Economic Letter

A great deal of recent research has pointed out the benefits of adopting inflation targets, emphasizing, in particular, their role in helping to stabilize inflation expectations. As we discuss below, these arguments suggest that inflation expectations in countries that target inflation should react differently to the recent oil price shocks than expectations in countries that do not target inflation.

Economic forecasters often look to the performance of futures markets to help predict such economic developments as movements in the price of oil and other commodities. In addition, relatively new financial market instruments, like TIPS (Treasury Inflation Protected Securities) help policymakers get a handle on the public’s inflation expectations.

Since the October 2005 nomination of Ben Bernanke to become Chairman of the Federal Reserve Board, there has been increasing speculation in the financial press that the Federal Open Market Committee (FOMC) might soon adopt an explicit numerical objective for inflation. However, skeptics of inflation targeting have maintained that this would constrain the FOMC and might provide little benefit in return—after all, it has been argued, haven’t inflation expectations in the U.S. been well anchored since the early to mid-1990s?

By various measures, larger credit unions have recently had stronger financial performance than smaller credit unions, indicating that these institutions face large and pervasive economies of scale (Wilcox 2005a). This Economic Letter uses data from the 1980-2004 period to show that this performance difference is a long-running state of affairs.

With households’ property debt surging, the use of adjustable-rate mortgages increasing, and interest rates rising, some observers have raised concerns about households’ ability to service that debt. To gain a better idea of the distribution of property debt burdens and how it has changed over time, this Economic Letter presents data from the Survey of Consumer Finances (SCF), which contains information on different types of property debt, debt service, and income.

This year’s conference brought academic researchers and policymakers together to discuss six research papers that focused on labor markets, and how labor market behavior can influence the broader macroeconomy.

Each year, the President of the San Francisco Fed joins the Federal Reserve Board Governor responsible for liaison with Asia on a “fact-finding” trip to the region. These trips advance the Bank’s broad objectives of serving as a repository of expertise on economic, banking, and financial issues relating to the Pacific Basin and of building ties with policymakers and economic officials there.

Much attention recently has been given to the possibility of a slowdown in the U.S. residential real estate market. While real residential investment has continued to grow and existing house prices have held up through the first quarter of 2006, analysts have pointed to other signs of slowing.

For several years, the U.S. has had a large and growing deficit in its current account, the broadest measure of the country’s trade with the rest of the world. While in 1991 the current account was roughly in balance, at the end of 2005 it reached a deficit of 7% of GDP.

This Economic Letter is adapted from remarks by Janet L. Yellen, President and CEO of the Federal Reserve Bank of San Francisco, delivered at the conference, “The Euro and the Dollar in a Globalized Economy” at the University of California, Santa Cruz on May 27, 2006.