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Chicago Fed Letter

What Is the Impact of Monetary Policy on Households’ Desired Labor Supply?

Cristiano Cantore, Filippo Ferroni, Haroon Mumtaz, and Angeliki Theophilopoulou

Do people adjust how much they want to work when the central bank’s monetary policy stance shifts? More specifically, does an interest rate hike induce individuals to work more or fewer hours? And does this effect differ across households with different levels of income (or earnings)? In this article, we discuss our recent research that explores these and related questions. One notable finding is that employed individuals at the bottom of the income distribution want to work more when monetary policy tightens.

The Impact of the Covid-19 Pandemic on Health Insurers

Ishira Shrivatsa

The U.S. health insurance industry, which owns over $380 billion in financial assets, was placed in the spotlight when the Covid-19 pandemic began in the spring of 2020. The pandemic led to health-care-specific changes, such an increase in Covid-19 testing and related hospitalizations, as well as a temporary postponement or cancellation of elective procedures to make space for Covid-19 patients. It also led to changes in financial markets, notably a decrease in interest rates. These changes affected the risks that health insurers are subject to and the overall profitability of the industry.

What Is Driving U.S. Inflation amid a Global Inflation Surge?

Bart Hobijn, Russell Miles, James Royal, and Jing Zhang

During the recovery from the pandemic, most industrialized economies have experienced substantial increases in inflation. We find that food and energy accounted for a relatively small share of inflation acceleration in the U.S. Strong demand for durable goods in the U.S. has driven its inflation acceleration, while also pushing up durable goods prices worldwide. Further, larger fiscal stimulus packages and tighter labor markets are associated with greater inflation acceleration across countries.

Sources of Fluctuations in Short-Term Yields and Recession Probabilities

Andrea Ajello, Luca Benzoni, Makena Schwinn, Yannick Timmer, and Francisco Vazquez-Grande

Why does the short-term slope of the yield curve predict recessions? In this Chicago Fed Letter, we explore the economic forces underlying Treasury yields’ fluctuations and highlight the roles of a tight monetary policy stance and expectations of lower inflation in predicting downturns. While the monetary policy stance is still accommodative, indicating a low recession probability, the negative inflation slope points to higher odds of a recession within a year. An aggressive removal of policy accommodation increases the recession probability to 60%.

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