The Hutchins Roundup brings the latest thinking in fiscal and monetary policy to your inbox. Have something you'd like us to include in the next Roundup? Email us and we'll take a look.
This edition was written by Sarah Ahmad, Alex Connor, Tristan Loa, and David Wessel.
Using a randomized controlled trial, Alexander W. Bartik from the University of Illinois at Urbana-Champaign and co-authors found that transfers to young low-income individuals boosted spending and improved mobility but had little to no impact on net worth. The trial distributed $1,000 each month to 1,000 low-income individuals and $50 each month to a control group of 2,000 over a 3-year period. The authors estimated marginal propensities to consume of between 0.44 and 0.55 for non-durables, and between 0.21 and 0.26 for durables and semi-durables. Treated households increased their assets by $800, but also increased their debt by about $1,800. Evidence of a lack of improvement in credit delinquencies, bankruptcy, and foreclosures throughout the trial further indicated no improvement in long-term financial positions.
Stefania D’Amico and Corey Feldman of the Federal Reserve Bank of Chicago find that increases in uncertainty about the Fed’s balance sheet policy (BSP) have contractionary effects like those of a monetary tightening shock. Using textual analysis of investment bank newsletters from 2009 to 2022 to measure BSP uncertainty, they find that positive shocks to BSP uncertainty increase long-term Treasury yields and private borrowing costs, while reducing mortgage refinance volumes. Measures of uncertainty also spike during the introduction of new aspects of BSP or at its turning points. For example, the BSP increased by eight standard deviations during the Taper Tantrum of 2013, when the Fed moved to scale back its asset purchases, increasing longer-term Treasury yields by 25 basis points. The authors suggest that forward guidance about the Fed’s balance sheet to mitigate economic shocks might be warranted.
Imports from China to the U.S. accounted for roughly 17 percent of all imports in 2022, down 5 percentage points from 2017 following the U.S.-China tariff hikes and other geopolitical tensions. Trang Hoang and Gordon Lewis of the Federal Reserve Board show that this decline in direct imports has been partially offset by an increase in indirect imports through U.S. foreign suppliers. Specifically, the average U.S. supplier's import share from China increased 2 percentage points over this period. While these data suggest that imports from other countries may be serving “as China's backdoor to get goods flowing into the US,” the authors conclude that other factors are likely more important. In particular, they show that countries that have been increasing exports to the US have not disproportionately increased their own imports from China, which one would expect if the change in trade patterns were the result of rerouting of goods. Instead, the authors point to the possibility that U.S. tariff policy in 2018 and 2019 created a negative demand shock in China, lowering prices and boosting Chinese exports. Additionally, countries with reliance on China like Vietnam and Mexico might simply be better substitutes for Chinese goods.
"The first thing to remember is that we had a reasonably solid labor market. We had a very frothy labor market, then it came to be a strong labor market, and then it became a solid labor market. This latest labor market report says that we’re at this place where we have wage growth at 3.6% in the report. That’s inflation plus productivity growth, and productivity growth of 1.5% on average. Inflation is 2%. That’s right in balance. The unemployment rate is still low by historical standards. The job growth is about at the rate that new entrants are entering the labor force," says Mary Daly, President of the Federal Reserve Bank of San Francisco (video).
"What’s the concern? The concern is that we won’t just land at this relatively good and balanced place, but that we’ll continue to deteriorate, and softening will turn into weakness. We don’t see that right now. One of the things I want to convey is that we look around; our labor market reports that come out, they come out monthly and they’re backward-looking. This particular labor market report had in there Hurricane Beryl, it had in there a lot of temporary layoffs. Temporary layoffs are by definition temporary; we hope they reverse by even the next labor market report. We also had a pretty large increase in the number of people in the labor force, and when you dig into that a little more, it looks like a lot of those individuals are foreign-born individuals. They’re reentering or they’re coming in for the first time to the labor force. It takes them a little longer to find jobs when they first start out, and so the unemployment rate rises. Those are pieces of information I’ll be watching very carefully to see if the next labor market report continues to suggest that kind of same number or dynamic. But that could also reverse. So underneath the hood of the labor market report, there’s a little more room for confidence. Confidence that we’re slowing but not falling off a cliff. This is what we would expect: slowing but not falling off a cliff.
But I do want to say this: as a Fed official, as a voting member of the FOMC, I can just look at what we’ve done over the last couple of years and you’ll see that by and large, we’re all committed to this. We will do what it takes to ensure that we achieve both of our goals: price stability and full employment. We will make policy adjustments as the economy delivers the data so that we know what is required. If we reacted on one data point, we would almost always be wrong. That’s why we say we’re not data point dependent; we’re data dependent. What that really means is we look at the totality of the information before we act. That is a studied approach that works well in policy, both historically and today."
About the Hutchins Center on Fiscal and Monetary Policy at Brookings
