Category: Essays

Economics-Watching: Money Transmitter Regulation: Key to Payments Modernization

[from the Federal Reserve Bank of Atlanta, by Claire Greene, payments risk expert in the Retail Payments Risk Forum]

In October, I wrote about the potential for standards to make business-to-business payments more efficient. Today, let’s talk about standards again, this time for money transfer businesses and the state regulations covering them.

We all know these businesses: Venmo, Western Union, MoneyGram, PayPal, CashApp. The roster seemingly grows by the day. Many crypto firms also are registered money transfer businesses. Money transfer businesses typically are nationwide and global in scope. Nevertheless, these multi-state and multi-national businesses are regulated under the separate licensing rules of individual states and US territories. Federal laws, including the Bank Secrecy Act and the Electronic Fund Transfer Act, also apply to money transfer businesses.

For new and established money transfer businesses and for state regulators, the hodgepodge of state regulations creates headaches. To do business everywhere in the United States, money transfer businesses must register separately in each state and US territory and meet license requirements that can vary from state to state. They can face multiple state examinations, also with different requirements, simultaneously (and annually). During examinations, regulators review operations, financial condition, management, and compliance with anti-money laundering laws.

Fortunately, many states have acted to address this confusing and inefficient situation by adopting the Model Money Transmission Modernization Act (MTMA) [archived PDF], sample legislation developed by the Conference of State Bank Supervisors to establish nationwide standards and requirements for licensed money transmitters. Fourteen states have adopted some version of the MTMA: Arizona, Arkansas, Georgia, Hawaii, Indiana, Iowa, Minnesota, Nevada, New Hampshire, North Dakota, South Dakota, Tennessee, Texas, and West Virginia. In my home state of Massachusetts, the legislature’s Joint Committee on Financial Services heard testimony on a version of this bill just last month. For traditional money transmitters and new fintech entrants, the MTMA aims to reduce the substantive and technical differences among the various state laws and regulations. This kind of change has the potential to reduce compliance burdens, encourage innovation, and remove barriers to entry for new market participants.

The MTMA is important given the prodigious growth in person-to-person, or P2P, payments via apps. Among all US consumers, half of P2P payments were sent using noncash methods in 2022, up from less than 30 percent in 2020 (see the chart). From Massachusetts alone, money transmitters sent $31 billion in 2022, according to the state’s Division of Banks.

Half of P2P payments were made electronically in 2022.

The MTMA also has the potential to create efficiencies for state supervisors. For example, the Conference of State Bank Supervisors (CSBS) has facilitated a collaborative exam program for nationwide payments and cryptocurrency firms to undergo one exam, each facilitated by one state overseeing a group of examiners sourced from across the country. According to the CSBS, transmitters in more than 40 states that have laws addressing core precepts can benefit from the streamlined exams.

The MTMA is another example showing that standards create efficiencies that are good for businesses, good for regulators and, by extension, good for consumers.

Extracting “Big History” from Hollywood “Sword-and-Sandal” Movies: Cleopatra (1963)

Seen in “deep time,” the movie is not about colorful personalities only but on a larger scale, the transition from the Roman Republic to the Roman Empire. This covers approximately one thousand years with some five centuries for each form of government, republic and empire.

The movie has as its background internecine power struggles in both Rome and Egypt.

The upshot of these struggles is the transition from the Roman Republic to the Roman Empire. This transition is “punctuated” by two momentous battles:

  1. Land Battle of Pharsalus, 48 BC (Cleopatra begins with this battle).
  2. Naval Battle of Actium, 31 BC.

Rome went from monarchy (Kings) to republic (Senators) for five hundred years to Emperors for another five hundred.

(Notice that Napoleon was crowned Emperor of the French in 1804. The King was executed during the French Revolution and the word “king” was to be avoided.)

Other movies like Ben-Hur with Charleton Heston playing the lead role, show you the unhappiness of colonial peoples (like the Hebrews) under the Roman Empire. Christianity became the official religion in 330 AD under Constantine and the capital was moved from pagan Rome to Christian Constantinople. The very name “Roman Catholic Church” shows you the fusion after centuries of conflict.

After the Battle of Pharsalus in 48 BC, Julius Caesar went to Egypt, under the pretext of being named the executor of the will of the father of the young Pharaoh Ptolemy XIII and his sister Cleopatra.

Ptolemy and Cleopatra are in the midst of a civil war of their own and she has been driven out of the city of Alexandria.

