By Jon Faust For the last several months, many analysts (including me) have warned about the growing threat to Fed independence. But some people that I respect have pushed back. Bond market vigilantes, they assert, will protect us–these vigilantes are market players who cause sufficient turmoil in financial markets in the face of bad monetary...
Bridge the Gaps
The Center for Financial Economics advances knowledge of the economic forces driving the financial system through research and teaching. Our work explores the fundamental economics of our current system and the dynamic tensions that will spur change.
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What does the latest jobs report mean for monetary policy?
By Bob Barbera and Jon Faust The July snapshot of U.S. employment suggests that job gains have slowed to a crawl, with three-month average gains down to 35,000. Days before the jobs report Fed Chair Powell argued that “a wide set of indicators suggests that conditions in the labor market are broadly in balance and...
Why was the Fed’s response to rising inflation so delayed?
by Jon Faust In August 2020, the FOMC adopted revisions to its policy framework that were mainly intended to deal with the problems of chronically low inflation and interest rates. In the best tradition of Greek tragedy, high inflation almost immediately ensued. While inflation rose above 2 percent in March 2021, it was not until...
Immigration and sustainable payrolls expansion
by Robert Barbera & Jonathan Wright Labor force growth determines the steady-state monthly change in payrolls. Recently, payrolls have expanded at a fast clip notwithstanding a slight uptick in the unemployment rate. The reason why the economy, despite aging baby boomers leaving the work force, can sustainably expand payrolls by about 200,000 per month is...
Star Power
By Jon Faust and Robert Barbera Given the focus on the neutral real interest rate, r*, at the last several FOMC press conferences, one might be forgiven for thinking that estimates of r* play an important role in policymaker judgements about the restrictiveness of monetary policy. We think this gets things backwards. In much conventional...
A Great Job Market, or a Poor One?
By Floyd Norris “We should spend less time talking about race and more time talking about how to get people to work.” Sen. Josh Hawley, R-Missouri, reacting to Donald Trump’s statements on Kamala Harris’s heritage. The Democrats think jobs should be their issue this year. The flood of new jobs created during the Biden administration...