Chicago Fed Letter
A Retrospective on the Crypto Runs of 2022
Radhika Patel and Jonathan Rose
In this article, we describe the spectacular collapse of several crypto-asset platforms in 2022 following investment losses and widespread customer withdrawals. These platforms offered and marketed to customers a number of products and services related to crypto-assets, including high-yield investments, trading, and custody services. The platforms were subject to run risk: They allowed customers to withdraw funds on demand while using those funds to make illiquid and risky investments, in part to generate the high rates of returns promised to customers on investment products. In one of the most severe episodes, customers withdrew a quarter of their investments from the platform FTX in just one day, according to our analysis of data from its bankruptcy filing. These episodes together formed a classic financial crisis in a novel setting that has raised urgent policy concerns.
What Is Driving the Differences in Inflation Across U.S. Regions?
Elainia Gupta and Leslie McGranahan
In this article, we explore differences in inflation dynamics across U.S. regions. Looking independently at the impact of consumption patterns and inflation by expenditure categories, we find that recent gaps across regions have existed largely because of different regional inflation rates for the housing category. Yet we also find that overall inflation is very highly correlated across regions.
Unit Labor Costs and Inflation in the Non-Housing Service Sector
Inflation remains high, and it is critical to understand the components of inflation. Inflation in core goods has declined over much of the past year. Inflation in housing services remains high, but the growth in rental rates of units available for rent has fallen in recent months. This suggests measured inflation in housing services, which includes rents on both occupied and vacant units, is likely to moderate over the coming year as rents on occupied units catch up to those of vacant units. That leaves core services excluding housing services, which accounts for more than half of core consumption expenditures. Inflation in this sector has remained elevated over the past year. Understanding why core inflation remains elevated and when it is likely to recede thus requires understanding what is happening in core non-housing services.
How Tight Is U.S. Monetary Policy?
Filippo Ferroni, Jonas D. M. Fisher, and Leonardo Melosi
Over the past 11 months, the Federal Reserve has raised the federal funds rate (FFR) at the fastest pace since the 1980s. This tightening of monetary policy was to combat inflation that surged in 2021 to levels not seen in 40 years and remained high throughout 2022.
