Finance

ON MARCH 8th, the day the price of a barrel of Brent crude oil spiked above $127, the European Commission unveiled its grand plan to fight stratospheric living costs. Claiming that the “crisis situation” warranted exceptional measures, it recommended that member states levy a one-off tax on electricity-generating firms. The revenues raised could then be used to keep households’ bills down. The next day Elizabeth Warren, a senator from Massachusetts, tweeted that she and other legislators were working on a tax on the “war-fuelled profits” accruing to American oil majors. The proposal is now making its way through the House of Representatives.Politicians have reached for such “windfall” taxes before. Bulgaria, Italy, Romania and Spain have imposed them on power generators in recent months, as benchmark energy prices have risen. In 1980 America announced that it would begin taxing oil producers in six years’ time, hoping to cash in on profits that were expected to be made after prices were deregulated. Britain’s new Labour government taxed utilities in 1997, after the Conservative government had sold them off cheaply.The levies are understandably tempting for the taxman. Big windfalls mean big receipts. The usual worry with a tax is that it might change companies’ behaviour, say by encouraging them to lower investment in order to bring down future tax bills. But the event causing the windfall is meant to be a one-off, unconnected to investment. They are “extremely efficient ways to raise revenue”, says Helen Miller of the Institute for Fiscal Studies, a think-tank in London. At least, in theory.Britain’s tax probably fitted the ideal better than most. It had a clear rationale: that excess gains had come from the underpricing of shares when firms were privatised. Post-privatisation profits were multiplied by a price-to-earnings ratio; a 23% tax was levied on what was left over once public proceeds from privatisation were subtracted. Even then, however, the tax failed to target the beneficiaries of excess gains. British Telecom, the first utility to be privatised, had listed in 1984. Many early punters had come and gone, leaving shareholders in 1997 bearing the burden.Levies elsewhere have faced other hurdles. In 2006 Mongolia introduced a 68% charge on profits from copper and gold sales, hoping to cash in on a new mine during a commodity-price boom. Instead, investors withheld funds for the project until regulators agreed to drop the tax. America’s tax did distort firms’ behaviour, by some estimates reducing oil production between 1980 and 1986 by up to 4.8%.The European Commission’s plan has its flaws. It does not explain why the current situation warrants a one-off tax, adding uncertainty about when such levies might be used again. Furthermore, the energy industry buys and sells power using long-term contracts, making the link between today’s prices and tomorrow’s profits fuzzy. And prices can fall as quickly as they rise. By March 16th, for instance, the oil price was back to about $100 a barrel.Recent experiments offer scant grounds for optimism. Romania, Italy and Spain are targeting renewable-power generators, which have not experienced the same increase in costs as generators that use fossil fuels. Richard Howard of Aurora Energy, a consultancy, says that this raises the “risk premium” of investing in renewables—exactly what legislators want to avoid. Peter Styles of the European Federation of Energy Traders, a trade body, notes that Spain’s scheme stops green-energy generators accruing excess profits to begin with, which will distort the way prices are set in the market.Their momentum across Europe also creates a fiscal opening that may be hard to close. The commission recommends that all windfall taxes should be wound down by the end of June. But Spain has already extended its clawbacks once. And Italy’s measures will last until December. ■This article appeared in the Finance & economics section of the print edition under the headline “Power grab” More

