FEDS Notes
FEDS Notes are articles in which Board staff offer their own views and present analysis on a range of topics in economics and finance. These articles are shorter and less technically oriented than FEDS Working Papers and IFDP papers.
Insights from MMF Portfolio Allocations amid Balance Sheet Normalization
In June of 2022, the Federal Reserve (Fed) began to reduce its securities holdings and decrease the size of its balance sheet, a process known as balance sheet runoff. The decline in the Fed's assets mechanically results in a decline in Fed liabilities, and on net since June 2022, most of the decline in securities holdings has been associated with a decline in use of the Fed's overnight reverse repurchase (ON RRP) facility, a facility in which eligible counterparties are able to enter into an overnight reverse repo agreement with the Fed, earning the ON RRP rate on funds held at the facility.
DOI: https://doi.org/10.17016/2380-7172.3709
How Were Extra SNAP Benefits Spent?
The Supplemental Nutrition Assistance Program (SNAP), formerly known as the Food Stamp Program, is designed to support low-income U.S. households by providing monthly funds for their grocery spending. As of April 2024, more than 41 million Americans were SNAP recipients, which makes SNAP one of the largest aid programs in the U.S.
DOI: https://doi.org/10.17016/2380-7172.3655
Predicting Credit Card Delinquency Rates
Consumer credit card delinquency rates, after having rapidly fallen to record-low levels in the early stages of the pandemic, increased sharply, reaching their pre-pandemic levels by 2023:Q1. Since then, delinquencies have risen further, albeit at a diminishing rate, and as of 2024:Q3 stand about 125 basis points above those early 2023 levels (Figure 1).
DOI: https://doi.org/10.17016/2380-7172.3732
The Sectoral Evolution of China's Trade
Since 2018, Chinese officials have been emphasizing the need for China to achieve greater self-reliance. As discussed in de Soyres and Moore (2024), China has reduced its reliance on imported inputs, while simultaneously becoming more dependent on foreign demand to absorb its manufactured goods.
DOI: https://doi.org/10.17016/2380-7172.3713
How Do Trade Disruptions Affect Inflation?
After decades of increasing global economic integration, trade as a share of world GDP peaked before the Global Financial Crisis and has since plateaued. Since the late 2010s, tariffs and restrictions on U.S.–China trade, supply chain bottlenecks associated with the COVID-19 pandemic, and Russia's invasion of Ukraine have all raised the cost of and added barriers to trade.
DOI: https://doi.org/10.17016/2380-7172.3664
Global Remittances Cycle
Workers' remittances, the earnings sent home by migrant workers abroad, play a crucial role in supporting the economies of developing countries. Remittances enable lower-income households in developing nations to secure access to essential needs such as food, housing, education and healthcare services.
DOI: https://doi.org/10.17016/2380-7172.3715
Educational Exposure to Generative Artificial Intelligence
The release of ChatGPT by OpenAI in November 2022 unleashed a wave of interest in how generative artificial intelligence (AI) may reshape workplaces and affect occupations. Some studies have shown that generative AI may improve work productivity (see, e.g., Noy and Zhang 2023; Dell'Acqua et al. 2023; Brynjolfsson et al. 2023) and that high-skill and white-collar occupations may be the most exposed, though it is uncertain whether higher exposure means that work tasks will be automated away or augmented (Felten et al. 2023; Eloundou et al. 2023; but see Gmyrek et al. 2023).
DOI: https://doi.org/10.17016/2380-7172.3703
Central bank liquidity facilities around the world
A core task of central banks is to provide liquidity to banks, with the goal of facilitating monetary policy implementation, ensuring the smooth functioning of the payment system, and promoting financial stability. While central banks around the world pursue these goals, the design of liquidity facilities differs across countries. This note provides an overview of liquidity facilities around the world that resemble the Federal Reserve’s discount window as well as intraday credit, comparing and contrasting setups in different countries.
