Introducing

Mickey D. Levy

Mickey Levy is a macroeconomist who uniquely analyzes economic and financial market performance and how they are affected by monetary and fiscal policies. Dr. Levy started his career conducting research at the Congressional Budget Office and American Enterprise Institute, and for many years was Chief Economist at Bank of America, followed by Berenberg Capital Markets. He is a Visiting Fellow at the Hoover Institution at Stanford University and a long-standing member of the Shadow Open Market Committee.

Dr. Levy is a leading expert on the Federal Reserve’s monetary policy, with a deep understanding of fiscal policy and how they interact. He has researched and spoken extensively on financial market behavior, and has a strong track record in forecasting. Dr. Levy’s early research was on the Fed’s debt monetization and different aspects of the government’s public finances. He has written hundreds of articles and papers for leading economic journals on U.S. and global economic conditions. He has testified frequently before the U.S. Congress on monetary and fiscal policies, banking and credit conditions, regulations, and global trade, and is a frequent contributor to the Wall Street Journal.

He is a member of the Council on Foreign Relations and the Economic Club of New York, and previously served on the Panel of Economic Advisors to the Federal Reserve of New York, as well as the Advisory Panel of the Office of Financial Research.

Dr. Levy holds a Ph.D. in Economics from University of Maryland, a Master’s in Public Policy from U.C. Berkeley, and a B.A. in Economics from U.C. Santa Barbara.

Publications by Mickey D. Levy

• USA| May 19 2025

  Measures of Inflation, Tariffs and the Fed

  Among the many issues facing the public and financial markets, the impact of President Trump’s tariffs on inflation and how they affect the Federal Reserve’s monetary policy stand out. Estimates of the economic and inflation impacts of the tariffs are quickly evolving as the twists and turns of Trump’s policies change the magnitudes and character of the tariffs. This short note doesn’t speculate on the magnitude of the tariffs, rather it considers how CPI and PCE inflation will likely be affected differently. These differences may influence Fed behavior.

  PCE inflation measures the percentage change in prices of all consumer goods and services. This includes all goods, including those paid for by consumers as well as those financed by third party payments like Medicare, Medicaid and medical services paid for by employer insurance. CPI inflation measures the percentage change in prices of goods and services directly paid for by consumers and excludes goods and services paid for by third parties.

  As such, PCE and CPI inflation measure the price changes of different baskets of goods and services. PCE inflation is a broader measure of inflation, while the CPI is a better measure of consumer out-of-pocket expenses. The CPI comprises a much larger share 35.4% of shelter costs (including rental costs and owners’ equivalent rent, OER) than the PCE, and a smaller share of medical care (8.3%). Both measures of consumer prices include items like personal care and education expenses.

  Of note, both the PCE and CPI inflation measures are adjusted for estimates of quality improvement. The quality adjustments are estimated by the Bureau of Economic Analysis within the U.S. Department of Commerce, based on hedonic regression analyses that try to capture the quality improvements of new products, other estimating techniques, and some degree of subjectivity.

  While CPI and PCE inflation are the most widely used measures of inflation, the GDP deflator is a broader measure of inflation that captures the price changes in other components of GDP, including business fixed investment, imports and exports, and residential investment (new construction and home improvements). This is important in the current context, since a sizable portion of imported goods that are subject to tariffs are capital goods purchased by domestic businesses and used in production.

  An historical note. The Fed’s semi-annual Monetary Policy Report to Congress and its central tendency projections of economic growth and inflation, which began in 1980 as required by the Full Employment Act of 1978, used the GDP deflator as its inflation measure until 1990, when it switched to the CPI; Fed Chair Greenspan subsequently switched it to the PCE. The Fed’s first-ever Strategic Plan of 2012 officially established the PCE inflation target of 2%.