TO THEIR CHAMPIONS, cryptocurrencies are supposed to be a libertarian Utopia. Because tokens are created and moved by loose, decentralised networks of individual computers based in dozens of countries, cross-border transactions can be quick and in theory are free from control by intermediaries, such as banks, which can be regulated by national governments. Critics of crypto-finance have long looked askance at the same system. To statists, it represents the tyranny of techno-anarchy.Russia’s invasion of Ukraine and the West’s subsequent sanctions on Russian banks, companies and elites appears to turn on its head the debate about whom crypto helps and hurts. Though politicians and regulators in America and Europe at first feared that people and entities hit with sanctions would use cryptocurrencies to dodge the restrictions, little evidence of such activity has materialised. Instead, crypto institutions appear to be under the thumb of governments, too. And there has been a huge surge in crypto donations to help the government in Ukraine.Crypto’s decentralised network is supposed to be supranational and its users are meant to be anonymous. This makes it seem like a useful tool for sanctions-dodging. Certainly, there is evidence that Russians have been buying more crypto. But this may stem from a desire to hold an asset that is not plunging in value. The rouble has tumbled by about 25% against the dollar since February 23rd, whereas bitcoin has risen against the greenback. For oligarchs looking to dodge sanctions, though, crypto has three main flaws.The first is that the infrastructure, such as large exchanges, does not really exist in Russia. “Had the Russians wanted to use blockchain infrastructure for sanctions evasion, they would have had to have taken a very different regulatory approach,” says Tomicah Tillemann, a former staffer for President Joe Biden, who now advises Katie Haun, a crypto-focused venture capitalist. “Russia, along with a number of other authoritarian societies, has been pretty hostile to digital assets.” Thus Russians’ ability to convert significant amounts of wealth into crypto is limited.The second flaw is that it is not possible to buy most everyday items or financial assets with crypto, which means that a sanctions-dodger must at some point leave the crypto-sphere. “Ultimately what they really need to do is get access to some form of fiat currency, which becomes more challenging,” said Christopher Wray, the head of the FBI, in a US Senate hearing on the Russian invasion on March 10th. That requires interacting with a crypto-exchange.Though early iterations of some exchanges resisted the need to implement “know your customer” (KYC) anti-money-laundering measures, many have acquiesced as they have become regulated institutions. Some are publicly listed. Most have a presence in America and Europe. Binance, the largest exchange, implemented a KYC policy in 2021, requiring those using it to identify themselves to the firm.The message from regulators to exchanges has been unanimous. America’s Treasury has stressed that its sanctions apply “whether a transaction is denominated in traditional fiat currency or virtual currency”, a message reinforced by an executive order on digital currency from Mr Biden on March 9th. The White House has also issued a statement with the leaders of other G7 countries and the EU, vowing to “impose costs on illicit Russian actors using digital assets to enhance and transfer their wealth”. The crypto industry has rushed to accommodate these requests. Coinbase, another large exchange, has frozen 25,000 Russian accounts. Binance has said it will freeze the assets of people who have been targeted with sanctions.The third problem is that moving money around in crypto is not as private as is widely thought. Government sleuths have invested time and energy in trying to link supposedly anonymous wallets with real people, with some success. And as blockchain transactions are public, once identified, it is easy to trace the history of funds. In December the FBI managed to seize $3.6bn-worth of crypto-assets related to a theft from an exchange in 2016.Crypto may turn out to be far more useful to those looking to move in the open, rather than in the shadows. On February 26th the official Ukrainian Twitter account published digital-wallet addresses through which it is accepting bitcoin, ether and other tokens. Donations quickly flooded in. “Crypto really helped during the first few days because we were able to cover some immediate needs,” says Alex Bornyakov, Ukraine’s deputy minister for digital transformation. Nearly $100m-worth of tokens has since been donated to those and other wallets set up by private initiatives.Getting money to war zones is notoriously hard. In 2008 Mr Tillemann visited Tbilisi in Georgia with Mr Biden, then a senator, in the middle of Russia’s invasion of the country. “It became very obvious that we were going to have real challenges getting in resources,” he says. Donors were forced to ship pallets of $100 bills into war zones in Iraq and Afghanistan.Moving money out of war zones to buy supplies can be just as difficult. In the chaos of the war, it became increasingly difficult to pay in dollars or euros, especially abroad. “So we needed a tool to quickly perform those transactions. And crypto was our first choice,” says Mr Bornyakov. Although most suppliers did not operate in crypto, they agreed to accept it, he says. Ukraine has spent some $30m on things like bulletproof vests, night-vision goggles and medicines. Around a fifth of that was spent directly in crypto.The war has made it clear that there are serious uses for crypto. But it is now policed seriously, too. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.Editor’s note (March 16th 2022): This article has been updated since it was first published.Our recent coverage of the Ukraine crisis can be found hereThis article appeared in the Finance & economics section of the print edition under the headline “False promise” More