Ptolemy rules alone under the care of his three “guardians,” the chief eunuch Pothinus, his tutor Theodotus and General Achillas.

Cleopatra convinces Caesar to restore her throne from her younger brother. Caesar, in effective control of the kingdom, sentences Pothinus to death for arranging an assassination attempt on Cleopatra, and banishes Ptolemy to the eastern desert, where he and his outnumbered army would face certain death against Mithridates.

Cleopatra is crowned queen of Egypt and begins to develop megalomaniacal dreams of ruling the world with Caesar, who in turn desires to become king of Rome.

They marry, and when their son Caesarion is born, Caesar accepts him publicly, which becomes the talk of Rome and the Senate.

After he is made dictator for life, Caesar sends for Cleopatra. She arrives in Rome in a lavish procession and wins the adulation of the Roman people. The Senate grows increasingly discontented amid rumors that Caesar wishes to be made king, which is anathema to the Romans. On the Ides of March in 44 BC, a group of conspirators assassinated Caesar and fled the city, starting a rebellion. An alliance among Octavian (Caesar’s adopted son), Mark Antony (Caesar’s right-hand man and general) and Marcus Aemelius Lepidus puts down the rebellion and splits the republic. Cleopatra is angered after Caesar’s will recognizes Octavian, rather than Caesarion, as his official heir, and she returns to Egypt.

While planning a campaign against Parthia in the east, Antony realizes that he needs money and supplies that only Egypt can sufficiently provide. After refusing several times to leave Egypt, Cleopatra acquiesces and meets him on her royal barge in Tarsus. The two begin a love affair, and Cleopatra assures Antony that he is much more than a pale reflection of Caesar. Octavian’s removal of Lepidus forces Antony to return to Rome, where he marries Octavian’s sister Octavia to prevent political conflict. This upsets and enrages Cleopatra. Antony and Cleopatra reconcile and marry, with Antony divorcing Octavia. Octavian, incensed, reads Antony’s will to the Roman Senate, revealing that Antony wishes to be buried in Egypt. Rome turns against Antony, and Octavian’s call for war against Egypt receives a rapturous response.

The war is decided at the naval Battle of Actium on September 2, 31 BC, where Octavian’s fleet, under the command of Agrippa, defeats the lead ships of the Antony–Egyptian fleet. Cleopatra assumes that Antony is dead and orders the Egyptian forces home. Antony follows her, leaving the rest of his fleet leaderless and soon defeated.

Several months later, Cleopatra sends Caesarion under disguise out of Alexandria. She manages to convince Antony to resume command of his troops and fight Octavian’s advancing army. However, Antony’s soldiers abandon him during the night. Rufio, the last man loyal to Antony, kills himself. Antony tries to goad Octavian into single combat but is finally forced to flee into the city. When Antony returns to the palace, Apollodorus, in love with Cleopatra himself, tells him she is in her tomb as she had instructed, and lets Antony believe she is dead. Antony falls on his own sword. Apollodorus then confesses that he misled Antony and assists him to the tomb where Cleopatra and two servants have taken refuge. Antony dies in Cleopatra’s arms.

Octavian and his army march into Alexandria with Caesarion’s dead body in a wagon. He discovers the dead body of Apollodorus, who had poisoned himself. Octavian receives word that Antony is dead and that Cleopatra is holed up in a tomb. There he offers to allow her to rule Egypt as a Roman province if she will accompany him to Rome. Cleopatra, knowing that her son is dead, agrees to Octavian’s terms, including an empty pledge on the life of her son not to harm herself. After Octavian departs, she orders her servants in coded language to assist with her suicide. Octavian discovers that she is going to kill herself and he and his guards burst into Cleopatra’s chamber to find her dead, dressed in gold, along with her servants and the asp that killed her.

The Battle of Actium was a naval battle fought between a maritime fleet of Octavian led by Marcus Agrippa and the combined fleets of both Mark Antony and Cleopatra VII Thea Philopator.

The battle took place on 2 September 31 BC in the Ionian Sea, near the former Roman colony of Actium, Greece, and was the climax of over a decade of rivalry between Octavian and Antony.

