Mortgage Rate Intelligence & Market Updates

The relationship between inflation and real economic activity has long been central to debates in macroeconomics and monetary policy. At the core of this debate is the Phillips curve (PC), which measures how strongly inflation reacts to movements in economic conditions. The steepness of this curve matters enormously for monetary policy: if the PC is steeper, inflation rises faster during booms and falls faster in recessions, which entails central banks having to act more forcefully if they want to stabilize inflation around their target. Prior analysis found astonishingly small estimates of the slope of the PC, which suggests that the curve is “flat” (or even dead). In this post, I present evidence from coauthored research showing that, contrary to the conventional view, the Phillips curve is alive and steep, and it captures inflation volatility remarkably well once real marginal cost is used instead of standard real economic activity measures.

The New York Fed’s Economic Heterogeneity Indicators (EHIs) aim to study macroeconomic outcomes experienced by various groups of people and businesses. We recently added a suite of indicators describing the performance of small businesses to the EHIs—both for the region (defined, for the purpose of this study, as New York, New Jersey, and Connecticut) and nationally. Small businesses are critical to employment generation as they accounted for almost 63 percent of new private sector jobs since 2005 and employed almost 46 percent of all U.S. workers in 2025. Thus, understanding economic trends and impacts for small businesses is important for designing effective monetary policy and aligns with the New York Fed’s mission to support the regional economy. In this post, we highlight some aspects of small business profitability, revenues, employment, and indebtedness since 2019 for firms of different sizes.  

We are enhancing our set of Economic Heterogeneity Indicators (EHIs) by adding a set of metrics on consumer spending with data presented by income, education, race and ethnicity, age, and urban status. The data will help track the evolution of aggregate behavior by analyzing the spending of specific groups in a more timely manner than is possible using public surveys.

It is common for price measures to consider changes in quality. That is, a price index might fall even though listed prices are unchanged because the quality of the item has improved. An adjustment for quality captures the fact that consumers are effectively getting more for the same dollar when product quality rises. In practice, however, it is notoriously difficult to measure quality changes since it requires access to detailed data on all product characteristics that matter to consumers. We offer a novel method to infer quality changes and apply it to U.S. import price indices. When we account for quality improvements in this way, we find that the import price inflation based on official measures has been overstated, revealing that consumers have been getting more from their purchases of imported goods than what standard quality adjustments suggest.

In our previous post we learned that, in general, people with disabilities participate in the labor market at significantly lower rates, and that they are much more likely to be unemployed. Despite these patterns, we found that the labor force participation of workers with disabilities rose noticeably following the pandemic. A relevant question then is how earnings of workers with disabilities compare with workers without disabilities. In this companion post we investigate differences in weekly earnings for workers with and without disabilities. We find that workers with disabilities earn considerably less than workers without disabilities. Additionally, with few exceptions, their earnings have remained roughly constant in real terms since the pre-pandemic period.

Among people in prime working age (25-54), around 7 percent have a disability of some kind. In this set of companion posts, we will examine how prime-aged workers with disabilities have fared in the labor market compared to the year prior to the pandemic. In this first post, we will show that people with disabilities are far less likely to be employed than people without disabilities, with both lower labor force participation and higher unemployment playing a role. We will also show that although employment rates of people with disabilities are very low, they have risen rapidly during the post-pandemic period, largely because of rising labor force participation. Our results are consistent with an increased prevalence of work from home (WFH) arrangements in the post-COVID period differentially benefiting people with disabilities.

Good measures of labor market tightness are essential to predict wage inflation and to calibrate monetary policy. In an October 2024 post, we introduced a new indicator of labor market tightness and showed that it tracked wage inflation best out of a broad range of tightness measures. In this post, we update our index through 2025 and show that it also forecasts future wage inflation best both in and out of sample. In addition, we highlight availability of the index as a new regularly updated feature on the New York Fed’s website.

The European Union has been an early adopter of carbon policies, with the introduction of the EU Emissions Trading System (ETS) in 2005. This scheme sets a common price for carbon and is applied to the most polluting manufacturing sectors. By increasing the cost of emissions-intensive production, the system incentivizes firms to decrease their use of fossil fuels. However, as we show in a companion post, the policy’s impact was moderated by firms increasing their reliance on high-emissions imports. To eliminate this workaround, the EU will expand the ETS to imports in 2026, through the Carbon Border Adjustment Mechanism (CBAM). The CBAM will essentially put a tariff on imported goods based on their carbon content. Our recent work provides a quantitative analysis of how the ETS and CBAM affect firms’ supply choice decisions, and the resulting changes in domestic prices and emissions.

Several countries have implemented a carbon tax or cap-and-trade system to establish high carbon prices and create a disincentive for the use of fossil fuels. Essentially, the tax encourages firms to substitute toward low carbon emission energy. Costs also rise for firms down the supply chain that use production inputs with high-emission content, so the total impact of a carbon tax can be large. In practice, however, firms also have an incentive to find an offset to a carbon tax. In this post, based on our recent work, we present evidence of one such adaptation strategy. We show that French firms increased their imports of high-emission inputs from suppliers outside the European Union’s cap-and-trade system, known as the EU Emissions Trading System (EU ETS), reducing the effectiveness of this approach to cutting carbon emissions—an adaptation strategy that leads to “carbon leakage.” To help stop this leakage, the EU is implementing a “carbon tariff” in 2026, which is the topic of a companion post.