Category: Market Action

US Producer Prices came in high:

The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, offering more evidence of the economy’s resilience despite tighter monetary policy.

Other data on Thursday showed monthly producer prices increasing by the most in seven months in January as the cost of energy products surged. Even stripping out food and energy, prices for the so-called core goods recorded their biggest gain since last May.
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A second report from the Labor Department on Thursday showed the producer price index for final demand rebounded 0.7% in January, the largest increase since June, after decreasing 0.2% in December. The rise was led by a 1.2% advance in goods prices, which followed a 1.4% decline in December.

A 6.2% jump gasoline prices accounted for nearly a third of the increase in goods. There were also increases in prices for residential natural gas, diesel fuel, jet fuel, soft drinks and motor vehicles.

But fresh and dry vegetable prices tumbled 33.5%. Excluding food and energy, core goods prices shot up 0.6%. That was the biggest increase in core goods prices in eight months and followed a 0.2 gain in December. Services increased 0.4%, matching December’s gain.

In the 12 months through January, the PPI increased 6.0% after advancing 6.5% in December. Economists had forecast the PPI climbing 0.4% and rising 5.4% year-on-year.

Federal Reserve Bank of Cleveland President Loretta Mester talked tough:

The Fed “has come an appreciable way in bringing policy from a very accommodative stance to a restrictive one, but I believe we have more work to do,” Mester said in a speech text. “At this juncture, the incoming data have not changed my view that we will need to bring the fed funds rate above 5 per cent and hold it there for some time to be sufficiently restrictive to ensure that inflation is on a sustainable path back to 2 per cent,” she said.
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Mester, who does not have a vote on the Federal Open Market Committee this year, noted she would have been open to a larger rate rise at the gathering. “Setting aside what financial market participants expected us to do, I saw a compelling economic case for a 50-basis-point increase, which would have brought the top of the target range to 5 per cent,” she said.

Tiff Macklem is fairly upbeat:

The Canadian economy may be on track for a recession this year, but it won’t feel as severe as other downturns the country has experienced over the past few decades, according to Bank of Canada Governor Tiff Macklem.

“It’s not going to feel great. But it is not going to feel like what people think of when you say the word recession,” Mr. Macklem said in an appearance before the House of Commons finance committee on Thursday. “You say recession, they think big job losses, very, very painful.”
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“But this is still going to be a pretty healthy labour market,” Mr. Macklem said. “This is not going to feel like the kind of recessions that we had in ‘08, or ‘81 or ‘91.”

Mr. Macklem reiterated that the Bank of Canada does not expect to raise interest rates further, despite a stronger-than-expected January jobs report published on Friday. But he said he’s willing to hike rates again if inflation does not drop as much as the bank is forecasting. The bank has raised its policy interest rate to 4.5 per cent from 0.25 per cent since March.

The Globe highlighted some Senate fluff:

A Senate committee is calling for greater parliamentary oversight of the Bank of Canada as well as increased transparency, wading into a debate around central bank independence at a moment of heightened political interest in monetary policy.

The Senate committee on banking, commerce and the economy published a report on Wednesday looking at the causes of high inflation and the state of the economy. The report did not make any formal recommendations, but it did suggest that parliamentarians should spend more time looking at monetary policy issues.

“What is evident is the need for enhanced Parliamentary oversight over the deployment of fiscal and monetary tools, particularly in times of crisis and uncertainty,” the report said.

“The Bank of Canada should be more transparent and periodically make public its assessment of the effect of its interventions on inflation and on the evolution of key economic indicators,” it added.

Well, I went to the committee’s report page and got a copy of the report The State of the Canadian Economy and Inflation. It’s garbage. You saw that line in the Globe’s report, “A Senate committee is calling for greater parliamentary oversight of the Bank of Canada”? You know what the Committee’s report says?:

What is evident is the need for enhanced Parliamentary oversight over the deployment of fiscal and monetary tools, particularly in times of crisis and uncertainty.