DOI: https://doi.org/10.17016/2380-7172.3740
Do Landlords Respond to Wage Policy? Estimating the Minimum Wage Effect on Apartment Rent Prices
Minimum wage policies in the United States have lifted real earnings for workers around the low end of the income distribution (Dube, 2019) and thus may alleviate some of the financial stress felt by low-wage renters (Mateyka and Yoo, 2023). However, landlords, potentially facing a boost to local housing demand, may be able to capture some portion of these earnings' gains by raising rents, mitigating welfare benefits for affected workers.
DOI: https://doi.org/10.17016/2380-7172.3621
Proportionate margining for repo transactions
The repurchase agreement (repo) market plays a central role in funding and leveraging securities positions, and sourcing securities. Traders in the repo market protect themselves from the default of their counterparties through margin collected via haircuts on repo transactions.
DOI: https://doi.org/10.17016/2380-7172.3722
Does Mutual Fund Fragility Impact Primary Market Pricing? Evidence from Commercial Paper
Investor flows in open-end mutual funds, along with their inherent liquidity mismatches and potential fragility risks, can significantly impact the pricing of assets these funds invest in. While much of the existing research has focused on these effects within the secondary markets for equities and bonds, this note, based on a working paper by Li, Tibay, and Wang (2024), provides evidence on how shocks from investor flows in prime money market funds (MMFs) influence the pricing and issuance in the primary markets for commercial paper (CP).
DOI: https://doi.org/10.17016/2380-7172.3671
Repo Rate Sensitivity to Treasury Issuance and Quantitative Tightening
Over the past six months, Treasury repo rates have risen, on average, relative to the rate on the overnight reverse repurchase agreement (ON RRP) facility and have become more volatile. Recent literature has argued that these trends have been driven, in part, by the cumulative effects of quantitative tightening (QT).
DOI: https://doi.org/10.17016/2380-7172.3707
Measuring AI Uptake in the Workplace
Artificial Intelligence (AI) may be poised to raise productivity across various domains, including writing (Noy and Zhang 2023), programming (Peng et al. 2023), and research and development (Toner-Rodgers 2024; Korinek 2023). However, understanding the extent to which AI—and generative AI in particular—has been adopted as part of the production process remains an open question. This note reviews the extant surveys on AI adoption at both the employee and firm levels.
DOI: https://doi.org/10.17016/2380-7172.3724
Trends in Credit Unions' Share of U.S. Private Depository Household Lending
Private depository institutions play a crucial role in the provisioning of credit in the United States. The two private depository sectors in the Financial Accounts of the United States (the Financial Accounts) serving as the primary lenders to households are U.S.-chartered depository institutions (banks) and credit unions. Credit unions mostly make loans to households, while banks make large shares of their loans to both households and businesses.
DOI: https://doi.org/10.17016/2380-7172.3697
Market-Based Indicators on the Road to Ample Reserves
Over time, the Committee intends to maintain securities holdings in amounts needed to implement monetary policy efficiently and effectively in its ample reserves regime. To ensure a smooth transition, the Committee intends to slow and then stop the decline in the size of the balance sheet when reserve balances are somewhat above the level it judges to be consistent with ample reserves.
DOI: https://doi.org/10.17016/2380-7172.3704
Developments in Chinese Chipmaking
The global semiconductor industry has become a key source of global economic and geopolitical risks. Due to a combination of huge fixed costs, highly specialized human capital, and a high degree of geographic concentration at different stages of production, chipmaking exhibits extremely low substitutability throughout the value chain.
DOI: https://doi.org/10.17016/2380-7172.3647
The Global Transmission of Inflation Uncertainty
The COVID-19 pandemic brought unprecedented disruptions to global supply chains, labor markets, and economic activity, leading to significant volatility in inflation rates worldwide. Not only the level of inflation but the uncertainty about the future path of inflation increased considerably since the onset of the pandemic and have remained elevated until very recently, posing challenges for policymakers and businesses alike.
