is bad, but only partially offset if the news is good.
Poverty can be measured by examining the share of households below a certain income level or consumption level. Bruce D. Meyer of University of Chicago, James X. Sullivan of Notre Dame, and Jeehoon Han of Baylor find that in the years leading up to the pandemic, income and consumption poverty trends were similar. However, in 2021, consumption poverty fell less than income poverty and, in 2022, income poverty rose while consumption poverty continued to fall. The authors link this difference to low-income earners' increased savings in 2021, followed by a period of dissaving in 2022. This consumption smoothing behavior was enabled by temporary transfers including unemployment insurance, three rounds of stimulus checks, and an expanded child tax credit. The authors also find that households reported having greater levels of financial hardship and food insecurity in 2022 despite a decrease in consumption poverty, suggesting a disconnect between economic conditions and consumer sentiment.
Jonathan Colmer from the University of Virginia and co-authors – using tax, census, and environmental data from 1979 to 2016 – find that Black individuals are exposed, on average, to higher levels of air pollution than their white counterparts at every income level. In 1979, exposure was unrelated to income, but by 2016, higher-income households had less exposure to pollution than lower-income households, especially among Black individuals. The authors say this likely reflects the movement of wealthier Black individuals to the suburbs, which tend to have lower levels of air pollution. Still, even holding income constant, racial disparities in pollution remain. In 2016, the average Black individual in the 99th percentile of the income distribution faced pollution levels equivalent to those experienced by the average white individual in the 75th percentile.
"The world... faces a challenge coming from China’s current economic model. Having a very large economy with such high savings can cause spillovers unless there are domestic uses for much of that savings. Recently, China has been directing large sums towards investment in manufacturing, despite already being over 30% of global manufacturing. And, there appears to be a lack of domestic demand driving growth, potentially leading to a return to a reliance on exports for growth. A very large economy growing above the global growth rate based on exports is both unlikely to be successful and likely to cause spillovers to others. By focusing on manufacturing via nonmarket tools and subsidies despite China’s already outsized role, this also means China may be closing what has been a typical development path to many other countries eyeing low-cost manufacturing as the next stage of their development. And by channeling the saving to particular sectors, this increases the likelihood of overcapacity and spillovers to other countries," says Jay Shambaugh, under secretary of the U.S. Treasury for International Affairs.
"It is critical that we use all the tools we have to combat forces that might be pushing the global economy towards slower growth. Global economic growth and stability are essential to our economic security, and the Bretton Woods institutions have played an important role in supporting these since their inception."
About the Hutchins Center on Fiscal and Monetary Policy at Brookings
