Episode Summary
Executive Summary: Sam Schulhofer-Wohl discusses his unconventional path from journalism to the Fed and outlines research on Treasury market resiliency, central clearing, the Fed’s ample-reserves operating system, deposit convexity revealed by the 2023 banking turmoil, and labor migration. Across these topics, he emphasizes practical policy design, market infrastructure, and how macro policy interacts with financial stability and regional adjustment.
Main Topics: Career Path and Role at the Fed (Priority: 5/5): Schulhofer-Wohl describes moving from journalism to economics and the Federal Reserve, then becoming a generalist policy advisor who bridges research, supervision, markets, community development, and operational policy at the Dallas Fed. Treasury Market Resiliency and Central Clearing (Priority: 5/5): He explains why Treasury markets are critical, how settlement risk and opaque bilateral trading create vulnerabilities, and why central clearing can improve risk management, netting, and transparency in cash and repo markets. SEC Clearing Reform and Market Structure (Priority: 4/5): The conversation covers the SEC’s phased rule changes requiring broader central clearing, the role of FICC/DTCC, and the trade-offs between having one dominant clearer versus multiple competing clearers. Ample Reserves and the Friedman Rule (Priority: 4/5): Schulhofer-Wohl explains the Fed’s floor system and Lori Logan’s argument that ample reserves are efficient because paying interest on reserves avoids taxing liquidity, updating the Friedman rule for a modern interest-on-reserves regime. Deposit Convexity and the 2023 Banking Stress (Priority: 5/5): He summarizes research showing deposit costs rise nonlinearly as rates increase, creating convexity risk for banks that can amplify monetary transmission and financial fragility. Labor Mobility and Monetary Policy (Priority: 4/5): He discusses research on declining interstate migration, showing the long-run decline was mostly about reduced gains from moving rather than higher costs, and why migration acts as a shock absorber in a one-size-fits-all monetary policy system.
Key Arguments: Schulhofer-Wohl argues that central clearing improves Treasury market resilience by reducing settlement risk, imposing standardized risk management, netting exposures, and increasing transparency. He contends that Treasury market vulnerabilities are not only crisis-specific; clearing reform can improve everyday market functioning as well as prevent future stress episodes. He argues that concerns about concentrating risk in a central counterparty are real but manageable because well-run CCPs are already core financial infrastructure and heavily supervised. He explains that ample reserves are efficient because, once reserves pay interest, the goal is to keep reserve rates close to market rates rather than implicitly taxing liquidity. He argues the banking turmoil of 2023 exposed an underappreciated convexity in deposit pricing, meaning banks face non-linear increases in funding costs as rates rise. He shows that falling interstate migration was driven mainly by lower benefits to moving, not just higher housing or moving costs, and that migration helps the U.S. economy adjust to regional shocks.
Data Points: Newspaper publishing employment when he graduated college: 427,000 - Used to explain why journalism as a career was shrinking when he started out. Current newspaper publishing employment: 88,000 - Illustrates the long-run decline in the newspaper industry. U.S. labor force: 168 million - Used to show that a 0.1 percentage point change in unemployment implies about 168,000 jobs. Treasuries outstanding: About $27 trillion - Describes the scale of the Treasury market. Increase in Treasuries outstanding over the past year: About $2 trillion - Shows the market’s rapid growth. Treasury repo haircut in OFR pilot: 74% with zero haircut - Evidence that bilateral uncleared repo can involve weak risk management. Estimated size of non-centrally cleared bilateral repo market: About $2 trillion - Highlights the scale of a market with limited visibility. Central clearing start date for most repos: Mid-2026 - Part of the SEC’s phased clearing mandate. Central clearing start date for cash transactions on inter-dealer broker platforms: End of 2025 - Another phased element of the SEC rule. Federal Reserve policy regime shift: 2019 - FOMC decision to remain in an ample-reserves operating framework. FICC role: Only central counterparty currently in the Treasury market - Explains the existing clearing infrastructure. Interstate migration decline measure: About half - One measure showed migration fell roughly 50% over two decades.
Pivotal Quotes: "In academia, you can take as long as you want to get a really good answer. In policy, you have to get an acceptable answer on the time horizon that the decision has to be made." — Sam Schulhofer-Wohl: Explaining the difference between academic research and policymaking during the discussion of his Fed role. "We both just know that FIC, which is the central, very large, very well-run institution is trustworthy." — Sam Schulhofer-Wohl: Describing how central clearing reduces counterparty trust concerns in Treasury trades. "Our research found that a lot of this trend decrease in migration over those couple of decades was because the benefits were smaller rather than the costs." — Sam Schulhofer-Wohl: Summarizing the main finding from his labor mobility research.
Implications: The conversation points to a more infrastructure-focused macro policy agenda: stronger clearing, better reserve design, more accurate banking risk management, and labor mobility all help the U.S. economy absorb shocks and keep policy transmission effective.
About Macro Musings
Hosted by David Beckworth of the Mercatus Center, Macro Musings pulls back the curtain on the important macroeconomic issues of the past, present, and future.