MEMORANDUM
TO: Investment Committee
FROM: Senior Economist
DATE: April 30, 2026
RE: Analysis of Recent Federal Reserve District Research
I have reviewed the latest research cycle from the Fed districts. While much of the output is academic, several papers provide critical signals regarding systemic risk, the neutral rate, and the evolving labor market. Here are the most analytically significant publications for our current positioning:
1. [NY] The R–Labor Share Nexus: This research links the long-term decline in the natural rate of interest (R) to the falling labor share of income. If the structural decline in R* is tied to income distribution, we must reassess our long-term terminal rate assumptions and the sustainability of current real yields.
2. [NY/RIC] Bank Failures: Solvency vs. Liquidity: These joint perspectives argue that while "runs" are the visible trigger, weak fundamentals and insolvency are the primary drivers of failure. This suggests that liquidity injections (BTFP-style) are merely palliative; our credit risk models should prioritize solvency metrics over liquidity ratios when assessing regional bank exposure.
3. [NY] Use of Gen AI in the Workplace: This study examines the gap between AI tool availability and actual worker training. The insight is that productivity gains from Gen AI will be gated by "training access" rather than software deployment, suggesting a slower-than-expected productivity ramp-up in the mid-term.
4. [NY] Emerging Market Resilience: This analysis questions the perceived resilience of EMs following recent global shocks. If the "improved resilience" narrative is overstated, we should anticipate higher volatility and sharper capital outflows in EM portfolios as the USD remains strong.
5. [NY] Homeowner’s Insurance and Risk Sharing: With $48 trillion in US housing assets, this paper highlights systemic vulnerabilities in how natural disaster risks are shared. A failure in the insurance market could create a sudden wealth shock for households, impacting consumer spending and mortgage stability.
6. [NY] Fed Tools for Money Market Conditions: This clarifies the interplay between administrative rates and balance sheet size (QT/QE) in controlling money markets. Understanding this duality is essential for our short-term treasury trading and forecasting the Fed's path toward a "neutral" balance sheet.
Synthesis: The prevailing theme is a shift from surface-level volatility to structural fragility, particularly regarding bank solvency and climate-related asset risk. Simultaneously, the link between labor shares and R* suggests that the "lower-for-longer" era may have deeper structural roots than previously modeled.
The paper examines the primary drivers of bank failures, arguing that insolvency is typically the root cause rather than liquidity runs. It suggests that while bank runs accelerate failure, they are often symptoms of underlying insolvency.
Do banks fail because of runs or because they become insolvent? Answering this question is central to understanding financial crises and designing effective financial stability policies. Long-run historical evidence reveals that the root cause of bank failures is usually insolvency. The importance of bank runs is somewhat overstated. Runs matter, but in most cases they trigger or accelerate failure at already weak banks, rather than cause otherwise sound banks to fail.
The paper proposes a model to analyze the simultaneous decline of the natural rate of interest (R*) and the labor share of income. It argues that these two macroeconomic trends are fundamentally linked rather than isolated phenomena.
Over the past quarter century, the U.S. economy has experienced significant declines in both the labor share of income and the natural rate of interest, referred to as R*. Existing research has largely analyzed these two developments in isolation. In this post, we provide a simple model that captures the joint evolution of the labor share and R*, which we call the R*–labor share nexus. Our key finding is that structural changes affecting R* also influence the evolution of the labor share, and thereby wages and prices. This highlights a potentially important channel, absent from many macroecono
This study examines the integration of generative AI in the workplace, focusing on tool accessibility and productivity gains. It highlights the significant value workers place on specialized training to utilize these technologies effectively.
The rapid spread of generative AI (AI) tools is reshaping the workplace at a remarkable rate. Yet relatively little is known about whether workers have access to these tools, how the tools affect workers’ daily productivity, and how much workers value the training needed to use the tools effectively. In this post, we shed light on these issues by drawing on supplemental questions in the November 2025 Survey of Consumer Expectations (SCE), fielded to a representative sample of the U.S. population. We find that adoption of AI tools at work is heterogeneous, that a sizable share of workers see AI
This paper examines the role of homeowner's insurance as a primary mechanism for risk sharing and asset protection for U.S. households. It highlights the systemic importance of insurance in mitigating the financial shocks caused by natural disasters to the nation's largest household asset class.
Housing is the largest component of assets held by households in the United States, totaling $48 trillion in 2025. When natural disasters strike, the resulting damage to homes can be large relative to households’ liquid savings. Homeowner’s insurance is the primary financial tool households use to protect themselves against property risk. Despite the economic importance of homeowner’s insurance, we know surprisingly little about how insurance contracts are actually designed with respect to property risk. In this post, which is based on our new paper, “Economics of Property Insurance,” we exami
The paper examines the varying degrees of economic and financial resilience among emerging market economies following recent global shocks. It argues that while structural reforms have strengthened some nations, others remain vulnerable.
A succession of shocks to the global economy in recent years has focused attention on the improved economic and financial resilience of emerging market economies. For some of these economies, this assessment is well-founded and highlights the fruits of deep, structural economic reforms since the 1990s. However, for a much larger universe of countries, the ability to weather shocks is still mixed and many remain vulnerable. In this post, we explore the divide between the two sets of countries and focus on the effects of recent economic shocks, including the ongoing conflict in the Middle East.
The analysis examines the efficacy of administrative rate adjustments and balance sheet modifications during the 2022-23 tightening cycle. It finds that both tools significantly influence money market pricing and overall liquidity conditions.
The Federal Reserve’s 2022-23 tightening cycle involved the use of two monetary policy tools: changes in administrative rates and changes in the size of its balance sheet. This post highlights the results of a recent Staff Report that explores how these tools affect money market conditions. Using confidential trade-level data, we find that both tools have significant effects on the pricing of funds sourced through repo. These results suggest that the Fed can manage how financing conditions are affected even as it influences economic conditions. For example, the Fed can lower its administrative
The author presents a new methodology for estimating reserve demand to enhance the precision of monetary policy implementation. The proposal aims to resolve practical difficulties inherent in current estimation techniques.
Reserve-demand estimation is central to monetary policy implementation but tricky in practice. This discusses a proposal that could improve it.
The paper argues that bank failures are primarily driven by weak underlying fundamentals rather than depositor panics. It emphasizes the role of solvency issues over sudden liquidity shocks in triggering institutional collapse.
Bank failures are almost always preceded by weak fundamentals. Depositor panics are rarely the root cause.
The analysis evaluates the effectiveness of export promotion strategies in reducing trade deficits. It specifically highlights the historical role of the Export-Import Bank in shaping US trade policy.
A post looks at the role of the Export-Import Bank, which in years past has played an effective role in US trade policy.
The paper examines the inherent trade-off between macroeconomic stabilization efforts and long-term economic expansion. It analyzes how policy interventions to reduce volatility may impact overall growth trajectories.
This research distinguishes between technologies that allow for scaling of existing outputs and those that fundamentally increase productivity. It explores the implications of these different technological drivers on long-term economic growth.
The paper provides an empirical investigation into the determinants and trends of borrowing costs. It analyzes the factors influencing the pricing of credit across different market segments.
The study explores how expectations regarding wealth returns impact labor supply decisions during periods of increased retirement. It analyzes the trade-off between leisure and employment in the context of asset performance.