Car loans, labor market bottlenecks and more

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Delay rates in most consumer credit markets remained low during both the pandemic recession and the subsequent recovery. Vitaly M. Bord and Lucas M. Nathe from the US Federal Reserve Board note that the fall in new loans to risky borrowers has contributed to low arrears. Using data at the loan level, they find it The origins plummeted among borrowers with the lowest credit score at the start of the pandemic and remained low, while applications for borrowers with the highest credit score have recovered. Due to the fact that lenders do not issue the most risky loans, the rates of arrears between new loans were reduced by more than the rates of arrears for existing loans. The authors estimate that these “missing credits” —low credit car loans, many of which would have become obsolete if they had come in — could explain up to a 30 percent reduction in delinquency rates from December 2019 to June 2019. 2021. In addition, they show that while car loan origins declined for low-credit borrowers during the pandemic, credit demand from these borrowers increased – suggesting that credit supply rather than demand led to missing sources.

Throughout the pandemic, economic indicators have sent mixed messages about the level of relaxation in the labor market. Harvard’s Alex Domash and Lawrence H. Summers find that the nominal unemployment rate is more effective in predicting wage inflation than the old-age employment ratio, but that job vacancy and retirement rates hold almost all explanatory power. in the forecast of wage inflation. They show that too Current job vacancy and retirement rates predict a job market as tight as those typically faced by the US with unemployment rates below 2%. They conclude that labor market constraints are likely to make a strong contribution to the current inflationary pressure, both of which are unlikely to subside any time soon.

The Payroll Protection Program (PPP) has given businesses forgivable loans through banks and fin-tech companies. Purdue’s Sergey Chernenko and Harvard’s David S. Scharfstein find this Black restaurants in Florida were 25% less likely than white restaurants to receive PPP loans. About 60% of the difference in borrowing reflects the characteristics of the borrowers such as size, age, number of inspections and location. The existing relations with the banks had very little effect on the inequality, as they found out, nor differences in the information or the demand for PPP loans. They attribute the remaining difference to racial bias, which is partly confirmed by the use of county-level measurements of explicit and implicit racial bias. Banks seemed to be much more biased than fin-tech and other non-bank lenders. They do not find racial differences in the distribution of loans for financial loss disasters, which were managed directly by the Small Business Administration and are not mediated by banks.

Bond yield curve in February 2020, February 2021 and February 2022

Diagram of his kind offer Guru Focus

“I think we need to load more in advance of our planned evacuation than we would in the past. We were surprised by the rise in inflation. That’s a lot of inflation in the US economy: 7.5% on the CPI. These are numbers that Alan Greenspan has never seen. They have not happened in four years, so our credibility is at the limit here. We have to react to the data. However, I believe that we can do it in a way that is organized and does not disturb the markets. We just subtract [some] accommodation, therefore it is still a friendly policy. The big picture is that inflation is much higher than we would have expected six or nine months ago. Definitely 12 months ago. If you look at the Fed inflation tracker in Atlanta, everything turned red. “So, it does not matter how you measure inflation, it’s all above their rules.” says James Bullard, President of the Federal Reserve Bank of St. Louis. Louis.

“There is some accommodation removal already on the market, so that’s great. However, the Fed needs to follow and validate these expectations that have been incorporated into the two years. And if we do not, we do not seem to be defending our two per cent inflation target and we are not trying to ensure that inflation is under control. I think the inflation we are seeing is very bad for low- and middle-income households. Real wages are falling, people are unhappy, consumer confidence is falling. This is not a good situation. We need to reassure people that we will defend our inflation target and bring our inflation back to 2%.

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