THE TRADING of commodities is an arcane activity that makes it into the public eye only at times of extreme hubris. That is when names like the Hunt brothers, who tried to corner the silver market in 1980, and Hamanaka Yasuo, or “Mr Copper”, who in 1996 produced huge losses for Sumitomo, a Japanese trading house, became household ones. Xiang Guangda, a Chinese tycoon known as “Big Shot”, vaulted into the news this month by taking a position on nickel that went badly wrong. The result has been one of the biggest tremors in the 145-year history of the London Metal Exchange (LME). It has also brought China, which is keen to exert more power over the trading of commodities, face to face with free markets gone mad.In the cloistered world of the LME, some facts about the affair are clear. One is that nickel prices, already hot before Russia’s invasion of Ukraine, surged after the West imposed sanctions on Russia. Another is that Mr Xiang’s firm, Tsingshan, had exposure to short positions on the LME of about 180,000 tonnes of nickel, which were supposed to benefit if prices went down. They didn’t, as a short-covering scramble for nickel briefly pushed prices above $100,000 a tonne on March 8th, putting Tsingshan’s potential losses into the billions of dollars. At that point the LME suspended nickel trading, cancelling all trades that took place overnight. When the suspension was lifted on March 16th, a sharp drop in nickel prices forced the LME to suspend trading again, adding to the chaos.Three big questions remain. How important is Tsingshan’s role in the debacle? Did its troubles provoke interference from China? And has the LME bungled its response? All will be the subject of scrutiny.In media reports, Tsingshan has the lead role in the drama. There is debate about whether its short-selling represented the normal activity of one of the world’s largest nickel producers hedging its output, or a speculator making a rash bet. What appears clear is that the nickel it produces is not the type of metallic nickel that is traded on the LME, meaning there was a mismatch between its shorts and longs. As its losses increased, its brokers forced it to provide more cash, or “margin”. The size of its position meant that they also faced big margin calls, making it as much their problem as Tsingshan’s. On March 15th Tsingshan said it had reached a standstill agreement with its creditors until it reduces its positions in an orderly way.In the market, rumours abound that China may have influenced the LME’s activities, partly because Hong Kong Exchanges and Clearing (HKEX) owns the exchange, and also because Tsingshan is strategically important to the country, because its nickel goes into electric-vehicle batteries. The LME denies receiving pressure from HKEX. It granted extra time on March 7th to CCBI Global, a Chinese broker for Tsingshan that is a member of the LME, to raise funds from its state-owned parent, China Construction Bank, to cover margin calls. That may have been a prudent thing to do. It knew the wealthy bank could provide the funds. Some traders wonder whether it would have been as tolerant with a non-Chinese entity. In the aftermath, Chinese authorities are said to have fought hard to stop Tsingshan’s nickel assets falling into the hands of non-Chinese speculators.The most intense scrutiny may fall on the LME itself, specifically the timing of its decision to suspend nickel trading and the cancelling of overnight trades that were rumoured to be in the billions of dollars. It said it halted trading in the early hours of March 8th when it reckoned the nickel market had become disorderly. It added that its decision to cancel that day’s trades was because the big price moves had created a systemic risk to the market, raising concerns of multiple defaults by member-brokers struggling to meet margin calls.That latter decision is the biggest bone of contention. Critics say it favoured those with short positions, such as physical producers and their banks, over those with long positions that could be sold at a big profit. They ask why it stepped in to protect brokers when the LME has a default fund that its members can get access to in times of trouble. “The decision to erase the trades…will undermine long-term confidence in the LME,” says Yao Hua Ooi of AQR, an asset manager that had trades cancelled on March 8th. “If you want the AQRs of this world [in the market], you cannot intervene when they make money and it hurts your brokers.” He said the firm was exploring all options against the LME.The LME has since set daily limits on price moves (which were exceeded on March 16th when it briefly reopened nickel trading). That is another sign of intervention by an exchange that used to pride itself on its free-market nature. Its owner in Hong Kong, with China looking over its shoulder, would no doubt approve. ■This article appeared in the Finance & economics section of the print edition under the headline “When China met the free market” More

Check out the companies making headlines before the bell:
Dollar General (DG) – Dollar General rallied 5% in the premarket after the discount retailer forecast better-than-expected full-year sales. Dollar General’s quarterly earnings of $2.57 per share matched forecasts, although revenue was slightly below estimates and same-store sales fell more than expected. The company also raised its dividend by 31%.

