Federal Reserve Economic Data

A U.S. Treasury security typically promises to repay an investor a flow of coupon payments and then principal repayment once the security matures. These payments are made in U.S. dollars. A security that promises to deliver future dollars is called a nominal security. Most U.S. Treasury securities are nominal securities.

Nominal securities do not offer investors protection against unexpected inflation. The purchasing power of future dollars declines as the cost of living increases. In short, the same dollars buy fewer goods. To help protect investors against inflation risk, the U.S. Treasury also issues “real’’ securities—that is, securities that are indexed to the rate of inflation (or cost of living) as measured by changes in the consumer price index (CPI). These Treasury inflation-protected securities (TIPS) promise to deliver more dollars when the CPI is higher and fewer dollars when the CPI is lower.

These two types of securities can be used to infer bond market expectations of future inflation. The basic idea is simple: Consider a security that matures in, say, 5 years. FRED shows us that the annual yield on a 5-year TIPS is presently –1.65%. We can interpret this number as the real (inflation-adjusted) yield on a 5-year TIPS. FRED also shows us that the annual yield on a 5-year nominal Treasury security is 1.35%. If investors are indifferent between holding the two securities in their wealth portfolios, then they must be yielding something close to the same inflation-adjusted rate of return. This would be true if investors were expecting an average inflation rate over the next 5 years equal to 1.35% – (–1.65%) = 3%. To put things another way, for an investor to break even on a bet between a nominal and inflation-protected security, the expected rate of inflation would have to be 3%. For this reason, this market-based measure of inflation is called the breakeven inflation rate.

The FRED graph above shows that the 5-year breakeven inflation rate averaged close to 2% in the years leading up to the COVID-19 crisis. After an initial decline in early 2020, expected inflation over the next 5 years has risen steadily to about 3%. The reason behind this increase is hotly debated. The breakevens do not tell us the cause of inflation. They provide us only with a measure of inflation expectations.

How this graph was made: Search for and select “Market Yield on U.S. Treasury Securities at 5-Year Constant Maturity, Inflation-Indexed.” From the “Edit Graph” panel, use the “Add Line” tab to search for and add the remaining two series.

Suggested by David Andolfatto and Joel Steinberg.

An important component in the development of an economy is for the population to be “banked”—that is, to have a bank account to save money and participate in the payment system. One indicator of the amount of banked people in a location (e.g., a state or country) used to be the number of bank branches in that location. The FRED graph above shows this statistic for a non-random set of countries: Mongolia, the United States, and Nigeria.

If this statistic is in some way representative of economic development, why is the number of bank branches in Mongolia so much higher than in the United States? And why are the numbers for the United States and Nigeria declining despite continuous economic growth?

The issue is that the banking industry has changed quite a bit: With automated teller machines (ATMs) and then online banking, the need for physical bank branches has been considerably reduced. This explains the decline in the United States. Furthermore, the level of banking competition, the geographic distribution of the population, and other factors can also influence these numbers and make cross-country comparisons difficult. Thus, some conjunction of special circumstances has caused Mongolia to have the second-highest concentration of bank branches in the world, just behind Luxembourg.

Finally, why is this statistic not growing in Nigeria? The continent of Africa has its challenges, especially in rural areas. However, cell phones have become an unexpected source of financial development, not only through “traditional” mobile banking, but also by using phone minutes as currency for online transactions. This reduces the need for physical bank branches.

How this graph was created: Search for “Mongolia bank branches” and click on the result. Open the graph, click on “Edit Graph,” open the “Add Line” tab, and search for “United States bank branches.” Repeat for Nigeria.

Suggested by Christian Zimmermann.

FRED does not offer data on itself, but it does offer data on Frederick.

Frederick is a town in Maryland that gave its name to its county and metropolitan area. There’s also a Frederick County in neighboring Virginia. A FRED search for Frederick gives (at the time of this writing) 554 results: 290 for counties and 264 for metropolitan areas. We invite our friends to explore the world of regional data in FRED, which you can monitor with the use of FRED’s dashboard feature. For now, back to Frederick.

Both Fredericks are within commuting distance to Washington, D.C., and have experienced strong population growth. Just look at the first FRED graph. This population growth has also led to sustained growth in income in both counties, which the FRED graph above shows. A population boom combined with rising incomes leads us naturally to more expensive housing, as the FRED graph below shows.

How these graphs were created: In each case, we started from the search for “Frederick,” clicked on one series, clicked on “Edit Graph,” and added the other line by searching for the other series in the “Add Line” tab.

Suggested by Christian Zimmermann.