That’s not a headline. That’s not an introductory sentence. That’s the whole damn thing; there’s not a single sentence in the report that specifies what so-called enhancements are evidently needed; there’s not a single sentence in the report that provides any support for the assertion. Garbage.

The rest of the fluff is along the same lines. There are some fairly big names being interviewed by the committee, but they simply provide unsupported and unchallenged assertions about their views on the economy, BoC policy, whatever. There’s nothing of any substance in the piece, nothing referenced, nothing challenged. Garbage.

The Boston Fed has released a study of forecasting of the ‘shelter’ component of the US CPI:

According to the authors’ forecast, CPI shelter will increase 5.9% from September 2022 to September 2023 and 3.9% over the ensuing 12 months. By contrast, from 2000 through 2019, CPI shelter rose an average of 2.7% annually.

The authors base their forecast of rapidly rising CPI shelter on two trends: (1) Although market-rent growth has slowed recently, it was substantially faster than CPI-shelter growth throughout 2021 and the first half of 2022, and (2) CPI shelter usually catches up with market rents.

The authors explain that CPI shelter tends to lag market rents because of the way that the U.S. Bureau of Labor Statistics constructs CPI shelter. The BLS gathers information for the index through its Consumer Price Index Housing Survey. The survey measures average rental prices for all renters – new and existing – whereas market rents measure only rental prices for new tenants. The authors note that landlords tend to raise the rents of current tenants slowly, so an index that includes current tenants’ rents is going to be lower than one that excludes them.
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If CPI shelter does increase 5.9% from September 2022 to September 2023, as the authors forecast, and 3.9% over the ensuing 12 months, the headline CPI will be 1% higher over the first 12-month period and 0.4% higher from September 2023 to September 2024 compared with what it would be if shelter prices grew at the pre-pandemic pace of 2.7%. The core CPI will be 1.3% and 0.5% higher.

And there’s data from the New York Fed’s Household Debt and Credit Report:

Total household debt rose by $394 billion, or 2.4 percent, to $16.90 trillion in the fourth quarter of 2022, according to the latest Quarterly Report on Household Debt and Credit. Credit card balances increased by $61 billion to reach $986 billion, surpassing the pre-pandemic high of $927 billion; mortgage balances rose to $11.92 trillion, auto loan balances to $1.55 trillion, and student loan balances to $1.60 trillion. The share of current debt transitioning into delinquency increased for nearly all debt types.

And, finally, a complaint about reporting:

An IT failure at Lufthansa stranded thousands of passengers and forced flights to Germany’s busiest airport to be cancelled or diverted on Wednesday, with the airline blaming botched railway engineering works that damaged broadband cables.

More than 200 flights were cancelled in Frankfurt, a vital international transit hub and one of Europe’s biggest airports, a spokesperson for operator Fraport said.

Lufthansa later said all its IT systems were up and running again and that it expected Frankfurt flights to return to normal on Thursday.
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Lufthansa and Germany’s national train operator blamed the problem on third-party engineering works on a railway line extension that took place on Tuesday evening, when a drill cut through a Deutsche Telekom fibre optic cable bundle.

I can’t really do better than to copy-paste my comment on the Globe’s site:

Details are missing here.

We are being told that one cut in one cable caused this system crash. Where’s the redundancy? The whole point of the Internet is to ensure that networks operate with absolutely minimal exposure to single point failure – and if this cable wasn’t part of the Internet, what system was it part of? Who tried to reduce expenses and promote efficiency by building a shoddy system that could be brought to its kness by one cut in one cable?

There was another jump in yields today:

Financial markets have upped their bets on additional rate hikes from the Bank of Canada and U.S. Federal Reserve following blowout employment reports in both countries and higher-than-expected inflation data from the United States.

This amounts to a U-turn for bond traders and investors, who spent much of January and early February doubting the resolve of central bankers in both countries to keep interest rates at highly restrictive levels through 2023.