Accenture (ACN) – Accenture jumped 5.3% in premarket trading after beating top and bottom-line estimates for its latest quarter and forecasting current-quarter revenue above current analyst forecasts. The consulting firm earned $2.54 per share for its most recent quarter, compared with the $2.37 consensus estimate.
Signet Jewelers (SIG) – The jewelry retailer’s stock surged 7.4% in premarket action after it reported quarterly results. Signet’s adjusted earnings of $5.01 per share matched analyst forecasts, while revenue and same-store sales exceeded estimates. Signet also raised its quarterly dividend to 20 cents from 18 cents.
Warby Parker (WRBY) – Warby shares slumped 13.4% in the premarket after the eyewear retailer forecast 2022 revenue that fell short of consensus. For its latest quarter, Warby Parker reported an adjusted loss of 8 cents per share, 1 cent smaller than expected, with revenue matching analyst forecasts.
Lennar (LEN) – The homebuilder reported quarterly earnings of $1.69 per share for its fiscal first quarter, missing the $2.60 consensus estimate. Revenue beat analyst forecasts on strong demand and higher prices, but the bottom line was hit by higher costs for materials and labor. Lennar added 1% in premarket trading.
Williams-Sonoma (WSM) – Williams-Sonoma earned an adjusted $5.42 per share for its latest quarter, beating the $4.82 expected by Wall Street analysts, even as the housewares retailer’s revenue fell slightly short of estimates. The company said it was able to navigate supply chain challenges and material and labor shortages. Williams-Sonoma surged 7.6% in the premarket.

PagerDuty (PD) – PagerDuty lost an adjusted 4 cents per share for its latest quarter, 2 cents less than analysts were anticipating, with the digital operations platform provider’s revenue also exceeding Street forecasts. PagerDuty also issued an upbeat revenue forecast, and its stock soared 13.6% in premarket trading.
Occidental Petroleum (OXY) – Berkshire Hathaway (BRK.B) bought another 18.1 million shares of Occidental, according to an SEC filing. That brings Berkshire’s holdings in the energy producer to 136.4 million shares, or about a 14.6% stake. Occidental shares rose 3.6% in premarket trading.
Guess (GES) – Guess reported adjusted quarterly earnings of $1.14 per share, one cent below estimates, while the apparel maker’s revenue also fell short of Street forecasts. However, profit margins were better than anticipated, and the stock jumped 4.9% in the premarket.

WATCH LIVEWATCH IN THE APP More

Lloyd’s of London has fined its syndicate member firm Atrium Underwriters £1.05 million ($1.38 million).
Lloyd’s brought three charges of “detrimental conduct” against Atrium, including bullying and heavy drinking.
In addition to the fine, Atrium agreed to pay Lloyd’s £562,713.50 in costs.

The interior of Lloyd’s of London, the centuries-old insurance market, is pictured in central London on April 27, 2016.
Leon Neal | AFP | Getty Images

LONDON — Lloyd’s of London, the U.K. insurance giant, has hit one of its member firms with a record £1.05 million ($1.38 million) fine for misconduct, which included allowing an annual inappropriate “boys’ night out” for a number of years.
Lloyd’s said in a notice of censure, published Wednesday, that its syndicate member firm Atrium Underwriters had accepted three charges of “detrimental conduct.”

One of the charges was for “sanctioning and tolerating over a period of a number of years up until 2018 an annual ‘Boys’ Night Out’ during which some male members of staff, (including two senior executives in leadership roles) engaged in unprofessional and inappropriate conduct.”
This included “initiation games, heavy drinking and making inappropriate and sexualised comments about female colleagues.”

‘No adequate steps were taken’

Lloyd’s also charged Atrium because it failed to notify the insurer about the facts relating to the misconduct of one of its members of staff, referred to in the document as “Employee A.”
In addition, the notice stated that Employee A’s conduct was well known with Atrium, “but no adequate steps were taken to deal with it.”
“Employee A’s behaviour included a systematic campaign of bullying against a junior employee over a number of years,” Lloyd’s said, adding that Atrium failed to protect the junior member of staff once it became aware of the bullying.

Lloyd’s said that Atrium failed to acknowledge or challenge Employee A’s behavior, “motivated in part by the desire of senior managers to protect Atrium from bad publicity.”
The employee who complained about Employee A was also instructed not to speak about Atrium’s investigation into the misconduct or the allegations made.
The notice said that because Atrium had settled these proceedings at the “earliest opportunity,” Lloyd’s Enforcement Board accepted a 30% discount on the fine, which otherwise would have been £1.5 million. Even so, Lloyd’s said in a separate statement that this was still the largest ever fine imposed in its 336-year history.
In addition to the fine, Atrium agreed to pay Lloyd’s £562,713.50 in costs.

