Federal Reserve Research Articles

The Impact of the Latest Federal Reserve Interest Rate Hike on the Chinese Economy

This study utilizes weekly data from March 2022 to September 2023, employing the TVP-VAR model to empirically analyze the impact of the Federal Reserve's interest rate hikes on the Chinese economy. The results indicate that the Federal Reserve's rate hikes have exerted negative shocks on China's output, with the effects dissipating after 8 to 12 lags. China's monetary policy has shown a short-term inverse relationship with that of the United States, though the overall impact remains minimal. The rate hikes have suppressed China's fixed asset investments, with a gradually diminishing impact on GDP. Additionally, the rate hikes have negatively affected the RMB exchange rate and China's exports, with the rising USD/RMB exchange rate further restraining exports. The widening interest rate differential between the USD and RMB has impacted China's stock market, making international capital more inclined to invest in U.S. enterprises. To address these challenges, this paper recommends that China continue to implement a prudent monetary policy, advance RMB internationalization and exchange rate marketization reforms, enhance market liquidity, and improve the stock market and institutional frameworks to bolster economic stability and resilience. The findings provide theoretical foundations and feasible strategies for sustaining China's economic growth and mitigating external shocks.

The devolution of federal reserve monetary policy strategy, 2012–24

The devolution of federal reserve monetary policy strategy, 2012–24

The Impact of the Federal Reserve’s Interest Rate Hikes on U.S. Inflation Rate

The Federal Reserve’s interest rate hikes have a significant impact on domestic economic activities and monetary policies in the United States. Since March 2022, the Federal Reserve has raised interest rates multiple times to counter domestic inflationary pressures. In this article, data on the U.S. inflation rate and the federal benchmark interest rate from January 2010 to March 2024 were extracted, and an ARIMA model was used for analysis to predict how the U.S. inflation rate will develop under the condition of interest rate hikes. The study found that after the Federal Reserve raised interest rates, the inflation rate in the United States also rose. The reasons for this situation may be due to increased inflation expectations and external factors such as COVID-19. To mitigate risks brought by the rise in inflation, such as asset devaluation, commodity price volatility, and reduced investment returns, investors can adopt strategies like diversifying their investments, closely monitoring the Federal Reserve’s interest rate hikes, and avoiding high-leverage investments.

The Impact of Geopolitical Conflict and Fed Rate Hikes on Asset Pricing

In the current context of weak economic recovery, ongoing Russia-Ukraine conflict, and consecutive interest rate hikes by the Federal Reserve, global financial and commodity markets have experienced intensified turbulence. To investigate the impact of the Russia-Ukraine conflict and the Federal Reserve interest rate hikes on asset pricing, this study first analyzed the U.S. stock market, bond market, and commodity market based on data from the CEIC database. From the comprehensive stock and year-on-year data after each round of interest rate hikes, it is evident that both the Russia-Ukraine conflict and the Federal Reserve interest rate hikes have had a significant negative impact on investors' financial assets. Additionally, due to the continuous interest rate hikes by the Federal Reserve, funds from the stock market have gradually shifted to the bond market. Furthermore, after analyzing the impact of the Russia-Ukraine conflict and the Federal Reserve interest rate hikes on the U.S. stock market, bond market, and commodity market, the study further explored the influence of these factors on asset pricing using the discounted cash flow (DCF) valuation model. Finally, the study provided an outlook on future market trends.

Stock Performance after the US Federal Reserve Raised its Benchmark Interest Rate: Evidence from the ChiNext market in China

Stock Performance after the US Federal Reserve Raised its Benchmark Interest Rate: Evidence from the ChiNext market in China

Exploration of the Reasons for the Federal Reserve’s Interest Rate Hike in 2022 and Evaluation of Policy Effectiveness

After the global economy experienced the impact of the new crown epidemic, the US economy recovered in 2022, but inflation rose rapidly, prompting the Federal Reserve (FED) to take interest rate hikes. This paper analyzes the background and reasons for the Fed’s interest rate hike in 2022, and evaluates its policy effect, aiming to provide experience and lessons for future monetary policymaking. The main findings include: that the interest rate hike significantly reduced the inflation rate in the United States, from 8.0% in the first quarter to 5.67% in the fourth quarter; In the short term, interest rate hikes will hinder the economy, but in the long term, they will help promote stable growth; The interest rate hike led to stock market fluctuations and bond market yields rising, the credit market tightening, and increased the instability of the global financial market; Urge other countries to adjust their monetary policies and increase global economic uncertainty. The significance of this paper is to expand the theory of international financial and monetary policy and provide comparative research value for the policy-making of emerging market countries and developing countries. The policy recommendations include: the United States should strengthen policy transparency and financial supervision to promote the optimization of economic structure; Other countries should strengthen macro policy coordination, improve financial regulatory capacity, achieve economic diversification, maintain monetary policy flexibility, and promote the healthy development of cross-border capital flows.