In early 31 BC, the year of the battle, Antony and Cleopatra were temporarily stationed in Greece. Mark Antony possessed 500 ships and 70,000 infantry, and made his camp at Actium, and Octavian, with 400 ships and 80,000 infantry, arrived from the north and occupied Patrae and Corinth, where he managed to cut Antony’s southward communications with Egypt (via the Peloponnese) with help from Marcus Agrippa. Octavian previously gained a preliminary victory in Greece, where his navy successfully ferried troops across the Adriatic Sea under the command of Marcus Agrippa. Octavian landed on mainland Greece, opposite the island of Korkyra (modern Corfu) and proceeded south on land.

Trapped on both land and sea, portions of Antony’s army deserted and fled to Octavian’s side (daily), and Octavian’s forces became comfortable enough to make preparations for battle. Antony’s fleet sailed through the bay of Actium on the western coast of Greece, in a desperate attempt to break free of the naval blockade. It was there that Antony’s fleet faced the much larger fleet of smaller, more maneuverable ships under commanders Gaius Sosius and Agrippa. Antony and his remaining forces were spared only due to a last-ditch effort by Cleopatra’s fleet that had been waiting nearby. Octavian pursued them and defeated their forces in Alexandria on 1 August 30 BC—after which Antony and Cleopatra committed suicide.

Octavian’s victory enabled him to consolidate his power over Rome and its dominions. He adopted the title of Princeps (“first citizen”), and in 27 BC was awarded the title of Augustus (“revered”) by the Roman Senate. This became the name by which he was known in later times.

As Augustus, he retained the trappings of a restored Republican leader, but historians generally view his consolidation of power and the adoption of these honorifics as the end of the Roman Republic and the beginning of the Roman Empire.

Note: Shakespeare’s Antony and Cleopatra is of course relevant here.

Economics-Watching: How Green Innovation Can Stimulate Economies and Curb Emissions

[from IMF Blog, by Zeina Hasna, Florence Jaumotte & Samuel Pienknagura]

Coordinated climate policies can spur innovation in low-carbon technologies and help them spread to emerging markets and developing economies

Making low-carbon technologies cheaper and more widely available is crucial to reducing harmful emissions.

We have seen decades of progress in green innovation for mitigation and adaptation: from electric cars and clean hydrogen to renewable energy and battery storage.

More recently though, momentum in green innovation has slowed. And promising technologies aren’t spreading fast enough to lower-income countries, where they can be especially helpful to curbing emissions. Green innovation peaked at 10 percent of total patent filings in 2010 and has experienced a mild decline since. The slowdown reflects various factors, including hydraulic fracking that has lowered the price of oil and technological maturity in some initial technologies such as renewables, which slows the pace of innovation.

The slower momentum is concerning because, as we show in a new staff discussion note, green innovation is not only good for containing climate change, but for stimulating economic growth too. As the world confronts one of the weakest five-year growth outlooks in more than three decades, those dual benefits are particularly appealing. They ease concerns about the costs of pursuing more ambitious climate plans. And when countries act jointly on climate, we can speed up low-carbon innovation and its transfer to emerging markets and developing economies.

IMF research [archived PDF] shows that doubling green patent filings can boost gross domestic product by 1.7 percent after five years compared with a baseline scenario. And that’s under our most conservative estimate—other estimates show up to four times the effect.

The economic benefits of green innovation mostly flow through increased investment in the first few years. Over time, further growth benefits come from cheaper energy and production processes that are more energy efficient. Most importantly, they come from less global warming and less frequent (and less costly) climate disasters.

Green innovation is associated with more innovation overall, not just a substitution of green technologies for other kinds. This may be because green technologies often require complementary innovation. More innovation usually means more economic growth.

A key question is how countries can better foster green innovation and its deployment. We highlight how domestic and global climate policies spur green innovation. For example, a big increase in the number of climate policies tends to boost green patent filings, our preferred proxy for green innovation, by 10 percent within five years.

Some of the most effective policies to stimulate green innovation include emissions-trading schemes that cap emissions, feed-in-tariffs, which guarantee a minimum price for renewable energy producers, and government spending, such as subsidies for research and development. What’s more, global climate policies result in much larger increases in green innovation than domestic initiatives alone. International pacts like the Kyoto Protocol and the Paris Agreement amplify the impact of domestic policies on green innovation.

One reason policy synchronization has a prominent impact on domestic green innovation is what is called the market size effect. There’s more incentive to develop low-carbon technologies if innovators can expect to sell into a much larger potential market, that is, in countries which adopted similar climate policies.