DOI: https://doi.org/10.17016/2380-7172.3692
From Plans to Starts: Examining Recent Trends in Manufacturing Plant Construction
Manufacturing structures investment is the largest component by value of U.S. nonresidential structure investment and has been growing quickly in the post-pandemic period. Figure 1 documents the significant extent to which the construction of manufacturing plants has contributed to growth in overall nonresidential construction. The surge in investment in manufacturing construction has occurred despite the higher interest rate environment, driven by government incentives associated with the Inflation Reduction Act (IRA) and the CHIPS and Science Act (CHIPS), and market forces such as increased demand for semiconductors and batteries and the re-shoring of supply chains.
DOI: https://doi.org/10.17016/2380-7172.3667
The Euro Area has a growth problem
The decomposition of GDP into potential output—the level of output consistent with current technologies and "normal" use of capital and labor—and the output gap—the percentage deviation of GDP from its potential—is a fundamental task for policymakers. Potential output tells us how fast an economy can grow in the long run; the output gap helps assess the cyclical position of the economy and, thus, potential inflationary pressures (Jarociński and Lenza, 2018).
DOI: https://doi.org/10.17016/2380-7172.3662
Industrial Production vs. Goods GDP: Two Sides of the Same Coin?
Since the early 2000s, there has been a growing divergence between the index of industrial production (IP) and the goods component of GDP—hereafter, goods GDP—breaking the close correlation the two series had maintained in earlier decades (figure 1). This note revisits the factors behind this divergence and provides a novel quantification of their role.
DOI: https://doi.org/10.17016/2380-7172.3672
The Hidden Costs of Disability
Disability can be devastating financially for households, as it can severely limit earnings potential (Meyer & Mok, 2019; Benito, Glassman, & Hiedemann, 2016; Jolly, 2013). The earnings penalty for households with disabilities is estimated to range from 15 to 70 percent of earnings, depending on the nature of the disability (Meyer & Mok, 2019). Households receiving disability insurance (either employer-based or via Social Security) receive payments based on their prior earnings to help account for this earnings penalty.
DOI: https://doi.org/10.17016/2380-7172.3686
What do various wage measures tell us about underlying wage growth?
We develop a novel indicator of aggregate and sectoral wage inflation by leveraging multiple sources of wage data with detailed sectoral information, using a hierarchical dynamic factor model. Our empirical approach controls for data-specific measurement errors and industry-specific developments; this feature makes it particularly effective in assessing wage inflation during the Covid era, which saw increased dispersion in wage inflation across industries and larger divergences between measures of the level and trajectory of wage inflation. Our findings indicate that as the labor market has cooled, aggregate underlying wage inflation has returned to pre-pandemic levels, with wage growth in some sectors even falling below its pre-pandemic rate.
DOI: https://doi.org/10.17016/2380-7172.3693
Using Service Provider Connections to Model Operational Payment Networks
This paper uses data on bank connections with service providers to construct a representation of an operational network used to facilitate the sending of Fedwire transactions. Our data contains 227 connections between 215 banks (mostly community banks, but also some large banks) and four unique payment products used by the firms to send and receive Fedwire transactions. By constructing such an operational network between banks and payment providers, we can perform multiple analyses that are useful in operational resilience considerations. First, we use the mean daily Fedwire volume for each bank to create a dollar estimate of the "operational risk exposure" associated with each service platform based on its bank clients. Second, we examine how these bank payment risk exposure estimates compare with other, publicly available benchmarks, since payment data are usually confidential. Last, we use the network model to conduct analysis on network concentration, which provides an example of how such networks could be used in analyzing the likely impact of operational outages. Our results indicate that data on service provider connections such as that we analyze can provide important insights into the extent to which payment network resilience mitigates risk to the financial sector. Our results also indicate that several publicly available benchmarks can serve as substitutes (with certain caveats) for payments data in estimating payment risk exposure.
DOI: https://doi.org/10.17016/2380-7172.3515
Disclaimer: FEDS Notes are articles in which Board staff offer their own views and present analysis on a range of topics in economics and finance. These articles are shorter and less technically oriented than FEDS Working Papers and IFDP papers.