Economic Perspectives
Yield Curve Control in the United States, 1942 to 1951
Senior economist Jonathan Rose seeks to understand the potential costs and benefits of yield curve caps or targets by reviewing a period from 1942 to 1951 when the Federal Reserve helped the U.S. Treasury to finance war debt by pegging interest rates on short-term Treasury bills (T-bills) at a fixed interest rate and capping rates on longer-term Treasury securities.
Rose also seeks to understand the impact of the end of yield curve control in 1951, in particular for the residential mortgage market. One lesson of this episode is that the end of yield curve control will cause capital losses for investors holding longer-term securities if long-term yields rise. If such investors include major credit providers, some degree of downward pressure on the supply of credit would be the natural result.
The Global Saving Glut and the Fall in U.S. Real Interest Rates: A 15-Year Retrospective
Robert Barsky and Matthew Easton
The authors revisit Ben Bernanke’s global saving glut (GSG) hypothesis from 2005—which links low long-term real interest rates in the United States to excess saving in a number of non-Western countries, including, but not limited to, China. Using an analytical framework and empirical data, they find that the ability of the GSG hypothesis to explain the fall in long-term real rates between 2002 and 2006 is likely much greater than its ability to account for the further fall in these rates from the Great Recession onward.
Can Broader Access to Direct CCP Clearing Reduce the Concentration of Cleared Derivatives?
Cleared derivatives contracts are now concentrated among a small and dwindling number of institutions. Many policymakers and regulators have argued that this concentration has adverse consequences, some of which may have systemic risk implications. The author explores the benefits and challenges of encouraging major end-users of derivatives to become direct clearing members of central counterparties (CCPs). If done prudently, increasing and diversifying the pool of clearing members and redistributing outstanding derivatives contracts across them may help CCPs become more resilient.
The Macroeconomic Effects of the 2018 Bipartisan Budget Act
Jeffrey R. Campbell, Filippo Ferroni, Jonas D. M. Fisher, and Leonardo Melosi
The 2018 Bipartisan Budget Act raised government spending caps by $300 billion for fiscal years 2018 and 2019. While spending does not increase immediately, private sector investment and consumption may respond ahead of an anticipated fiscal stimulus. This Economic Perspectives article assesses the strength of this mechanism based on the private sector’s expectations.
A New “Big Data” Index of U.S. Economic Activity
Scott A. Brave, R. Andrew Butters, and David Kelley
The authors present a new “big data” index of U.S. economic activity that can be used to track business and inflation cycles in real time and estimate monthly real gross domestic product growth.
