“This post reviews how bank valuations are affected by interest rate risk. In theory, bank value and profitability can increase or decrease as interest rate risk materializes. A crucial variable that determines the ultimate impact is the price sensitivity of depositors and whether depositors make it possible for banks to hold their assets to maturity.”…

“Total nonfarm payroll employment increased by 236,000 in March, compared with the average monthly gain of 334,000 over the prior 6 months. In March, employment continued to trend up in leisure and hospitality, government, professional and business services, and health care.” “The unemployment rate changed little at 3.5 percent.”

“Leverage allows nonfinancial firms to invest and grow, but high levels of corporate leverage increase the probability of downgrades and defaults. So far, nonfinancial firms have managed to lengthen the maturity of their bonds outstanding through the current tightening cycle, decreasing the risks of refinancing down the road. From the comparison to previous tightening cycles…

“We’ve shown that, when inflation was low and stable from 1995 until the pandemic era, there was a systematic relationship between the share of relative price increases and inflation. We then used that relationship to evaluate the stability of inflation during the pandemic. The clear deterioration of that relationship certainly provides cause for concern.” “However,…

“The U.S. has once again reached its debt ceiling in the first month of 2023, a limit that Congress last set at $31.4 trillion in 2021. If no action is taken, the Congressional Budget Office estimates that the U.S. could potentially face yet another debt-ceiling crisis sometime between July 1 and Sept. 30. The current…

“During the 2008 global recession, nominal interest rates in the developed world dropped to zero. Lacking the ability to further reduce nominal rates, central banks utilized new policy instruments to manage the ongoing liquidity trap. Among these, quantitative easing and forward guidance eventually became a part of the monetary policy toolkit.” “When nominal rates again…

“The H.4.1 statistical release, “Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks.” “The release presents a balance sheet for each Federal Reserve Bank, a consolidated balance sheet for all 12 Reserve Banks, an associated statement that lists the factors affecting reserve balances of depository institutions, and several other tables…

“We estimate substantial heterogeneity in the job finding probabilities, as summarized by our decomposition exercise. Some workers typically take a long time to find jobs but face little risk of permanent joblessness. Others typically find jobs quickly, but when they do not, they face a heightened risk of never returning to work. This heterogeneity is…

“Finally, we discuss implications of breaks to the Phillips curve for optimal monetary policy. Breaks to the Phillips curve increases uncertainty about parameter values and we find that this has a notable effect on the optimal policy of a central bank policy maker. Specifically, accounting for breaks leads the policy maker to respond less aggressively…

“Our findings suggest that the shelter component of inflation will continue to impart upward pressure (relative to pre-pandemic norms) on 12-month headline and core PCE inflation beyond the end of 2023.”

“The Federal Reserve aggressively tightened monetary policy in 2022, responding to high and persistent inflation. The resulting borrowing cost increase for households and firms was generally anticipated. However, fixed-rate mortgage interest rates were especially sensitive to the policy regime change.” “We find that interest rate volatility and the unique nature of mortgage instruments were important…