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This edition was written by Sarah Ahmad, Georgia Nabors, Jack Spira, and David Wessel.
The Federal Reserve’s policymaking body—the Federal Open Market Committee (FOMC)—includes the seven members of the Federal Reserve Board and the presidents of the 12 regional Fed banks, but only five of the presidents have a vote in any year. Using data from 472 FOMC meetings from 1969 to 2019, Vyacheslav Fos and Nancy R. Xu of Boston College find that economic conditions in voting presidents’ districts have a disproportionate impact on the federal funds rate. Specifically, the federal funds rate increases by 13.7 basis points for every one standard deviation increase in the inflation rate in the voting districts relative to the national average while inflation in non-voting districts has no significant effect. Similarly, a one standard deviation rise in average unemployment in voting districts is associated with a 48-basis-point decrease in the federal funds rate. Further, federal funds rate futures respond to economic conditions in voting districts, suggesting that financial markets recognize their disproportionate influence.
Analyzing the effects of Medicaid enrollments since passage of the Affordable Care Act allowed states to expand eligibility, Angela Wyse of Dartmouth and Bruce D. Meyer of the University of Chicago find that access to health insurance significantly reduces mortality among low-income adults. Matching 2010 Census data with IRS and Medicaid records for 37 million individuals, they find that states choosing to expand eligibility increased the Medicaid-enrolled share of their non-disabled, low-income adult populations by 11.7 percentage points and decreased the mortality of the same by 2.5 percentage points, suggesting a 21% reduction in the probability that a newly enrolled person would die within a year. The authors estimate that Medicaid expansions saved 27,400 lives between 2010 and 2022 at a cost of $5.4 million per life, or about half the $10 million to $11 million value per statistical life used in cost-benefit analyses by the federal government. Had all states chosen to expand eligibility, 12,800 more deaths could have been prevented, they estimate.
"This said, and despite the fog, EM central banks should respond forcefully to upside inflation risks if they materialize to ensure that high inflation does not get embedded into inflation expectations. While I’ve noted that we see the current configuration of tariffs as likely to be slightly disinflationary for many EMs in our reference scenario, there is a significant risk that inflationary pressures could emerge— from supply chain disruptions and higher input cost pressures in a fragmenting world or from exchange rate depreciations."
"Given the high passthrough of both exchange rate changes and cost shocks to inflation in EMs, a major risk is large and persistent second round effects, especially if inflation has been running persistently above target and the fiscal position is weak. History has shown that once inflation becomes embedded in expectations—often through wage and price indexation mechanisms—it becomes significantly more difficult to reverse. If the risk materializes, timely and firm action is critical to keep inflation expectations anchored and reassure the public of the central bank’s unwavering commitment to sound monetary policy and price stability."
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