  All other government agencies--and all other central banks in the world--rely on CPI inflation, and the CPI is an important “policy variable” used in various functions, including to index the benefits of Social Security, other pensions and an array of other programs. The Fed began focusing on core inflation early on: Fed Chair Arthur Burns instructed his research staff in the mid-1970s to calculate the CPI excluding food and energy following the spike in agricultural prices in 1971-1972 and surging oil prices generated by the first Arab Oil Embargo in November 1973. His primary interest was to tell the public that the high inflation was caused by exogenous forces. He was also attempting to quell rising inflationary expectations and bond yields without having to tighten monetary policy too much (Remember, before May 1983, mortgage rates were calculated directly in the CPI).

  Recent CPI and PCE inflation trends. CPI inflation has been materially higher than PCE inflation in the post-Covid economy, as shown in Chart 1. CPI inflation was 0.6 percentage points higher than PCE inflation in 2024 (3.4% vs 2.8%), 0.7 ppt higher in 2023 (4.8% vs 4.1%) and 0.8 ppt higher in 2022 (6.1% vs 5.3%). So far in 2025, they have tracked closer. The cumulative differences have added up: since December 2019, the CPI index has risen by 3.8 percentage points more than the PCE price index Chart 2). As we all know, the large rise in the general price level has resonated with American citizens and created a communications problem with the Fed.

  by:Mickey D. Levy

  |in:Viewpoints
• USA| Apr 03 2025

  The Implications of Trump’s Ill-Conceived and Murky Tariffs

  Trump announced sweeping new tariffs in a lengthy, rambling speech that if fully implemented would likely push the U.S. economy into recession and significantly slow global trade and economic activity, but based on Trump's history, the wisest interpretation is that he is open to bargaining with the leaders of trading nations and ultimately the effective tariffs will be lower and their economic impacts will be moderated. Even if the tariffs are moderated through negotiations, they are unambiguously negative, as markets are now signaling.

  Invoking his authority under the International Emergency Powers Act of 1977 (IEEPA), President Trump assessed a 10% tariff on all imports effective April 5, and additional reciprocal tariffs on nations that Trump perceives disadvantage the U.S. through some combination of their own tariffs, fees and taxes. Trump bases these reciprocal tariffs on the simplistic calculation of each nation’s bilateral trade surplus with the U.S. divided by its exports to the U.S. According to the White House Fact Sheet of April 2, the IEEPA allows for Trump to modify the tariffs, either up or down, “if trading partners retaliate or decrease the tariffs [or] if trading partners take significant steps to remedy non-reciprocal trade agreements and align with the United States on economic and national security matters”.

  These tariff pronouncements are both shaky and murky. The reciprocal tariffs are based on extraordinarily naïve calculations that defy economic common sense. And they are seemingly offered as bargaining tools. This makes an assessment of the magnitude of the tariffs and their impacts difficult.

  A full version of this commentary is available here.

  by:Mickey D. Levy

  |in:Viewpoints
• USA| Feb 20 2025

  State and Local Government Holdings of U.S. Treasury Securities

  When it comes to the high and rapidly rising Federal debt, which is now $36 trillion, a lot of attention is paid to the increasing debt service costs, how they are impinging on spending programs, and potential implications for interest rates. Foreign holdings of US treasuries, which amounts to $7.5 trillion, or 31% of total publicly-held government debt, receive a lot of attention. And there’s a large amount of research on the Fed, which through its massive asset purchases, is the largest holder of U.S. treasuries, with $4.4 trillion. This note does not address any of those issues. Rather it addresses the dramatic rise in US treasuries owned by U.S. state and local governments.

  The U.S. Treasury estimates that state and local government holdings of treasury securities have soared from roughly $750 billion prior to the Covid pandemic to a whopping $1.7 trillion in 2024Q3. That means state and local governments rank as the second largest holder of US treasuries behind the Fed, well ahead of foreign holders Japan, China and OPEC nations. This observation reflects the evolution of the U.S.’s structure of fiscal federalism and has far-reaching implications for the different fiscal roles played by the different layers of government. It also a central issue in the current initiatives that aim to streamline the government and reduce deficits.