Interest rate swaps, which capture market expectations about future rate decisions, have gone from pricing in two rate cuts by the Bank of Canada before the end of the year, to pricing in another rate hike in July and no rate cuts until 2024. That would bring the bank’s benchmark rate to 4.75 per cent.

In the U.S., markets now see the Fed increasing its benchmark interest rate to a peak of 5.25 per cent by July, a quarter-point higher than expected two weeks ago.

But people are still buying things:

The S&P 500 ended higher on Wednesday after stronger-than-expected retail sales data offered evidence of resilience in the U.S. economy, but gains were capped as investors worried about more interest rate hikes by Federal Reserve in the months ahead. Canada’s main stock index eked out marginal gains.

A Commerce Department report showed U.S. retail sales surged 3% in January as purchases of motor vehicles and other goods pushed the number well past the 1.8% estimate from economists polled by Reuters.

But not houses:

Canada’s housing downturn deepened further in January, with sales hitting their lowest level since the 2009 Great Recession and home prices declining for the 11th straight month.

The volume of home resales fell 3 per cent from December to January after removing seasonal influences. That was the lowest level for January in 14 years, according to the Canadian Real Estate Association. The home price index, which excludes sales of highly priced properties, fell to $714,700 in January, down 1.9 per cent from December. The index is 12.6 per cent lower than a year ago and 15 per cent below last February’s peak values.

More homeowners put their properties on the market, with new listings increasing 3.3 per cent last month. CREA said this could be the start of more activity heading into spring, which is traditionally the busiest period for home sales.

GOC-5 now stands at 3.45%.

PerpetualDiscounts now yield 6.05%, equivalent to 7.86% interest at the standard equivalency factor of 1.3x. Long corporates yielded 5.06% on 2023-2-10 and since then the closing price has changed from 15.03 to 14.82, a decline of 140bp in price, with a Duration of 12.32 (BMO doesn’t specify whether this is Macaulay or Modified Duration; I will assume Modified) which implies an increase in yield of about 11bp since 2/10 to 5.17%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed to about 270bp from the 285bp reported February 8.

US inflation was complicated:

The price index was up 6.4 percent in January compared with a year earlier. That was a slight slowing from 6.5 percent in December, and is down notably from a peak of about 9 percent last summer. But compared with the previous month, prices climbed 0.4 percent after stripping out groceries and fuel — a rapid pace of growth that matched the increase in December.

The overall report shows that while the Federal Reserve has been receiving positive news on inflation, price increases are no longer relentlessly accelerating, the way they did for much of 2021 and the first half of 2022, it could be a long and bumpy road back to the 2 percent annual inflation gains that used to be normal.
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Much of the inflation slowdown in recent months has come from a moderation in price increases for goods and commodities. After stripping those out, services inflation — which includes health care, restaurant meals, pedicures and other non-goods purchases — has remained unusually rapid and has shown little sign of slowing down.

That trend continued in January, with services prices excluding energy continuing to increase rapidly, partly owing to the jump in rental and other housing costs. A measure that Mr. Powell watches closely — one that tracks services and strips out housing in addition to food and gas — eased very slightly last month.
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Monthly growth in food prices accelerated slightly in January, reversing a gradual decline seen in recent months, as the price of eggs, cookies and citrus fruits all rose.

Food prices grew 0.5 over the month, ticking up slightly compared with an increase of 0.4 percent in December. A price index for meats, poultry, fish and eggs increased in January, as did another for cereals and bakery products. An overall index for fruits and vegetables fell from the previous month, while an index for dairy products was unchanged.

The price of eggs was up 8.5 percent from the previous month, the Bureau of Labor Statistics said, as an outbreak of avian influenza around the United States continues to cause egg prices to surge. However, other measures, like a market report compiled by the Agriculture Department, show that the price of eggs has been dropping sharply in recent months. The average price of large eggs dropped from more than $5 a carton earlier this year to less than $3 in February, the department said.

