Affluent households, post-FOMC press conferences, etc.
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Using administrative tax data from 2001-2016, Matthew Smith of the US Treasury, Eric Zwick of the University of Chicago and Owen Zidar of Princeton estimate that the top 1% of households hold as much wealth as the top 90% the poorest. The share of wealth held by the top 0.1% fell from 12.9% in 2001 to 15% in 2016. Households in the top 0.1% hold more than half of their wealth in public stocks and intermediary companies, according to the authors. In contrast, pensions and home equity make up the majority of the wealth accumulated by the bottom 90%. Wealthier households are also more exposed to risk and earn above-average rates of return on their investments, the authors believe. Taking this heterogeneity of returns into account leads to lower estimates of the share of wealth held by the richest 0.1%. “Because major wealth tax proposals focus on the extreme end of the wealth distribution, our estimates would undercut mechanical estimates of wealth tax revenue,” the authors conclude.
In 2011, the Chairman of the Federal Reserve began holding press conferences after meetings of the Federal Open Market Committee (FOMC). The Federal Reserve Board’s Michiel De Pooter finds that press conferences generate reactions in financial markets, suggesting that they give investors information beyond that contained in the post-meeting statement and summary of economic projections. On average, interest rates fluctuate between 1 and 3 basis points, the S&P 500 index changes ½% and the dollar moves about 1/4% during the period beginning 10 minutes before and ending 20 minutes after the press conference. The authors find that the language of the press conference is easier to understand than the FOMC statement, and also find that Chairman Jay Powell’s language in answering questions was significantly less complex than that of his two predecessors. While Powell’s answers are at eighth-grade level, Ben Bernanke’s and Janet Yellen’s were at college level, by a commonly used readability standard.
Using firm-level data from 1962 to 2019, Thomas Kroen, Ernest Liu and Atif Mian of Princeton and Amir Sufi of the University of Chicago find that falling interest rates disproportionately benefit “superstar” firms – those whose valuations are in the highest 5% for their industry. In particular, lower interest rates disproportionately reduce the cost of borrowing for star companies, perhaps because the conditions that lead to extremely low rates tend to make other companies relatively more risky. In turn, superstar companies raise additional debt financing, buy back shares, increase capital investments and make acquisitions more aggressively than other companies. All these effects increase as the level of the interest rate approaches zero. These results suggest that the low interest rates observed in recent years may partly explain the rise of superstar firms and increased market concentration in the United States.
Source: The Wall Street Journal
“I continue to believe that the current high inflation is episodic, driven by pandemic conditions such as disruptions in supply chains and labor markets. A major caveat, however, is that the serious and pervasive problems of the supply chain will likely last longer than most of us originally anticipated Indicators so far do not suggest that long-term inflation expectations are dangerously out of sync But episodic pressures could last long enough to de-anchor expectations,” said Rafael Bostic, president of the Federal Reserve Bank of Atlanta.
“In my view, the fate… of price stability could therefore hang in the balance in the coming months. I think inflation should stay above 2% in the future. How far I can’t say. But the upside risks are salient. I believe that the conditions I have described argue for a withdrawal from the Committee’s emergency monetary policy, starting with the reduction of monthly asset purchases, as we discussed at the meeting of the month latest.
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