The Debt Ceiling Confrontation: Is it Necessary?

The current debt ceiling—at $33.4 trillion—is expected to be reached around June 1. Once the ceiling is reached, the Treasury has a few gimmicks that it can use, such as delaying payments to the pension fund for federal employees, to postpone hard choices regarding which claims on the Treasury are to be paid. However, once … Continue reading The Debt Ceiling Confrontation: Is it Necessary?

Recent Banking Disturbances and Implications for Fed Policy: What You Need to Know

The high-profile closing of Silicon Valley Bank (SVB) on March 9 and the subsequent closing of Signature Bank, the rescue package for First Republic, and the resolution of Credit Suisse have raised concerns about the health of regional commercial banks in the United States and certain big foreign names. Some have claimed that we are … Continue reading Recent Banking Disturbances and Implications for Fed Policy: What You Need to Know

Stubborn Inflation: Implications for Monetary Policy 

The most recent consumer price data (for January) were a disappointment. As shown in the chart below, headline inflation (the blue line) picked up largely owing to a swing in energy prices. However, even when volatile energy and food prices are removed, core inflation (the red line) ticked higher, raising doubts about whether underlying inflation … Continue reading Stubborn Inflation: Implications for Monetary Policy 

Fed Policy: The Importance of Vigilance

The Federal Open Market Committee raised its target for the federal funds rate ¼ percentage point on February 1 and suggested that a couple more similar-sized increases will be forthcoming. Fed policymakers further indicated that they will be assessing the lagged effects of previous rate increases and whether those effects are unfolding in line with … Continue reading Fed Policy: The Importance of Vigilance

The Fed’s Upcoming Judgment Calls

The decisions facing the Fed are getting more difficult. A year ago, persistently high inflation readings made it clear that the Fed was way behind the curve in getting control of inflation and there was consensus that aggressive tightening was needed. In response, as shown in the chart below, the Fed raised its target for … Continue reading The Fed’s Upcoming Judgment Calls

The Fight Against Inflation: Where Are We Now?

The Fed’s fight against inflation proceeded through 2022. During the year, the Fed raised its target for the federal funds rate seven times, lifting the target from 0 percent to 4.25 percent (these interest rates are at the lower ends of a ¼ percent range). In its most recent projections in mid-December, the Fed projected … Continue reading The Fight Against Inflation: Where Are We Now?

The Inflation Battle: Is the Fed Close to the Finish Line?

Recent labor market and inflation data and comments from Fed officials have done little to clarify the trajectory of Fed interest rate policy. Indeed, the rift between the views of market participants and Fed officials appears to have widened. Market participants read the consumer price data for November, released at the time of the Fed’s … Continue reading The Inflation Battle: Is the Fed Close to the Finish Line?

The U.K.’s Recent Budget Turmoil: The Canary in the Coal Mine

On September 23, the new prime minister of the United Kingdom, Liz Truss, surprised financial markets by announcing a deficit-expanding fiscal package that included large tax cuts and energy subsidies. This announcement triggered concerns by market participants that Britain may be moving onto a path that would result in it being unable to service its … Continue reading The U.K.’s Recent Budget Turmoil: The Canary in the Coal Mine