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Natasha Pilkauskas of the University of Michigan and co-authors find that the temporary expansion of the Child Tax Credit (CTC) in 2021 improved the economic well-being of very low-income families without affecting their labor supply. The CTC recipients in the study, who were overwhelmingly single mothers with monthly incomes below $2,000, experienced large reductions in food insecurity and smaller reductions in other forms of material hardship, such as inability to pay for utilities and medical bills. The benefits of the CTC were somewhat larger for Black families than for white and Hispanic families. The authors find no effect on recipients’ participation in the workforce, which they argue should “provide some reassurance to policymakers who are concerned that individuals may leave the labor force or reduce their labor supply as a result of the CTC.”
Using data from the Michigan Surveys of Consumers and the Survey of Consumer Expectations, Hie Joo Ahn and Choongryul Yang of the Federal Reserve Board and Shihan Xie of the University of Illinois find that the macroeconomic expectations of homeowners are more sensitive to monetary policy shocks than those of renters. Specifically, homeowners are more likely than renters to lower their one- to three-year inflation expectations in response to a rise in 30-year mortgage rates. The monetary policy component of mortgage rate declines drives the revision of homeowners’ expectations, the authors find. Homeowners likely face higher incentives to be informed about financial markets (for mortgage refinancing opportunities, for instance) and thus are more responsive to changes in monetary policy than those who rent. “Our results imply that the macroeconomic effects of monetary policy may depend on the distribution of household homeownership status in the economy,” the authors conclude.
Using data on accrued capital gains on homes from the 2019 Survey of Consumer Finances, Edward Wolff of New York University finds that Black households have experienced lower returns on homeownership than white households, with the average (inflation-adjusted) annual rate of return for Black households at 2.02% and the annual return for white households at 2.69%. Wolff shows that household wealth and the timing of a home purchase are both important determinants of the rate of return from housing that can explain this disparity. In particular, he finds that the annualized rate of return on homes increases 0.189 percentage points for every 1% increase in household net worth; he speculates that rising wealth concentration has increased the demand for high-end houses and boosted returns. Longer holding periods are also associated with lower returns: For every additional year a household holds on to a home, their expected annualized return falls by 0.065 percentage points. On average, Black households owned their homes for longer durations and have less wealth than white households, explaining the racial disparity in annualized returns to homeownership, the author says.
Inflation Contribution by Region and Category
Chart Courtesy of the IMF
“Reports over the past few months have shown high inflation to be stubbornly persistent, while the labor market has remained strong. Being data-dependent, I have revised up my assessment of the persistence of high inflation. And given my risk-management approach, with upside risks to inflation being the most salient, I fully supported the step-up in the front-loading of policy over the past three FOMC meetings,” says Lisa D. Cook, Member of the Federal Reserve Board of Governors.
“Front-loading has several positive features. It puts monetary restraint into place more quickly to reduce demand while supply is constrained. It may also act to rein in inflation expectations and, as a result, to influence wage- and price-setting behavior. This preemptive approach is appropriate. Although lowering inflation will bring some pain, a failure to restore price stability would make it much harder and much more painful to restore it in the future.”
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