And the New York Fed released their Underlying Inflation Gauge:

• The UIG “full data set” measure for January is currently estimated at 5.1%, a 0.3 percentage point decrease from the current estimate of the previous month.
• The “prices-only” measure for January is currently estimated at 5.1%, a 0.3 percentage point decrease from the current estimate of the previous month.
• The twelve-month change in the January CPI was +6.4%, a 0.1 percentage point decrease from the previous month.
  • -For January 2023, trend CPI inflation is estimated to be in the 4.2% to 5.1% range, a similar range to December, with a 0.3 percentage point decrease of both its lower and upper bound.

The New York Fed has released the latest Survey of Consumer Expectations:

The main findings from the January 2023 Survey are:

Inflation

• * Median inflation expectations remained unchanged at the year-ahead horizon, decreased by 0.3 percentage point at the three-year-ahead horizon, and increased by 0.1 percentage point at the five-year-ahead horizon, to 5.0%, 2.7% and 2.5%, respectively.
• * Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—remained unchanged at the one-year horizon but increased slightly at the three- and five-year horizons.
• * Median home price growth expectations declined by 0.2 percentage point to 1. 1% in January, the second lowest reading since May 2020. The decrease was more pronounced among respondents who are older than 60 and respondents who live in the Northeast.
• * Median year-ahead expected price changes increased by 1.0 percentage point for gas (to 5.1%), 1.4 percentage point for food (to 9.0%), and 0.1 percentage point for the cost of college education (to 9.3%) . The median expected change in the cost of rent and medical care remained unchanged at 9.6% and 9.7% , respectively.

Labor Market

• * Median one-year-ahead expected earnings growth remained unchanged at 3.0% in January. The series has been moving between a narrow range of 2.8% to 3.0% since September 2021.

I have attracted some opprobrium for my habit of referring to those whose investment strategies have been noisily inconvenienced by the cancellation of the RRB programme as ‘rich people’. I should correct myself and refer to them as ‘whining, privileged and oblivious rich people’:

A quarter of Canadians wouldn’t be able to come up with $500 to cover an unexpected expense, according to a new Statistics Canada survey that also found people who are younger and racialized report higher levels of financial stress than those who are older and non-racialized.

Worry about housing-related expenses, including rent, appeared to be driving the divide. More than half of survey respondents between the ages of 15 and 34 said they were “very concerned” that they would be unable to keep up with housing costs, compared with just over a quarter of respondents aged 65 and over.

Nearly three quarters of Black respondents, and 65 per cent of South Asians, shared the same sentiment, compared with less than 40 per cent of non-racialized respondents.

Jobs, jobs, jobs!:

The labour market added 150,000 positions last month, following a gain of roughly 69,000 jobs in December, Statistics Canada said in a report published Friday. Financial analysts were expecting an increase of 15,000. The unemployment rate held steady at 5 per cent.

The hiring surge comes a week after the United States reported a gain of 517,000 positions in January, an outsized increase that also surprised analysts.

By now, many economists projected that Canada would be mired in the early weeks of a mild recession. However, Friday’s report shows that employers are continuing to add to their headcounts, despite the potential stress caused by sharply higher borrowing rates.
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Friday’s report pointed to strength in various parts of the labour market. Jobs with full-time hours increased by 121,000 in January, while the private sector drove a gain of 115,000 positions.

After several months of losses, retail and wholesale trade jumped by 59,000 jobs, the largest gain by industry. Health care and social assistance rose by 40,000.

The labour market is drawing plenty of new participants. In January, an additional 153,000 people joined the labour force – meaning, they either took jobs or are actively looking for one. The participation rate is increasing in most major demographic groups.
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Average hourly wages rose 4.5 per cent over the past year, down from 4.8 per cent in December. However, the year-over-year comparison was partially a reflection of higher wages in January, 2022, when many lower-paid service workers were temporarily laid off as the Omicron variant of COVID-19 led to a spike of infections.

Liquidity is never important to retail … until it is:

Certain alternative investment funds are facing elevated redemption demands from retail investors — a development that poses possible regulatory and reputational risks to alt fund managers, if not an operational challenge, says Fitch Ratings.