Economic Consequences of the Federal Reserve’s Interest Rate Hike: The Financial Market and Labor Market

Economic Consequences of the Federal Reserve’s Interest Rate Hike: The Financial Market and Labor Market

Lombard Street revisited? Bagehot’s rules and Bernanke’s interpretation

Ben Bernanke first referred to Walter Bagehot’s Lombard Street when he was in the chair of the Board of Governors, and when the Federal Reserve responded to the global financial crisis that began in August 2007. While the literature has dealt with the practice of the Federal Reserve and its compliance or otherwise with Bagehot’s rules, it has not detailed Bernanke’s theory of lending in last resort and the underlying interpretation of Bagehot’s rules. Thus, our approach is not empirical but theoretical. We first recall Bagehot’s arguments especially regarding the respective levels of interest rates. Then we show how Bernanke met Bagehot and how he revisited Bagehot’s rules. We find that Bernanke’s approach can be sustained under theoretical conditions—notably working on the assumption that the fundamental value of financial assets can be identified. We conclude by emphasising that the debate can be either restricted to the question of moral hazard, or broadened to the question of the financial cycle.

Debt, bubble policy, and the role of the repo market in the Federal Reserve’s management of capitalism in crisis

In the last decade, repurchase-agreements (repos) between banks and financial institutions have grown significantly as banks systemically low on cash see repos as the cheapest, safest, and quickest way to get the funding they need for running regular services. However, hikes in interest rates by the Federal Reserve since March 2022 have increased the cost of interbank borrowing. This causes stress on many banks, and ultimately, brings into question the financial system’s long-term reliance on repos and other obscure short-term funding methods. Awareness of the Fed’s repo market policy, and their monetary policy in general, ought to matter to political economists and workers alike because it reveals precisely how the economy is controlled by a few levers inside the marriage between state and finance capital. Consequently, in this article I outline the repo market and its significance to the Fed’s management of economic crises. This requires a relative understanding of their general monetary policy, which in itself requires significant material economic contextualizing. It is this context that ultimately matters most, and which will therefore be the focal point of discussion. Only after such contextualization does the discussion end with a word on the rise of repos, the risks of increased reliance on it, and possible future directions from the perspective of both capital and labor.

Third Conference on the International Roles of the U.S. Dollar

On May 20 and 21, 2024, the Federal Reserve Board and the Federal Reserve Bank of New York jointly hosted the Third Annual International Roles of the U.S. Dollar Conference. The conference brought together researchers, practitioners, and policymakers to understand how changes in the global economic and financial landscape may affect the central role of the dollar.

Lessons from history for successful disinflation

Why are some attempts at disinflation successful and others failures? We investigate this question in the context of the Federal Reserve's attempts at disinflation since World War II. Our central finding is that a fundamental determinant of success was the strength of the Federal Reserve's commitment to disinflation at the start of its attempts. In episodes where its commitment was high, there were significant declines in inflation that were often long-lasting, while in ones where its commitment was low, falls in inflation were small and short-lived. We find that although the extent of the Federal Reserve's commitment was often clear to the public, there is no evidence that stronger commitment to disinflation directly affected expected inflation. Rather, the main channel through which weak commitment led to unsuccessful disinflation was premature abandonment of the disinflationary policy. We conclude by discussing the implications for the Federal Reserve's current effort at disinflation.

Analysis of Factors in College Enrollment Using Regressions

College enrollment, the process in which families make investments for the future, individuals receive higher education and seek self-improvement, and an aspect closely related to the lives of everyone in a modern society. The trends of college enrollment have been fluctuating due to various factors throughout history, mostly due to socioeconomic factors. In this article, multiple linear regression models are constructed to analyze and evaluate how some possible factors are correlated with the fluctuations of college enrollment in the United States each year from 1973 to 2022. Data for dependent and independent variables were gathered from government and non-profit organization websites such as the Federal Reserve Bank of St. Louis, the United States Census Bureau, and the Educational Data Initiative. The results have shown that many factors are influencing the fluctuations, with GDP and income being the main factors; this article provides a supporting role in making admission policies and country developments.

Moderating Uncertainty with Sentiment: The Case of the Federal Reserve Chair Communication

Moderating Uncertainty with Sentiment: The Case of the Federal Reserve Chair Communication

Lessons from the Collapse of Silicon Valley Bank

The Federal Reserve's consecutive interest rate hikes led to a decline in the prices of US Treasuries and mortgage-backed securities (MBS), which comprised a significant portion of Silicon Valley Bank (SVB)'s asset portfolio. As a result, SVB experienced substantial floating losses, exceeding its owner's equity, creating immense pressure on its assets and liabilities. The analysis also highlights the simple deposit and asset structures of SVB, with a high proportion of demand deposits and a significant allocation to bonds. The aggressive interest rate hikes by the Federal Reserve, coupled with financing difficulties for startups, accelerated deposit consumption and intensified debt pressure for SVB. Furthermore, the article reveals the low coverage rate of deposit insurance, particularly at SVB, where only 7% of deposits are insured. This adds to the vulnerability of SVB and its depositors. In conclusion, this article examines SVB's balance sheet and interest rate risk exposure, identifies shortcomings in the management supervision system, and provides three reflections on the financial event.