Another is that climate policies in other countries generate green innovations and knowledge that can be used in the domestic economy. This is known as technology diffusion. Finally, synchronized policy action and international climate commitments create more certainty around domestic climate policies, as they boost people’s confidence in governments’ commitment to addressing climate change.

Climate policies even help spread the use of low-carbon technologies in countries that are not sources of innovation, through trade and foreign-direct investment. Countries that introduce climate policies see more imports of low-carbon technologies and higher green FDI inflows, especially in emerging markets and developing economies.

Risks of protectionism

Lowering tariffs on low-carbon technologies can further enhance trade and FDI in green technologies. This is especially important for middle- and low-income countries where such tariffs remain high. On the flipside, more protectionist measures would impede the broader spread of low-carbon technologies.

In addition, and given evidence of economies of scale, protectionism—with ultimately smaller potential markets—could stifle incentives for green innovation and lead to duplication of efforts across countries.

The risks of protectionism are exacerbated when climate policies, such as subsidies, do not abide by international rules. For example, local content requirements, whereby only locally produced green goods benefit from subsidies, undermine trust in multilateral trade rules and could result in retaliatory measures.

Beyond embracing a rules-based approach to climate policies, the advanced economies, where most green innovation occurs, have an important responsibility: sharing the technology so that emerging and developing economies can get there faster. Such direct technology transfers hold the promise of a double dividend for emerging markets and developing economies—reducing emissions and yielding economic benefits.

—This blog reflects research by Zeina Hasna, Florence Jaumotte, Jaden Kim, Samuel Pienknagura and Gregor Schwerhoff.

Economics-Watching: FTC Action Leads to $18 Million in Refunds for Brigit Consumers Harmed by Deceptive Promises About Cash Advances, Hidden Fees, and Blocked Cancellation

[from the Federal Trade Commission]

Complaint alleges company violated FTC Act and ROSCA with false promises targeting consumers living paycheck-to-paycheck and by failing to deliver cash advances as advertised

The Federal Trade Commission is taking action against personal finance app provider Brigit, alleging that its promises of “instant” cash advances of up to $250 for people living paycheck-to-paycheck were deceptive and that the company locked consumers into a $9.99 monthly membership they couldn’t cancel.

Brigit, also known as Bridge It, Inc., has agreed to settle the FTC’s charges, resulting in a proposed court order that would require the company to pay $18 million in consumer refunds, stop its deceptive marketing promises, and end tactics that prevented customers from cancelling.

“Brigit trapped those consumers least able to afford it into monthly membership plans they struggled to escape from,” said Sam Levine, Director of the FTC’s Bureau of Consumer Protection.  “Companies that offer cash advances and other alternative financial products have to play by the same rules as other businesses or face potential action by the FTC.”

According to the FTC’s complaint [archived PDF], Brigit advertised its cash advance service online, through social media and through broadcast ads with claims that customers who subscribed to the company’s service would have access to “instant” cash advances of up to $250 “whenever you need it,” and could cancel anytime. Consumers could only access the cash advance features when they signed up for the $9.99 per month “Plus” subscription.

The FTC’s complaint, however, charges that consumers were rarely able to get an advance for the promised $250, and in many cases, consumers were not able to receive a cash advance at all. Despite Brigit’s promises that advances would be available with “free instant transfers,” the complaint notes that the company began charging consumers a 99-cent fee for an instant transfer. Consumers who did not pay the fee had to wait up to three business days for their advances.

In addition, the complaint charges that while Brigit claimed to offer “non-recourse” advances with no fees or interest, the company prevented consumers who had an open advance from cancelling their subscription and continued to withdraw $9.99 monthly from their bank account until the advance was paid off. Such monthly charges created significant additional hardship for consumers already struggling to pay off a cash advance.

Even when consumers without an open cash advance attempted to cancel the paid subscription, the complaint charges that the company employed dark patterns—manipulative design tricks—to create a confusing and misleading cancellation process that prevented consumers from cancelling their subscriptions, instead of offering a simple mechanism to cancel, as required by the Restore Online Shoppers’ Confidence Act (ROSCA) [archived PDF].

The proposed settlement order [archived PDF], which must be approved by a federal judge before it can go into effect, would require Brigit to pay $18 million to the FTC to be used to provide refunds to consumers. In addition, the order would prohibit Brigit from misleading consumers about how much money is available through their advances, how fast the money would be available, any fees associated with delivery, and consumers’ ability to cancel their service. The order would also require the company to make clear disclosures about its subscription products and provide a simple mechanism for consumers to cancel.