In a new report, the rating agency said certain alt investment vehicles known as “perpetual non-traded” funds (typically REITs or business development corporations) have faced increased redemption requests from investors in recent months.

These vehicles, which aren’t publicly traded and so have no public liquidity, cap redemptions to preserve assets and fund managers’ fee revenues. Typically, funds cap redemptions at 2% of their net asset value per month, or 5% per quarter, it noted.

Recently, several funds have invoked their redemption limits after increased demands from investors hit their pre-determined thresholds, Fitch reported.

The BoC published its minutes:

Until Wednesday, the Bank of Canada stood apart from peer central banks in not publishing some form of rate-decision meeting minutes. In a paper published last month, the bank’s own staff ranked it last among nine peer central banks for the depth and breadth of information released after rate announcements.

The bank had long maintained that its consensus form of decision-making made meeting minutes unnecessary. Governing council members don’t formally vote on monetary policy decisions, rather they offer opinions to the governor who has final decision-making authority. That is in contrast to the U.S. Federal Reserve, where monetary policy is decided based on votes by members of the Federal Open Market Committee.

Ultimately, the Bank of Canada changed its mind after a review of its transparency practices by the International Monetary Fund last year. The summary published Wednesday is considerably less detailed than Fed meeting minutes.

The document mostly reiterated comments made by Mr. Macklem in recent speeches and news conferences.

PerpetualDiscounts now yield 6.03%, equivalent to 7.84% interest at the standard equivalency factor of 1.3x. Long corporates yielded 4.89% on 2023-1-27 and since then the closing price has changed from 15.49 to 15.34, a decline of 97bp in price, with a Duration of 12.35 (BMO doesn’t specify whether this is Macaulay or Modified Duration; I will assume Modified) which implies an increase in yield of about 8bp since 1/27 to 4.97%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed slightly (and perhaps spuriously) to about 285bp from the 290bp reported February 1.

Powell gave a speech:

Federal Reserve Chair Jerome Powell said on Tuesday the latest U.S. employment report showed the process for getting inflation back near the central bank’s 2 per cent target will take “quite a bit of time” even though there are indications cost pressures are ebbing, at least for goods.

The nonfarm payrolls report for January, which was published on Friday, was “certainly stronger than anyone I know expected,” Powell said during a question-and-answer session at the Economic Club of Washington.

“We didn’t expect it to be this strong,” Powell said, but it “shows why we think this will be a process that takes quite a bit of time.”

At the same time, Powell declined to equate the surprising strength in the job market shown in the January employment report with an expectation that interest rates would need to be higher than Fed officials estimated late last year.
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“I think it surprised all of us,” Minneapolis Fed President Neel Kashkari said in an interview broadcast on CNBC earlier on Tuesday, referring to the blowout jobs report last Friday in which the U.S. government reported a gain of more than half a million jobs for January.
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The numbers were far out of line with the looser labour market the Fed has expected and feels will be needed to ensure that wage growth also slows and inflation, which is still running at more than double the central bank target, continues to fall.

Kashkari, who has been more aggressive than almost all his colleagues in his assessment of how high interest rates need to go, had said a month ago that he forecast the central bank’s policy rate should rise to 5.4 per cent. The jobs report consolidated that view.

“It tells me that so far, we’re not seeing much of an imprint … on the labour market,” Kashkari said. “It’s pretty muted so far, so I haven’t seen anything yet to lower my rate path.”
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On Monday, Atlanta Fed President Raphael Bostic was one of those who said the central bank may need to lift borrowing costs higher than previously anticipated given the job gains. He noted that while a half-percentage-point rate hike was not his base case for the next policy meeting in March, it could be considered.

“It’ll probably mean we have to do a little more work,” Bostic told Bloomberg News. “And I would expect that that would translate into us raising interest rates more than I have projected right now.” Bostic had previously forecast that the federal funds rate would top out in the 5.00 per cent-5.25 per cent range, like almost all his colleagues.

