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This edition was written by Lorae Stojanovic, Elijah Asdourian, Alex Conner, and David Wessel.
Joshua Gottlieb of the University of Chicago and co-authors find that U.S. physician pre-tax pay constitutes roughly 8.6% of U.S. healthcare spending, with annual earnings averaging $350,000. Earnings increase rapidly with age and peak in physicians’ 40s and 50s. While many doctors receive wages, one third of physicians also receive business income exceeding $25,000. Medicare payment policy has a large effect on physician earnings: Roughly 25% of physician fee revenue driven by Medicare reimbursements ends up in the incomes of physicians personally. Medicare reimbursement policies also affect physician subspecialty choices. Increasing reimbursements to primary care providers, for example, could “[improve] primary care for a generation.”
The volume of new purchase mortgages in the United States fell 20% between late 2021 and late 2022 as the Federal Reserve raised interest rates. Using national data on single-family home purchases, Joshua Bosshardt of the Federal Housing Finance Agency and co-authors find that the decrease in volume of mortgages was the result of a decrease in credit supply to borrowers who would have had high debt-to-income ratios. As mortgage interest rates rose from 3% to 7%, the mortgage payments required to purchase a given home increased substantially. As a result, many households who would previously have been approved for a given mortgage amount now had debt-to-income ratios that were too high to qualify. The authors find that these newly ineligible households, who were disproportionately young and middle-income, rarely responded to increasing interest rates by buying cheaper housing. Instead, many of them didn’t buy at all, suggesting that monetary policy tightening can have unequal distributional consequences, as young and middle-income households most frequently face credit constraints.
Using a dataset of U.S. patents and firm characteristics, Serguey Braguinsky and co-authors examine the role of mega firms – the top 50 public companies by sales in a given year – in innovation. The authors measure innovation using novel patents—patents that combine two different technologies for the first time. Between the early 1980s and early 2000s, the share of novel patents filed by mega firms dropped from 16% to 8%, but it completely recovered by 2016. The timing of this turnaround coincided with improvements in the success of mega firm patents: between 2007 and 2016 mega firms were 1.7% less likely than other patenting entities to have no follow-on patents, and conditional on having follow-ons, they had 6.1% more. Before 2007, follow-on patent creation was slower for mega firms than for other patenting entities. The authors argue that a shift from novel patents containing novel pairings of Information and Communication Technology (ICT) to novel pairings that mix ICT and a different technology helps explain their results.
“With the banking sector sound and resilient, fighting inflation remains my top priority, and I believe we will get there. What will get us there is setting the stance of policy at a level that will continue to help bring supply and demand in the economy into better balance. While I expect inflation to eventually settle near our 2% target because of our policy actions, we have to make sure what we saw in [the July 12] inflation report feeds through broadly across goods and services and that we do not revert back to what has been persistently high core inflation. The robust strength of the labor market and the solid overall performance of the U.S. economy gives us room to tighten policy further,” says Christopher Waller, member of the Federal Reserve Board.
“As things stand now, my outlook for the stance of monetary policy that will get inflation near the FOMC’s 2% target is roughly consistent with the FOMC’s economic projections in June. I see two more 25-basis-point hikes in the target range over the four remaining meetings this year as necessary to keep inflation moving toward our target. Furthermore, I believe we will need to keep policy restrictive for some time in order to have inflation settle down around our 2% target. Since the June meeting, with another month of data to evaluate lending conditions, I am more confident that the banking turmoil is not going to result in a significant problem for the economy, and I see no reason why the first of those two hikes should not occur at our meeting later this month. From there, I will need to see how the data come in. If inflation does not continue to show progress and there are no suggestions of a significant slowdown in economic activity, then a second 25-basis-point hike should come sooner rather than later, but that decision is for the future.
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