Historically, bond yields have not been very good at predicting inflation.
In the last 70 years, bond yields rarely rose ahead of inflation, going up only after inflation takes hold. One study indicated that past inflation trends were a better predictor of bond rates than what future inflation turned out to be.
Does this mean bond traders are wrong? Not necessarily. It may just reflect that inflation is unpredictable and bond traders don’t know any more about the future than the rest of us. All they have is the past data and current prices to make their predictions, too. So when inflation suddenly spikes — as it has in the past — bond traders are as surprised as everyone else.
The sharp increase in consumer prices this Spring may be a blip but may also be a sign that inflation is returning as a chronic problem. For those of us who can accurately recall the 1970s economy, it is a frightening prospect. Everyone else would benefit from reading contemporaneous news coverage.
Recent events call into question pronouncements of the leading Modern Monetary Theorists who thought that the U.S. could sustain much larger deficits without triggering major hikes in the cost of living. Instead, it appears that the traditional rules of public finance still hold: deficit spending financed by Federal Reserve money creation is inflationary.
Analogies between today’s situation and the 1970s are not quite on target. By the early 70s, inflation was well underway. Instead, we should be drawing lessons from the year 1965, when price inflation began to take off. Prior to that year, inflation seemed to be under control with annual CPI growth ranging from 1.1 percent to 1.5 percent annually between 1960 and 1964 — not unlike the years prior to this one.
Machine learning methods have garnered increasing interest among actuaries in recent years. However, their adoption by practitioners has been limited, partly due to the lack of transparency of these methods, as compared to generalized linear models. In this paper, we discuss the need for model interpretability in property & casualty insurance ratemaking, propose a framework for explaining models, and present a case study to illustrate the framework.
Millions of Americans are immunosuppressed or immune-compromised. That is, they take drugs to make sure that a transplanted organ is not rejected or to tamp down the overactive immunity that produces rheumatoid arthritis and lupus; or, alternatively, they have illnesses that undermine their ability to defend against pathogens. A handful of research papers published over the past few months all find the same result: When these patients receive Covid vaccines, their bodies don’t create as many defensive antibodies as those of healthy people. Some have contracted the disease despite being fully vaccinated—meaning that, to protect themselves, they must continue to behave as though their vaccinations never occurred.
As a result, some are seeking extra vaccinations, arranging for third doses that they hope will act like booster shots. A study published Monday in the Annals of Internal Medicine by a team at Johns Hopkins University School of Medicine documents the experience of 30 people living with organ transplants who sought out a third shot in hopes of boosting their immune responses. After their second shots, none of the 30 had high antibody levels; in fact, only six showed any antibody response at all. After the third shot, 14 out of 30 saw some improvement, and 12 of 30 had antibody levels that the researchers considered protective.
For the first time since the start of the COVID-19 pandemic, the Federal Reserve has bucked investor expectations and taken a more hawkish policy stance. After months of projecting near-zero interest rates through 2023, yesterday the Federal Open Market Committee forecast two rate hikes by the end of 2023. With consumer prices and spending rising in tandem of late, the revised projections are a tacit admission that recent inflation may not be as transitory as the Fed has maintained.
“Is there a risk that inflation will be higher than we think? Yes,” said chair Jay Powell. The ten-year Treasury yield increased roughly 80 basis points to 1.57 percent after the press conference.
But the Fed’s revised policy outlook was not matched by an increased medium-term inflation forecast. The central bank continues to expect an average inflation rate of 2.1 percent over the next three years. Goldman Sachs’s macro researchers interpret that to mean that “the FOMC sees the 2021 inflation overshoot, which will bring the average inflation rate since the recession began above 2 percent, as largely sufficient to accomplish its averaging goal.”
Ever since the Fed adopted an average inflation target last summer, markets have been left guessing as to the time horizon over which the Fed would target 2 percent. Yesterday’s projections suggest it will be two to three years.
Clearly, we need to do everything we can to cut the cost of our annual pension payments at both the state and local levels in order to continue to guarantee the retirement payments our retirees have earned and to reduce the unfunded liability that is such a burden to taxpayers.
That is why we have developed legislation to enable our state and local pension systems to add revenue-generating assets like water and sewage treatment systems, High Occupancy Toll (HOT) lanes, parking facilities and real estate to provide new, diversified sources of revenue for their investment portfolios.
ProPublica substitutes a magazine’s estimate of wealth appreciation, which never appears on the stolen tax returns, to falsify income. Using this deception the site calculates its “true tax rate.” ProPublica laments that taxpayers are acting “perfectly legally” in not paying a federal wealth tax, which doesn’t exist.
That wealth is taxed only when converted into income or on death may be an outrage to those in government who want to spend that wealth, but it is a purposeful, enlightened policy that lets wealth work as the nation’s seed corn, making America the richest nation in the history of the world. That wealth in turn makes it possible for the government today to provide $45,000 a year in transfer payments to the average household in the bottom 20% of American earners.
Taxing wealth accumulation will mean less wealth accumulation, lower productivity growth, lower wages and a less prosperous America. If you had to pay a federal property tax on the appreciation of your home and the growth in the value of your retirement assets, farm and business every year, how could you or America ever get ahead? Private investment has created $32 trillion of equity wealth in America. “Public investment” has created $21 trillion of public debt.
The metrics on the OGSP give a high-level view of how progress can be measured, but they are just part of the data that Regan’s office collects. Hundreds of other data points are in a performance scorecard that includes factors that contribute to attainment of large targets such as reduced crime rate.
High-level goals may take time to achieve. The StocktonStat portal, scheduled for launch on June 30, will include data on the number of potholes and streetlights repaired, or square feet of graffiti removed, says Regan. “The stat process, and this shared data, are part of a continuous conversation and relentless follow up toward our performance targets.”
We show that lenders face more uncertainty when assessing default risk of historically under-served groups in US credit markets and that this information disparity is a quantitatively important driver of inefficient and unequal credit market outcomes. We first document that widely used credit scores are statistically noisier indicators of default risk for historically under-served groups. This noise emerges primarily through the explanatory power of the underlying credit report data (e.g., thin credit files), not through issues with model fit (e.g., the inability to include protected class in the scoring model). Estimating a structural model of lending with heterogeneity in information, we quantify the gains from addressing these information disparities for the US mortgage market. We find that equalizing the precision of credit scores can reduce disparities in approval rates and in credit misallocation for disadvantaged groups by approximately half.
But in the biggest ever study of real-world mortgage data, economists Laura Blattner at Stanford University and Scott Nelson at the University of Chicago show that differences in mortgage approval between minority and majority groups is not just down to bias, but to the fact that minority and low-income groups have less data in their credit histories.
This means that when this data is used to calculate a credit score and this credit score used to make a prediction on loan default, then that prediction will be less precise. It is this lack of precision that leads to inequality, not just bias.
But Blattner and Nelson show that adjusting for bias had no effect. They found that a minority applicant’s score of 620 was indeed a poor proxy for her creditworthiness but that this was because the error could go both ways: a 620 might be 625, or it might be 615.