Macklem also gave a speech:

Bank of Canada Governor Tiff Macklem said on Tuesday that he does not expect to continue raising interest rates, reinforcing that the central bank has entered a new phase in its year-long battle with inflation.
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“If new evidence begins to accumulate that inflation is not declining in line with our forecast, we are prepared to raise our policy rate further,” Mr. Macklem told a Quebec City audience on Tuesday, according to the English text of the speech. “But if new data are broadly in line with our forecast and inflation comes down as predicted, then we won’t need to raise rates further.”
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“Our preferred measures of core inflation have been stuck at about 5 per cent. But timelier three-month rates have come down below 5 per cent. That suggests core inflation will start to decline in the months ahead,” Mr. Macklem said.

The bank’s latest forecast shows the annual rate of inflation slowing to around 3 per cent by the middle of the year, and reaching 2.5 per cent by the fourth quarter.

The IMF published an excellent opinion piece, by which I mean I agree with it:

Decision-making procedures are also crucial to fostering individual accountability and mitigating the risk of groupthink. In the past, the phrase decision-making by consensus had largely positive connotations. However, modern organizational management recognizes that such practices tend to discourage innovative thinking and marginalize anyone with a different viewpoint (outside the consensus). Consequently, every MPC policy decision should be subject to a vote, and all MPC members should be held accountable for their own individual views.

In analyzing the inflationary episodes of the 1970s, one key lesson learned was that monetary policy decisions need to be insulated from political interference. Indeed, that lesson led to the strengthening of the central bank’s statutory independence in many jurisdictions—most notably, regulations ensuring that central bank officials cannot be terminated except for malfeasance. Such independence is enhanced by staggering the terms of MPC members, appointing each member to a single nonrenewable term, and ensuring that the appointment process is systematic and transparent rather than relying on the discretion of any single government official (Archer and Levin 2019).

MPC members should not be constrained to speak with one voice in their public communications; rather, they should be accountable for conveying their own individual views regarding complex judgments on which reasonable experts may disagree. To avoid cacophony, the MPC should follow the standard practice in the judicial system, where a panel of judges conveys each decision by issuing the ruling of the majority together with concurring opinions and dissenting views. Such an approach has a long track record of providing clarity about the rationale for the majority’s decision as well as the reasoning behind alternative views. Likewise, this mode of communicating monetary policy decisions can strengthen public confidence that decisions are being made by a diverse team of experts.

The New York Fed released the Global Supply Chain Pressure Index (GSCPI):

Estimates for January 2023

• Global supply chain pressures decreased moderately in January and the index was revised upward in December.
• The largest contributing factors to supply chain pressures were declines in Korean delivery times, Chinese delivery times, and Euro Area backlogs.
• The GSCPI’s recent movements suggest that the Asia developments that were interrupting the index’s normalization may have been a transitory factor.

Jobs, jobs, jobs!:

The American labor market unleashed a burst of hiring in January, producing another wave of robust job growth even as interest rates continue to rise.

Employers added 517,000 jobs on a seasonally adjusted basis, the Labor Department said on Friday, an increase from 260,000 in December.

The unemployment rate was 3.4 percent, the lowest since 1969.

Even as hiring surged, wage growth slowed slightly to 0.3 percent compared with December.
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In addition to the report on Friday, the government released data this week showing that the number of posted jobs per available unemployed worker — a measure that policymakers have been watching closely — rose again in December. And despite a cavalcade of layoffs in the technology sector, the overall number of pink slips has stayed extremely low.
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The job growth was broad-based, including in some industries that economists had expected to show signs of slowing. Employers in leisure and hospitality, including restaurants and bars, brought on a bevy of workers.

The labor force participation rate was unchanged at 62.4 percent. Fed officials have been hoping to see an increase in the ranks of those available to work, which could alleviate the tightness in the labor market that is driving up wages and contributing to inflation.
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Average hourly earnings climbed by 4.4 percent over the year, more than forecast in a Bloomberg survey of economists but less than 4.8 percent in December. Pay growth has been decelerating for months, though it remains faster than is typical and is still notably quicker than the pace that Fed officials have at times suggested would be consistent with their 2 percent inflation goal.

