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This edition was written by Sarah Ahmad, Chase Parry, Andrew Rosin, and David Wessel.
Dollar stablecoins, digital currency tokens backed one-to-one by U.S. Treasuries and similar assets, are proliferating and their use accelerated after Congress codified their regulation in the U.S. the GENIUS Act. Massimo Ferrari Minesso of the European Central Bank and Daniele Siena of the Polytechnic University of Milan identify three main risks to widespread adoption of stablecoins. First, stablecoins change the transmission of monetary policy. They increase the impact of Fed rate moves on U.S. Treasuries because they lead stablecoin issuers to adjust their bond holdings aggressively, but they also attenuate the real effects of monetary policy because capital flows associated with stablecoins dampen exchange-rate movements. The net result, the authors say, is that the Fed might have to react more strongly than it does today to restrain inflation and stabilize the economy. Second, U.S. shocks would transmit more strongly abroad as stablecoin redemption triggers capital flows in and out of U.S. assets and foreign shocks would transmit more strongly to U.S. Treasuries. Third, these effects are non-linear. Today, stablecoins function as a means of payment. But as they grow in popularity and are used as financial assets, they could amplify the impact of financial shocks.
Sam J. Manning and Tomás Aguirre of the Center for the Governance of AI construct an occupation-level measure of workers’ ability to navigate job transitions if they lose a job due to AI. Observing nearly all the U.S. workforce across 356 occupations, they find that the occupations with the highest exposure to AI are often those with workers most well-positioned to navigate a job loss, as measured by the workers’ net liquid wealth, skill transferability, outside employment opportunities, and age. However, 6.1 million workers—or 4% of the overall workforce—are highly vulnerable to AI job loss, meaning that they are both exposed to AI and poorly equipped to navigate a job transition if displaced. Workers in administrative support and sales roles face the highest risk of costly displacement, whereas workers in professional and managerial occupations are often both highly exposed and highly adaptive. The authors note that vulnerability to AI is distributed relatively evenly across U.S. labor markets; however, college towns and state capitals in the Mountain West and Midwest have the highest concentration of vulnerable workers.
The Federal Reserve’s Beige Book summarizes current economic conditions from anecdotal information gathered by Federal Reserve regional banks. Using natural language processing tools to extract sentiment from Beige Books published between 1980 to 2019, Shengwu Du of the Federal Reserve Board and co-authors find that Beige Book sentiment outperforms the yield curve in nowcasting GDP growth and forecasting recessions, even after accounting for lagged GDP growth and other economic measures. Beige Book sentiment is also a strong predictor of economic growth within Federal Reserve districts. Using a machine learning technique, the authors describe how the focus of economic discussions has changed over time: energy prices in the early 1970s, real estate and credit quality from 2007 to 2008, and real estate and inflation in recent years. The authors conclude that anecdotal evidence from publications like the Beige Book can capture information about the economy that quantitative indicators may miss.
Sauer responded: "It's a very high bar. It's a very strong protection because it does protect them from the one thing that Congress was apparently most worried about, which is a removal for policy disagreement."
Kavanaugh added: "Let's talk about the real-world downstream effects of this because, if this were set as a precedent, it seems to me, just thinking big picture, what goes around comes around. All of the current president's appointees would likely be removed for cause on January 20th, 2029, if there's a Democratic President or January 20th, 2033, and then we're really at at-will removal. So what are we doing here?"
Call for papers
We are seeking proposals for papers on the municipal bond market and state and local fiscal policy to be considered for the Municipal Finance Conference to be held in-person Tuesday, July 21, 2026 and Wednesday, July 22, 2026 in Washington, D.C.
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