The Commission vote authorizing the staff to file the complaint and stipulated final order was 3-0. The FTC filed the complaint and final order in the U.S. District Court for the Southern District of New York.

NOTE: The Commission files a complaint when it has “reason to believe” that the named defendants are violating or are about to violate the law and it appears to the Commission that a proceeding is in the public interest. Stipulated final orders have the force of law when approved and signed by the District Court judge.

The staff attorneys on this matter were Patrick Roy, Mark Glassman and James Doty of the FTC’s Bureau of Consumer Protection.

Science-Watching: Why Do Batteries Sometimes Catch Fire and Explode?

[from Berkeley Lab News, by Theresa Duque]

Key Takeaways
  • Scientists have gained new insight into why thermal runaway, while rare, could cause a resting battery to overheat and catch fire.
  • In order to better understand how a resting battery might undergo thermal runaway after fast charging, scientists are using a technique called “operando X-ray microtomography” to measure changes in the state of charge at the particle level inside a lithium-ion battery after it’s been charged.
  • Their work shows for the first time that it is possible to directly measure current inside a resting battery even when the external current measurement is zero.
  • Much more work is needed before the findings can be used to develop improved safety protocols.

How likely would an electric vehicle battery self-combust and explode? The chances of that happening are actually pretty slim: Some analysts say that gasoline vehicles are nearly 30 times more likely to catch fire than electric vehicles. But recent news of EVs catching fire while parked have left many consumers – and researchers – scratching their heads over how these rare events could possibly happen.

Researchers have long known that high electric currents can lead to “thermal runaway” – a chain reaction that can cause a battery to overheat, catch fire, and explode. But without a reliable method to measure currents inside a resting battery, it has not been clear why some batteries go into thermal runaway, even when an EV is parked.

Now, by using an imaging technique called “operando X-ray microtomography,” scientists at Lawrence Berkeley National Laboratory (Berkeley Lab) and UC Berkeley have shown that the presence of large local currents inside batteries at rest after fast charging could be one of the causes behind thermal runaway. Their findings were reported in the journal ACS Nano.

“We are the first to capture real-time 3D images that measure changes in the state of charge at the particle level inside a lithium-ion battery after it’s been charged,” said Nitash P. Balsara, the senior author on the study. Balsara is a faculty senior scientist in Berkeley Lab’s Materials Sciences Division and a UC Berkeley professor of chemical and biomolecular engineering.

“What’s exciting about this work is that Nitash Balsara’s group isn’t just looking at images – They’re using the images to determine how batteries work and change in a time-dependent way. This study is a culmination of many years of work,” said co-author Dilworth Y. Parkinson, staff scientist and deputy for photon science operations at Berkeley Lab’s Advanced Light Source (ALS).

The team is also the first to measure ionic currents at the particle level inside the battery electrode.

3D microtomography experiments at the Advanced Light Source enabled researchers to pinpoint which particles generated current densities as high as 25 milliamps per centimeter squared inside a resting battery after fast charging. In comparison, the current density required to charge the test battery in 10 minutes was 18 milliamps per centimeter squared. (Credit: Nitash Balsara and Alec S. Ho/Berkeley Lab. Courtesy of ACS Nano)
Measuring a battery’s internal currents

In a lithium-ion battery, the anode component of the electrode is mostly made of graphite. When a healthy battery is charged slowly, lithium ions weave themselves between the layers of graphite sheets in the electrode. In contrast, when the battery is charged rapidly, the lithium ions have a tendency to deposit on the surface of the graphite particles in the form of lithium metal.

“What happens after fast charging when the battery is at rest is a little mysterious,” Balsara said. But the method used for the new study revealed important clues.

Experiments led by first author Alec S. Ho at the ALS show that when graphite is “fully lithiated” or fully charged, it expands a tiny bit, about a 10% change in volume – and that current in the battery at the particle level could be determined by tracking the local lithiation in the electrode. (Ho recently completed his Ph.D. in the Balsara group at UC Berkeley.)

A conventional voltmeter would tell you that when a battery is turned off, and disconnected from both the charging station and the electric motor, the overall current in the battery is zero.