From global diffusion to local semantics: unpacking the scientization of central banks

Abstract This article investigates the scientization of central banks and analyzes the evolving knowledge production. Existing literature suggests that scientized knowledge production either becomes globally more similar over time or is driven by local political economy considerations. However, research on the structure of central bank knowledge production is lacking. To address this, I conduct semantic network analysis on 75 000 central bank working papers and articles from top economics journals. Findings show global organizational forms of knowledge production have diffused, but semantics remain localized. The semantic structure becomes increasingly clustered over time, with a notable division between the Federal Reserve System (FED) and non-FED clusters. Only Federal Reserve produces knowledge aligned with top academic journals. Cluster differences are not solely due to mandates or political contexts but depend on specific policy environments. This research illuminates the evolution of knowledge production within central banks and underscores the influence of organizational and policy contexts.

Fed Up: The Determinants of Public Opposition to the U.S. Federal Reserve

The U.S. Federal Reserve plays a major role in the global economy, despite low public awareness of its functions and responsibilities. Scholars have recently noted three ongoing developments in the politics of the Fed: A dramatic increase in the size of the Fed’s balance sheet, a decrease in the Fed’s insulation from partisan politics, and evidence that the Fed has struggled to manage inflation in recent times. Despite the contributions of recent studies, little is known about how Americans’ levels of diffuse and specific public support for Federal agencies are influenced by trends in agencies’ size and scope, politicization, and performance. In this study, I use a survey experimental design to evaluate the effects of emphasis frames on support for the Federal Reserve. Results demonstrate that while specific support declines in reaction to frames that associate Fed actions with rising inflation, messages about the Fed’s growing balance sheet erode diffuse support for the Fed. However, when reminded of the Fed’s declining political independence, partisans’ levels of support diverge. These results imply the potential for substantial future declines in public support for the operation of this critical, yet largely overlooked, Federal institution, especially among partisans of the presidential out-party.

AI and big data in economic regulation: A comparative analysis of China and the United States

This paper examines the application of artificial intelligence (AI) and big data in economic regulation within China and the United States, highlighting the differing approaches and outcomes. In China, the centralized governance structure allows for the swift and uniform implementation of AI-driven strategies, optimizing government strategies, and balancing economic growth with social equity. The National Development and Reform Commission (NDRC) and the People's Bank of China (PBOC) are key players in utilizing AI to forecast economic trends and stabilize the economy. Conversely, the U.S. employs a decentralized approach, with AI applications driven primarily by the private sector and academia. The Federal Reserve leverages AI for policy decisions, while private firms use predictive models to enhance market strategies. Big data analysis supports decision-making in both nations, but differing governance structures lead to unique challenges and benefits. This study compares the centralized and decentralized systems, assessing their impact on economic performance and policy flexibility. The findings provide insights into how AI and big data can be optimized for economic regulation, offering lessons for other countries in adopting these technologies.

Black representation and the popular legitimacy of the Federal Reserve

The Federal Reserve has started paying closer attention to matters of race over the last decade. The central bank has increasingly emphasized the distinct economic challenges facing racial minorities, and its leadership has become more racially diverse. This paper applies theories of descriptive and substantive representation to understand how these shifts are likely to impact the popular legitimacy of the Federal Reserve. We hypothesize that greater Black descriptive and substantive representation improves Black Americans' confidence in the Federal Reserve. We also anticipate that political ideology moderates how white Americans respond to the increases in Black representation within the Federal Reserve, with white conservatives responding less favorably to these changes than more left-leaning whites. Analysis of data from two original survey experiments with separate samples of 3000 Americans, split evenly between Black and white respondents, supports our expectations. Information about substantive and descriptive representation at the Fed has a strong impact on Black Americans' perceptions of the institution. We also find that these changes at the Fed boost white liberals' views of the Fed but have little impact on white conservatives’ attitudes about the central bank.

The myth of federal reserve de facto independence

AbstractIn the literature on central banks independence these institutions are considered as being apolitical. In reality, central banks are political actors and their de facto independence changes over time even if their de jure independence remains unvaried. An example of this is the Federal Reserve Bank (Fed), whose de facto independence in the past decades has fluctuated significantly because of the pressures of Congress and the President. To counter these pressures, the Fed seeks support from certain interest groups. The success of this behavior is more likely when the President and Congress represent different political parties.

Spillover effects of external economic shocks on African sovereign bonds

African nations face growing debt and default risks owing to fiscal deficits, falling commodity prices, weakening demands, the COVID-19 pandemic, and the Russia–Ukraine War. This study constructs multiple spread systems to examine the time-varying relationships between exchange rates and bond spreads in Zambia, Nigeria, and Egypt, which represent high-, medium-, and low-risk default nations, respectively, throughout the sample period and critical times by applying the BAVRSV model. This study reveals the linkage between the exchange rate and Egypt's spread is time-varying, but static in Zambia and Nigeria. Furthermore, Zambia's spread system is less stable than those of Nigeria and Egypt, with copper, crude oil, and wheat being key intermediates, respectively. The Federal Reserve rate changes, the COVID-19, and the Russia–Ukraine conflict influence the African bond spreads at different stages. The findings highlight the sensitivity of African bond spreads to exchange rates and provide valuable insights for bond investors.