Economic Letter
Brief summaries of SF Fed economic research that explain in reader-friendly terms what our work means for the people we serve.
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Examining the Performance of FOMC Inflation Forecasts
Hamza Abdelrahman, Luiz Edgard Oliveira, Kevin J. Lansing
Calendar-year inflation forecasts from Federal Open Market Committee meeting participants typically start near 2% and then are revised in response to incoming data. Before the pandemic when actual inflation was mostly below 2%, participants consistently lowered their forecasts over time. From 2021 onward when inflation surged to 40-year highs, participants consistently raised their forecasts over time. In both periods, cumulative forecast revisions help predict the size of subsequent forecast errors. This implies that the typical inflation forecast was slow to adjust to new information that could have improved forecast accuracy.
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Landing Softly Is Just the Beginning
Mary C. Daly
The economy has significantly improved from just two years ago. Inflation has fallen substantially, and the labor market has returned to a more sustainable path. A soft landing is achievable, and the Fed is resolute to finish the job. But looking ahead, we should strive for a durable and sustained expansion that helps all Americans. The following is adapted from remarks presented by the president of the Federal Reserve Bank of San Francisco at the New York University Stern School of Business in New York City on October 15.
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International Influences on U.S. Inflation
River Bell, Oscar Jorda, Fernanda Nechio, Aditi Poduri, Stephanie Stewart
The COVID-19 inflation surge experienced abroad undoubtedly left its mark on U.S. inflation. As global economies return to business as usual, it is natural to ask whether international considerations continue to affect U.S. inflation. Recent analysis shows that, although in normal times the international component of U.S. inflation is usually small, at other times it can contribute significantly to U.S. inflation dynamics.
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Job Vacancies and Firms’ Labor Market Perceptions
Marianna Kudlyak, Brandon Miskanic
During the post-pandemic period, the vacancy-unemployment ratio was at historically high levels, but the strength of overall labor demand was unclear. Analysis using data from the National Federation of Independent Business on firms’ perceptions of the labor market confirms that during that time firms perceived the labor market as being unusually tight relative to historical norms. As of June-August 2024, however, both firms’ perceptions and measures of labor market tightness had returned to their 2019 levels.
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How Aware Is the Public of Labor Market Conditions?
Marianna Kudlyak, Brandon Miskanic
Consumers’ perceptions of labor market conditions have historically aligned closely with the unemployment rate. However, the two diverged during the pandemic, when the unemployment rate spiked while people’s views of the labor market remained more positive. This raises the question of whether public perceptions around the labor market have become untethered from the data. Measuring labor market conditions using the jobless unemployment rate, which excludes temporary layoffs, suggests this is not the case: the historical link between people’s perceptions and measured labor market conditions has remained strong.
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The Macroeconomic Impact of Cash Transfers in Brazil
Arthur Mendes, Wataru Miyamoto, Thuy Lan Nguyen, Steven Pennings, Leo Feler
Cash transfers are important fiscal policy tools for both advanced and developing countries. A study of one of the world’s largest cash transfer programs—Brazil’s Bolsa Familia—highlights the potentially large, positive, and persistent effects on the regional economy. Estimates using 2004-2019 data show that Brazilian states receiving 1% of GDP in extra transfers grew at least 2 percentage points faster in the first year. The transfers generate substantial increases in regional formal and informal employment. These effects are larger than those documented in advanced countries like the United States.
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When Is Shelter Services Inflation Coming Down?
Òscar Jordà, Aren S. Yalcin
Shelter costs are one of the largest expenses for most households and an important component of overall inflation. It is therefore important to understand why shelter costs have remained stubbornly high. A key explanation is that, especially since the pandemic, demand for housing has been growing faster than new units have come into the market. Using the gap between the demand for and supply of housing along with other leading indicators of shelter prices can help assess whether shelter inflation will continue on a path toward historically normal levels.
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Wildfires and Real Estate Values in California
Leila Bengali, Fernanda Nechio, Stephanie A. Stewart
Wildfires have been a concern in California for decades. The intensity of these events has increased recently, with particularly large and destructive fire seasons between 2018 and 2021. Analysis shows that distance from high fire-risk zones had little impact on residential housing values in the past. However, that has changed since the late 2010s, coinciding with more extensive fire damage to land and structures across the state. Insurance availability appears to help little in preserving home values in areas that are considered more at risk.
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Pandemic-Era Liquid Wealth Is Running Dry
Hamza Abdelrahman, Luiz Edgard Oliveira, Adam Shapiro
Households accumulated more liquid assets beginning in 2020 than would have been expected without the pandemic. These “extra” liquid assets have dissipated, but their evolution has differed significantly by income group. While middle- and lower-income households hold substantially less liquid wealth than implied by pre-pandemic projections, the level for higher-income households remains close to its pre-pandemic path. Over the same period, credit card delinquency rates initially dropped and, more recently, have steadily risen as pandemic-era liquid wealth was depleted, especially for middle- and lower-income households.