But in the new study, the research team found that after charging the battery in 10 minutes, the local currents in a battery at rest (or currents inside the battery at the particle level) were surprisingly large. Parkinson’s 3D microtomography instrument at the ALS enabled the researchers to pinpoint which particles inside the battery were the “outliers” generating alarming current densities as high as 25 milliamps per centimeter squared. In comparison, the current density required to charge the battery in 10 minutes was 18 milliamps per centimeter squared.

The researchers also learned that the measured internal currents decreased substantially in about 20 minutes. Much more work is needed before their approach can be used to develop improved safety protocols.

Researchers from Argonne National Laboratory also contributed to the work.

The Advanced Light Source is a DOE Office of Science user facility at Berkeley Lab.

The work was supported by the Department of Energy’s Office of Science and Office of Energy Efficiency and Renewable Energy. Additional funding was provided by the National Science Foundation.

World-Watching: German Industry: Structural Change Underway

[from Deutsche Bank Research]

Production in major industrial sectors in Germany has developed very differently in recent years under the impact of the coronavirus pandemic and energy price shock. For example, manufacturing in electrical engineering rose by 18% compared with the start of 2015. In the chemical industry, there has been a 20% decline over the same period. The differences are not only cyclical, but also structural. In the future, it will be more important to distinguish between Germany as an industrial location and the German industry.

Read the Germany blog [archived PDF].

The Levinas Facial Theme in Novels

[a continuation of Education and Spontaneous Learning]

The Face of Another (Japanese: 他人の顔, Hepburn: Tanin no kao) is a 1964 novel written by the Japanese novelist Kōbō Abe. Like other stories written by this author, the novel explores the alienation of modern man from urban society.[1] It is written in the first person narrative mode, and is divided into a prologue, three “notebooks” (black, gray, and white), and a concluding letter from the protagonist’s wife.[2] In 1966, it was adapted into a film directed by Hiroshi Teshigahara.[3]

An industrial accident has severely burned the face of an unnamed plastics scientist. His wife is repulsed by his disfigurement and refuses to have sexual contact with him. To regain the affection of his wife, he attempts to create a prosthetic mask in a rented apartment. With this new “face,” the protagonist sees the world in a new way and begins a clandestine affair with his estranged wife. Although the mask gives the man newfound freedom, at the end of the story, it becomes difficult to determine if the mask has taken ownership of the man or the man has taken ownership of the face.[1][2][4]

There is also a subplot following a hibakusha woman who has suffered burns to the right side of her face. In the novel, the protagonist sees this character in a film; in the film version, this is deliberately obscured.

References
  1. Hoover, William (2019). Historical Dictionary of Postwar Japan, 2nd edition. Lanham, MD: Rowman & Littlefield. p. 11. ISBN 9781538111550.
  2. Abe, Kobo (1980). The face of another. Internet Archive. New York: Perigee Books. ISBN 978-0-399-50484-6.
  3. Teshigahara, Hiroshi (1967-06-09), Tanin no kao (Drama, Horror, Sci-Fi), Teshigahara Productions, Tokyo Eiga Co. Ltd.
  4. Rush, Zachariah (2014). Beyond the Screenplay: A Dialectical Approach to Dramaturgy. Jefferson, NC: McFarland. p. 59. ISBN 9780786466030
See Also

La Belle Image by Marcel Aymé, a novel with a similar premise.

Economics-Watching: Multivariate Core Trend Inflation

[from the Federal Reserve Bank of New York]

Overview

The Multivariate Core Trend (MCT) model measures inflation’s persistence in the seventeen core sectors of the personal consumption expenditures (PCE) price index.

Whether inflation is short-lived or persistent, concentrated in a few sectors or broad-based, is of deep relevance to policymakers. We estimate a dynamic factor model on monthly data for the major sectors of the personal consumption expenditures (PCE) price index to assess the extent of inflation persistence and its broadness. The results give a measure of trend inflation and shed light on whether inflation dynamics are dominated by a trend common across sectors or are sector-specific.

The New York Fed updates the MCT estimates and share sectoral insights at or shortly after 2 p.m. on the first Monday after the release of personal consumption expenditures (PCE) price index data from the Bureau of Economic Analysis. Data are available for download.

September 2023 Update

  • Multivariate Core Trend (MCT) inflation was 2.9 percent in September, a 0.3 percentage point increase from August (which was revised up from 2.5 percent). The 68 percent probability band is (2.4, 3.3).
  • Services ex-housing accounted for 0.54 percentage point (ppt) of the increase in the MCT estimate relative to its pre-pandemic average, while housing accounted for 0.50 ppt. Core goods had the smallest contribution, 0.03 ppt.
  • A large part of the persistence in housing and services ex-housing is explained by the sector-specific component of the trend.

