Construction activity fluctuates with the weather and overall economic activity. In fact, it fluctuates much more than the economy in general, as many episodes of economic overheating and collapse have shown us. But construction has many facets that aren’t visible unless we look closely at the details by sector. The graph shows two types of construction that have changed quite dramatically over the past few decades: The building of religious edifices has nearly come to a stop and is now about a third of what it was 15 years ago. And the graph doesn’t even account for the impact of inflation. Contrast this with the rise in construction for amusement and recreation, which was about equal to religious edifices back in the early 1990s and is now five times as large.
How this graph was created: Start at the Value of Construction Put in Place release table, select the series you to display, and click “Add to Graph.”
Real negative interest rates are easy to imagine when inflation is higher than the interest rate. But nominal negative interest rates have long been thought of as either inconceivable or unsustainable. Yet, in recent years, several European countries and Japan have made negative nominal interest rates a reality. The most extreme case seems to be Switzerland, which is featured in the top graph: The spot rate, the 3-month LIBOR, and even the 10-year government bond rate are all negative now and have been for several years. How is this possible?
This isn’t a case of an economy that needs major stimulus through low interest rates. Rather, it’s an export-focused economy whose currency has a strong tendency to appreciate; in fact, the Swiss franc is considered a refuge currency in times of crisis. The crisis at hand involves the euro’s various troubles in recent years, including the debt problems of some of its member countries. Switzerland has avoided these troubles and has even managed to achieve successive government surpluses. So it’s easy to understand why there’s so much demand for Swiss francs and bonds. But so much demand typically causes a local currency to appreciate, which would make exporting more difficult. The Swiss National Bank, therefore, has adopted a policy of negative interest rates to make the franc less attractive. Interestingly, the effect permeates the Eurodollar market as well, as shown in the bottom graph.
How these graphs were created: NOTE: Data series used in these graphs have been removed from the FRED database, so the instructions for creating the graphs are no longer valid. The graphs were also changed to static images.
The Fed has a dual mandate, written into law, from Congress: maintain stable prices and achieve maximum employment. The graph above shows the track record for the first part of the mandate, which is what we focus on here. Now, the interpretation of what “stable prices” means has changed over time, but the Fed’s current inflation target is about 2%. And, indeed, it looks like the Fed has done a pretty good job since the 1980s compared with previous periods. What about before that?
First, the Fed didn’t exist until 1913; and the pre-Fed period had wild swings in the inflation rate, as well as long periods of deflation, which some consider very problematic. Between the world wars, inflation was quite erratic, too, with some bouts of deflation. But Fed policy wasn’t driven by an inflation mandate at that time, but rather by a gold standard. From World War II up until the 1970s, the U.S. had a couple of episodes of high inflation, but there was no inflation mandate then either. In fact, there was also quite a bit of federal government intervention in monetary policy. Obviously, this short list oversimplifies the history of inflation in the U.S., but it looks like having a clear objective may have helped the Fed focus on and achieve this particular metric.
How this graph was created: Start at the NBER’s Macrohistory Database. Select the index of the general price level and click “Add to Graph.” From the “Edit Graph” panel, use the “ADD LINE” option to search for and select CPI. Change units to “Percent Change from Year Ago,” and click “Copy to all.”
