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This edition was written by Chesapeake Dowdy, Chase Parry, Andrew Rosin, and Louise Sheiner
The 2017 Tax Cuts and Jobs Act created the Opportunity Zones program, giving governors discretion to designate low-income census tracts for capital gains tax incentives aimed at steering investment to distressed communities. David Glancy and Robert Kurtzman of the Federal Reserve Board and Lara Loewenstein of the Federal Reserve Bank of Cleveland find that governors disproportionately selected tracts where commercial development was already being planned. Using project-level data, they show that designated tracts had about 75% more construction starts than eligible but non-designated tracts, but about two-thirds of that difference disappears after accounting for projects already planned before designation. Overall, the authors estimate that Opportunity Zone designation increased construction in designated tracts by about 12% relative to what would have occurred without designation. States that put more weight on development potential when choosing zones saw larger construction increases than states that emphasized economic need, highlighting the tension between targeting the most distressed communities and targeting places where investment is most likely to respond to tax incentives.
Erik Hurst of the University of Chicago and co-authors use ADP payroll data covering roughly one-seventh of U.S. workers to examine why the burst of inflation from 2021 to 2023 produced persistent real wage losses. Most firms give continuing workers a common annual raise, and these wage-setting norms changed little when inflation surged. Before the pandemic, annual raises typically clustered around 2% to 4%. Even as inflation rose above 7%, firms shifted only modestly toward raises of 4% to 5%, causing the real wages of many workers who stayed with their employers to fall. Firms instead became more likely to give large, off-cycle raises to individual workers, with the share of job-stayers receiving more than one wage adjustment in a year rising from about 16%-18% before the pandemic to 27% in 2021 and 2022. Workers who changed employers had wage growth that tracked inflation nearly one-for-one, but job switching rose only modestly and remained too infrequent to protect most workers. Among workers who stayed at the same firm from December 2020 to December 2024, 43% ended with lower real wages, with a median loss of about 7% among those who fell behind. Even including job changers, 37% of workers experienced a real wage decline. Once inflation subsided, wage growth returned to roughly its earlier pace rather than accelerating enough to make up the losses. By December 2025, real wages remained about 7% below the path implied by 2017-2019 wage growth and about 4% below the longer-run 2000-2019 trend. The authors argue that these persistent losses help explain why consumer sentiment remained depressed even after inflation came down. They point to Belgium, where wages are automatically indexed to inflation and both real wages and consumer sentiment recovered more quickly, as further evidence that incomplete wage adjustment contributed to the prolonged decline in sentiment.
Using data from the Survey of Income and Program Participation, David Neumark and Emma Wohl of the University of California, Irvine, find that a higher minimum wage reduces employment, hours, and earnings for low-wage workers. Hours and earnings fall even among those who remain employed. Employment declines are somewhat larger among workers in the poorest families, while declines in hours and earnings are, if anything, larger among workers in higher-income families. Overall, however, there is no clear pattern in how the effects vary by family income. The authors conclude that there is no evidence that increasing the minimum wage is particularly beneficial for low-wage or low-skill workers in poor or low-income families—“effects that, if present, would suggest that higher minimum wages can reduce poverty.”
"For many of our member countries, domestic stablecoin growth presents a familiar force: dollarization. Many emerging markets have experienced episodes of financial dollarization, typically driven by high inflation, exchange rate volatility, institutional fragility, and weak policy credibility. This is not only a historical analogy. Recent IMF analysis confirms the pattern empirically: it is precisely in these environments where stablecoin inflows are larger,” says Dan Katz, First Deputy Managing Director of the IMF.
“Households and firms use dollarization as a way to protect themselves from inflation and currency depreciation. Dollarization can also have the unintended effect of strengthening incentives for sound policymaking, as currency competition increases the costs of poor macroeconomic management...
“What makes stablecoins different is the potential speed and scale at which these dynamics could unfold. In the past, currency substitution spread gradually, through physical cash holdings, domestic dollar deposits or offshore accounts. In theory, substitution via stablecoins could spread much faster: smartphones and messaging apps make access and adoption far easier, and stablecoins can reach countries where conventional dollar access is restricted entirely."
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