Latest Release: 2:00 p.m. ET October 31, 2023

View the Multivariate Core Trend of PCE Inflation data here.

Frequently Asked Questions

What is the goal of the Multivariate Core Trend (MCT) analysis?

The New York Fed aims to provide a measure of inflation’s trend, or “persistence,” and identify where the persistence is coming from.

What data are reported?

The New York Fed’s interactive charts report monthly MCT estimates from 1960 to the present. The New York Fed also provides estimates of how much three broad sectors (core goods, core services excluding housing, and housing) are contributing to overall trend inflation over the same time span. The New York Fed further distinguishes whether the persistence owes to common or sector-specific components. Data are available for download.

What is the release schedule?

The New York Fed updates the estimate of inflation persistence and share sectoral insights following the release of PCE price data from the U.S. Bureau of Economic Analysis each month.

What is the modeling strategy?

A dynamic factor model with time-varying parameters is estimated on monthly data for the seventeen major sectors of the PCE price index. The model decomposes each sector’s inflation as the sum of a common trend, a sector-specific trend, a common transitory shock, and a sector-specific transitory shock. The trend in PCE inflation is constructed as the sum of the common and the sector-specific trends weighted by the expenditure shares.

The New York Fed uses data from all seventeen of the PCE’s sectors; however, in constructing the trend in PCE inflation, we exclude the volatile non-core sectors (that is, food and energy). The approach builds on Stock and Watson’s 2016 “Core Inflation and Trend Inflation.”

How does the MCT measure differ from the core personal consumption expenditures (PCE) inflation measure?

The core inflation measure simply removes the volatile food and energy components. The MCT model seeks to further remove the transitory variation from the core sectoral inflation rates. This has been key in understanding inflation developments in recent years because, during the pandemic, many core sectors (motor vehicles and furniture, for example) were hit by unusually large transitory shocks. An ideal measure of inflation persistence should filter those out.

PCE data are subject to revision by the Bureau of Economic Analysis (BEA). How does that affect MCT estimates?

BEA monthly revisions as well as other BEA periodic revisions to PCE price data do lead to reassessments of the estimated inflation persistence as measured by the MCT estimates. Larger revisions may lead to a more significant reassessment. A recent example of the latter case is described on Liberty Street Economics in “Inflation Persistence: Dissecting the News in January PCE Data.”

Historical estimates in our MCT data series back to 1960 are based on the latest vintage of data available and incorporate all prior revisions.

How does the MCT Inflation measure relate to other inflation measures?

The MCT model adds to the set of tools that aim at measuring the persistent component of PCE price inflation. Some approaches, such as the Cleveland Fed’s Median PCE and the Dallas Fed’s Trimmed Mean, rely on the cross-sectional distribution of price changes in each period. Other approaches, such as the New York Fed’s Underlying Inflation Gauge (UIG), rely on frequency-domain time series smoothing methods. The MCT approach shares some features with them, namely: exploiting the cross-sectional distribution of price changes and using time series smoothing techniques. But the MCT model also has some unique features that are relevant to inflation data. For example, it allows for outliers and for the noisiness of the data and for the relation with the common component to change over time.

How useful can MCT data be for policymakers?

The MCT model provides a timely measure of inflationary pressure and provides insights on how much price changes comove across sectors.

View the Multivariate Core Trend of PCE Inflation data here.

Economics-Watching: Texas Service Sector Activity Flat, Outlook Continues to Worsen

[from The Federal Reserve Bank of Dallas]

Growth in Texas service sector activity stalled in October, according to business executives responding to the Texas Service Sector Outlook Survey.

“Labor market indicators pointed to no growth in employment and a largely stable workweek,” said Jesus Cañas, Dallas Fed senior business economist. “Price pressures remained unchanged while wage growth eased slightly. Perceptions of broader business conditions continued to worsen in October, as pessimism notably increased.”

Key takeaways from the service sector survey:

  • The revenue index fell eight points to 0.7, with the near-zero reading suggesting little change in activity from September.
  • The employment index fell from 2.7 to 0.1, its lowest level in seven months.
  • The input prices index was flat at 37.3 and the selling prices index remained steady at 9.5.
  • The wages and benefits index fell two points to 17.0, approaching its average reading of 15.8.
  • The general business activity index dropped from -8.6 to -18.2, its lowest level since December of last year, while the company outlook index fell to -12.8, its lowest level in 16 months.