The Bank of England hiked 50bp yesterday:

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 1 February 2023, the MPC voted by a majority of 7–2 to increase Bank Rate by 0.5 percentage points, to 4%. Two members preferred to maintain Bank Rate at 3.5%.

Global consumer price inflation remains high, although it is likely to have peaked across many advanced economies, including in the United Kingdom. Wholesale gas prices have fallen recently and global supply chain disruption appears to have eased amid a slowing in global demand. Many central banks have continued to tighten monetary policy, although market pricing indicates reductions in policy rates further ahead.

UK domestic inflationary pressures have been firmer than expected. Both private sector regular pay growth and services CPI inflation have been notably higher than forecast in the November Monetary Policy Report. The labour market remains tight by historical standards, although it has started to loosen and some survey indicators of wage growth have eased, alongside a gradual decline in underlying output. Given the lags in monetary policy transmission, the increases in Bank Rate since December 2021 are expected to have an increasing impact on the economy in the coming quarters.
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In the latest modal forecast, conditioned on a market-implied path for Bank Rate that rises to around 4½% in mid-2023 and falls back to just over 3¼% in three years’ time, an increasing degree of economic slack, alongside falling external pressures, leads CPI inflation to decline to below the 2% target in the medium term. There are considerable uncertainties around this medium-term outlook, and the Committee continues to judge that the risks to inflation are skewed significantly to the upside.

The European Central Bank also hiked 50bp:

The Governing Council will stay the course in raising interest rates significantly at a steady pace and in keeping them at levels that are sufficiently restrictive to ensure a timely return of inflation to its 2% medium-term target. Accordingly, the Governing Council today decided to raise the three key ECB interest rates by 50 basis points and it expects to raise them further. In view of the underlying inflation pressures, the Governing Council intends to raise interest rates by another 50 basis points at its next monetary policy meeting in March and it will then evaluate the subsequent path of its monetary policy. Keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and will also guard against the risk of a persistent upward shift in inflation expectations. In any event, the Governing Council’s future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach.

The New York Fed has released a paper by Julian di Giovanni, Şebnem Kalemli-Özcan, Alvaro Silva, and Muhammed A. Yıldırım titled Quantifying the Inflationary Impact of Fiscal Stimulus under Supply Constraints:

This paper builds on Baqaee and Farhi (2022) and di Giovanni et al. (2022) to quantify the contribution of fiscal policy to U.S. inflation over the December 2019-June 2022 period. Model calibrations show that aggregate demand shocks explain roughly two-thirds of total model-based inflation, and that the fiscal stimulus contributed half or more of the total aggregate demand effect.
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U.S. headline inflation has hit levels not seen for several decades, reaching 9 percent per annum at its peak in June 2022, before declining to approximately 7 percent per annum by the end of 2022. In contrast, inflation was below 2 percent before the 2020 COVID-19 pandemic.

A priority that has been at the top of the minds of both policymakers and academics alike has been to quantify the relative importance of the key factors in driving the observed inflation, particularly the relative importance of supply bottlenecks vs. consumer demand, as the U.S. and world economies struggled with supply-demand imbalances arising from the COVID-19 health shock combined with stimulative policies.

The literature thus far has found differing results, ranging from one-third to two-thirds contributions from supply factors (with the remaining being demand). Shapiro (2022a,b) takes an econometric approach while di Giovanni et al. (2022) and Ferrante, Graves and Iacoviello (2022) use quantiative models.

Though these papers provide important early evidence on the different channels that drove the surge in inflation, none of them take a stand on the inflationary impact of specific policy actions. In particular, the 2021 Biden fiscal package totaled 15% of GDP and has been blamed by some for today’s high inflation (Blanchard, Domash and Summers, 2022).