  Some of the biggest components of Federal government spending is distributed directly to individuals: Social Security and other income support programs, medical care providers for Medicare and Medicaid, U.S. treasury creditors for debt services costs, and defense contractors. A big chunk of Federal spending that has been authorized by Congress is disbursed to state and local governments for a wide range of activities—education, transportation and infrastructure, commerce and judiciary, etc. State and local governments hold these disbursements along with other savings that result from a surplus of receipts over spending in US treasury securities. All states maintain “rainy day” funds and use them for a variety of purposes.

  Prior to the pandemic, as shown in Chart 1, state and local government holdings of US treasuries hovered around $720 billion. Their dramatic rise during 2020-2021 reflected primarily the surge in Covid-related Federal government fiscal transfers to state and local governments that culminated with the $350 billion disbursement as part of President Biden’s $1.9 trillion American Rescue Plan of March 2021. According to the official U.S. Treasury Fact Sheet, “The Rescue Plan will provide needed relief to state, local, and Tribal governments to enable them to continue to support the public health response and lay the foundation for a strong and equitable economic recovery.” (March 18, 2021).

  By then, the economic recovery had strengthened significantly and was generating rapid growth and recovery in state and local tax receipts. At the same time, the Federal government was distributing additional Covid-related health care subsidies to state and local governments. State and local government finances quickly repaired, as tax receipts accelerated and health-related spending demands subsided. Unlike Federal taxes, most state governments do not index their individual and corporate income taxes to inflation, so their elasticities of tax receipts with respect to state income is far higher than for the Federal government’s tax receipt elasticities. Thus, increases in real personal incomes and soaring inflation boosted nominal incomes and tax receipts. The quick rebounds in retail sales as the economy reopened generated a big boost to state sales taxes. The soaring home prices generated an acceleration in local government property tax receipts in some states like California, this occurred with a short lag; in other states it unfolded with a longer lag.

  by:Mickey D. Levy

  |in:Viewpoints
• USA| Jan 21 2025

  Advantage U.S.: Its Economy, Stock Market, Interest Rates and the Dollar

  The persistently stronger growth of the U.S. economy relative to most other advanced nations has been the driving factor that has resulted in a stronger stock market with higher valuations, higher interest rates and a strong US dollar. A handful of charts highlight the sizable differences in economic and financial market performance across nations. Nothing is permanent, and things—particularly shifts in economic policies--can initiate sizable changes in trends. As we assess shifts in economic policies and central bank monetary policies, it’s important to keep in mind the economic fundamentals that drive financial markets.

  Real growth comparisons. Chart 1 shows the cumulative percent change in real GDP since 2000 in the U.S., UK, Europe and Japan. In general, the faster growth in the U.S. reflects a combination of healthier gains in labor force and productivity. Real GDP growth in the UK matched the U.S.’s pace from 2000-2008, while Europe nearly kept pace, benefiting from the boom in global trade fueled by the China super-cycle. While the decade following the Great Financial Crisis was lackluster in the U.S., it was markedly slower elsewhere, particularly in Europe, which was hampered with ongoing financial crises during 2010-2014.

  Chart 2 shows the same data but indexes real GDP to 2019Q4, which highlights the U.S.’s continued healthy growth following the pandemic-related contraction in the first half of 2020, while growth in Japan, the UK and Europe has been particularly weak. The persistent outperformance of the U.S. economy is sizable.

  by:Mickey D. Levy

  |in:Viewpoints
• USA| Jan 03 2025

  Household Net Worth and Economic Performance

  Household net worth, the value of all financial and nonfinancial assets net of all debt held by households and nonprofit organizations, reached an all-time high of $168.8 trillion in 2024Q3 (Chart 1). While GDP and its components that describe the flows of national expenditures and income receive the most attention from economic commentators and financial markets, the quarterly household net worth data collected and published by the Federal Reserve Board and Haver Analytics are nevertheless important. They are both a reflection of economic performance and a significant contributor to it.

  by:Mickey D. Levy

  |in:Viewpoints