Texas Retail Sales Decline

“Retail sales declined again in October while retail labor market indicators reflected a contraction in employment and workweeks,” Cañas said. “Retail labor market indicators reflected flat employment and workweeks. Retailers’ perceptions of broader business conditions were mixed.”

Key takeaways from the retail survey:

  • The sales index fell from -4.4 to -18.1, marking its sixth consecutive month in negative territory.
  • The employment index fell 13 points to -12.4 while the hours worked index fell from 0.6 to -12.1.
  • The general business activity index dropped from -10.2 to -23.0.

The Dallas Fed conducts the survey monthly to obtain a timely assessment of activity in the state’s service sector, which represents almost 70 percent of the state’s economy and employs about 9.5 million workers.        

For this month’s survey, Texas business executives were asked supplemental questions on credit conditions. Results for these questions from the Texas Manufacturing Outlook Survey, Texas Service Sector Outlook Survey and Texas Retail Outlook Survey have been released together.

Read the special questions results.

Education and Spontaneous Learning

We give you examples of being receptive to the world around you and learning to see and hear as a form of education:

There is a show on PBS called Stories from the Stage. People come forward to a microphone on a stage and tell personal stories from their past, stories that they consider important, informative, educational (in the widest sense), and usable by the listener. One of the early “people at the mic” on stage is a teenage girl who says something, in a plaintive sorrowful voice, like: “I have been waiting far too long…to wait for someone…to see me.”

This perplexed girl is unwittingly raising the question of a deep human hunger: the hunger for “personhood.” At a young age, this primordial hunger expresses itself as somebody befriending me (i.e., the speaker needs a real friend) so that the befriended person comes into clearer focus to themselves, achieving personhood.

Very intelligent philosophers like Emmanuel Levinas of France have spent their entire lives trying to understand the connections between countenances (how a person “wears a face”), personhood, interactive life, etc.

In his book, The Face of the Other (the girl wants somebody to notice her and her face and like her and “smile upon her”) Levinas has a deep analysis of all these human yearnings and self-definitional journeys and quests:

“The Face of the Other” is an evocative phrase used by Emmanuel Levinas, an important twentieth-century philosopher.

  • “Other” (sometimes capitalized, sometimes not) usually translates the French word autrui, which means “the other person” or “someone else” (other than oneself). It is thus the personal other, the other person, whoever it is, that each of us encounters directly, or experiences the traces of, every day. Of course, we encounter a multiplicity of others, but Levinas more often uses the singular “other” to emphasize that we encounter others one at a time, face to face.
  • By “face,” Levinas means the human face (or in French, visage), but not thought of or experienced as a physical or aesthetic object. Rather, the first, usual, unreflective encounter with the face is the living presence of another person.

Thus, when we come “face to face” with another person, the experience is a social and ethical one (rather than intellectual, aesthetic, or merely physical). “Living presence,” for Levinas, would imply that the other person (as someone genuinely other than myself) is exposed to me—that is, is vulnerably present—and expresses him or herself simply by being there as an undeniable reality that I cannot reduce to images or ideas in my head.

This impossibility of capturing the other conceptually or otherwise reveals the other’s “infinity” (i.e., irreducibility to a finite [bounded] entity over which I can have power).

The other person is, of course, exposed and expressive in other ways than through the literal face (e.g., through speech, gesture, action, and bodily presence generally), but the face is the most exposed, most vulnerable, and most expressive aspect of the other’s presence.

Thus, a student could be channel surfing on TV, observe this young girl saying these things on Stories from the Stage, and expand one’s understanding of this entire set of hungers and self-identity efforts and go (say) from the moment of TV watching to reading Levinas.

This is a simple example from the current world of TV where a certain particular “cri de coeur” (French: “cry from the heart”) of a girl you don’t know at all could deepen and widen your understanding by following the thread to Levinas and other profound people. The girl’s plaint where she’s “waiting for someone to see me” becomes much deeper and can be understood on a larger canvas which is exactly what we want.

Many experiences from daily life, from walking around, from moments on TV, from tiny incidents, can be pathways to higher understanding and learning if you can see and hear “with the third eye and the third ear.” (Theodore Reik talks about “listening with the third ear.”)

Education is a kind of “applied awareness.”