Federal Reserve Bank
of San Francisco Federal Reserve Bank
of San Francisco

Economic Letter

Brief summaries of SF Fed economic research that explain in reader-friendly terms what our work means for the people we serve.

  • Historical Patterns around Financial Crises

    2020-10

    Pascal Paul and Joseph H. Pedtke

    Long-run historical data for advanced economies provide evidence to help policymakers understand specific conditions that typically lead up to financial crises. Recent research finds that rapid growth in the top income share and prolonged low labor productivity growth are robust predictors of crises. Moreover, if crises are preceded by these developments, then the subsequent recoveries are slower. This recent empirical evidence suggests that financial crises are not simply random events but are typically preceded by a prolonged buildup of macrofinancial imbalances.

  • Mitigating COVID-19 Effects with Conventional Monetary Policy

    2020-09

    Vasco Cúrdia

    The Federal Reserve slashed the federal funds rate in response to the effects of the COVID-19 pandemic. The full impact of the pandemic on the economy is still uncertain and depends on many factors. Analysis suggests that allowing the federal funds rate to fall fast will help the economy cope with the aftermath of COVID-19. In particular, the limited policy space due to the effective lower bound of the federal funds rate before the pandemic reinforces rather than offsets the need for a rapid funds rate decline.

  • News Sentiment in the Time of COVID-19

    2020-08

    Shelby R. Buckman, Adam Hale Shapiro, Moritz Sudhof, and Daniel J. Wilson

    The COVID-19 pandemic is causing severe disruptions to daily life and economic activity. Reliable assessments of the economic fallout in this rapidly evolving situation require timely data. Existing sentiment indexes are useful indicators of current and future spending but are only available with a lag or have a short history. A new Daily News Sentiment Index provides a way to measure sentiment in real time from 1980 to today. Compared with survey-based measures of consumer sentiment, this index shows an earlier and more pronounced drop in sentiment in recent weeks.

  • The Uncertainty Channel of the Coronavirus

    2020-07

    Sylvain Leduc and Zheng Liu

    The outbreak of the novel coronavirus, or COVID-19, has severely disrupted economic activity through various supply and demand channels. The pandemic can also have pervasive economic impact by raising uncertainty. In the past, sudden and outsized spikes in uncertainty have led to large and protracted increases in unemployment and declines in inflation. These effects are similar to those resulting from declines in aggregate demand. Monetary policy accommodation, such as interest rate cuts, can help cushion the economy from such uncertainty shocks.

  • Why Is Unemployment Currently So Low?

    2020-06

    Marianna Kudlyak and Mitchell G. Ochse

    Unemployment is at a 50-year low. The low rate is not from an unusually high job-finding rate out of unemployment but, rather, an unusually low rate at which people enter unemployment. The low entry rate reflects a long-run downward trend likely due to population aging, better job matches, and other structural factors. These developments lowered the long-run unemployment rate trend. At the end of 2019, the unemployment rate was below the trend but no more so than in previous business cycle peaks, indicating that the labor market is no tighter.

  • Is the Risk of the Lower Bound Reducing Inflation?

    2020-05

    Robert Amano, Thomas J. Carter, and Sylvain Leduc

    U.S. inflation has remained below the Fed’s 2% goal for over 10 years, averaging about 1.5%. One contributing factor may be the impact from a higher probability of future monetary policy being constrained by the effective lower bound on interest rates. Model simulations suggest that this higher risk of hitting the lower bound may lead to lower expectations for future inflation, which in turn reduces inflation compensation for investors. The higher risk may also change household and business spending and pricing behavior. Taken together, these effects contribute to weaker inflation.

  • The New Stone Soup

    2020-04

    Mary C. Daly

    Countries around the globe face slow growth, low real interest rates, and persistently low inflation. This makes economies less resilient and less able to offset everyday shocks with traditional tools. Policymakers must actively look for outside perspectives and be courageous enough to take action in times of uncertainty. The following is adapted from a speech by the president and CEO of the Federal Reserve Bank of San Francisco delivered as part of the Iveagh House Lectures at the Irish Department of Foreign Affairs and Trade in Dublin on February 10.

  • Wringing the Overoptimism from FOMC Growth Forecasts

    2020-03

    Kevin J. Lansing and Winnie Yee

    Growth forecasts by Federal Open Market Committee meeting participants were persistently too optimistic for 2008 through 2016. The typical forecast started out high but was revised down over time, often dramatically, as incoming data failed to meet expectations. In contrast, forecasts for 2017 through 2019 started low but were revised up over time. Cumulative forecast revisions for these years were much smaller on average than in the past. These observations suggest that participants have adjusted their forecast methodology, including lowering estimates of trend growth, to eliminate the prior optimistic bias.

  • Who from Out of the Labor Force Is Most Likely to Find a Job?

    2020-02

    Marianna Kudlyak

    The best predictor of someone from outside the labor force finding a job is how recently the person was employed, rather than their self-reported desire to work as is conventionally thought. Between 1999 and 2019, the composition of the out of the labor force group shifted towards people out of work for longer. Consequently, the pool has become less employable. This indicates that, even though the out of the labor force pool is larger, it does not signify additional labor market slack beyond that accounted for by the standard unemployment rate.

  • Long-Run Effects of the Earned Income Tax Credit

    2020-01

    David Neumark and Peter Shirley

    The Earned Income Tax Credit (EITC) substantially subsidizes earnings for low- to moderate-income families with children in the United States. Research has established that the EITC has positive short-term effects on the employment of less-educated single mothers and reduces overall poverty. The EITC may also generate higher earnings in the long run, as the short-run positive employment effects for low-skilled women accumulate into greater labor market experience that makes them more productive.