Lloyd’s CEO John Neal said the firm was “deeply disappointed by the behaviour highlighted by this case, and I want to be clear that discrimination, harassment and bullying have no place at Lloyd’s.”
He said that all Lloyd’s employees should “expect to work in a culture where they feel safe, valued, and respected.”
An independent survey of workers within the “Lloyd’s market,” published in September 2019, found that 8% had witnessed sexual harassment during that past year, but just 45% said they felt comfortable raising their concerns.
The survey was commissioned by Lloyd’s on the back of reports of sexual harassment within the business. It also found that 22% of respondents had seen people in their organization turn a blind eye to inappropriate behavior.

WATCH LIVEWATCH IN THE APP More

Berkshire Hathaway class A shares achieved a key milestone Wednesday, hitting an all-time closing high of half a million dollars as Warren Buffett’s multifaceted conglomerate fires on all cylinders during the economic recovery.
The class A shares gained 1.3% Wednesday, rising for a fourth straight day to close at $504,400 — its first-ever close above the half-million dollar threshold. Shares of the Omaha-based company have rallied more than 11% this year, significantly outperforming the broader market.

Loading chart…

“I think a rotation into value names, coupled with Berkshire’s exposure to the energy and utility space … and investors’ enthusiasm for Berkshire’s aggressive share buybacks drove the shares’ performance,” said Cathy Seifert, a Berkshire analyst at CFRA Research.
The rally in the stock pushed Berkshire’s market cap above $730 billion, surpassing tech pioneer Meta Platforms in market value and becoming only non-tech companies on the list of 10 most valuable U.S. public companies.

Arrows pointing outwards

Berkshire’s Class A shares are the conglomerate’s original offering, which rapidly ballooned over time in price to eventually become one of the most expensive single stocks on Wall Street. Buffett has said he will never split the Class A shares because he believes the high share price will keep and attract more long-term, quality-oriented investors.
Still, in response to demand for a cheaper option among small investors, Berkshire issued convertible Class B shares in 1996 for one thirtieth of Class A share price initially. The affordable share class allows investors to purchase a piece of the company directly instead of buying a fraction of a share through unit trusts or mutual funds.
Berkshire’s Class B shares closed at $336.11 apiece on Wednesday, rising a similar 12% this year.

Stock picks and investing trends from CNBC Pro:

The company’s operating earnings — which encompass profits made from the myriad of businesses owned by the conglomerate like insurance, railroads and utilities — jumped 45% from a year ago in the fourth quarter as businesses continued to roar back to life from the pandemic economic slowdown.
A slew of Buffett’s stock holdings are also paying off handsomely, from Apple to big banks and Japanese trading houses. The 91-year-old investing legend’s massive bet on Apple, which makes up 40% of Berkshire’s equity portfolio, has made more than $120 billion on paper.
Meanwhile, Berkshire has further supported the stock by repurchasing a record $27 billion of its own shares in 2021 as the “Oracle of Omaha” found few opportunities externally. The conglomerate hasn’t pulled off any big acquisitions in recent years so has consistently bought back its own shares with its massive cash pile.

WATCH LIVEWATCH IN THE APP More

The Fed approved a 0.25 percentage point rate hike, the first increase since December 2018.
Officials indicated an aggressive path ahead, with rate rises coming at each of the remaining six meetings in 2022.
Members also pared expectations for economic growth this year and sharply raised their outlook for inflation.

The Federal Reserve on Wednesday approved its first interest rate increase in more than three years, an incremental salvo to address spiraling inflation without torpedoing economic growth.
After keeping its benchmark interest rate anchored near zero since the beginning of the Covid pandemic, the policymaking Federal Open Market Committee said it will raise rates by a quarter percentage point, or 25 basis points.

That will bring the rate now into a range of 0.25%-0.5%. The move will correspond with a hike in the prime rate and immediately send financing costs higher for many forms of consumer borrowing and credit. Fed officials indicated the rate increases will come with slower economic growth this year.
Along with the rate hikes, the committee also penciled in increases at each of the six remaining meetings this year, pointing to a consensus funds rate of 1.9% by year’s end. That is a full percentage point higher than indicated in December. The committee sees three more hikes in 2023 then none the following year.
The rate rise was approved with only one dissent. St. Louis Fed President James Bullard wanted a 50 basis point increase.
The committee last raised rates in December 2018, then had to backtrack the following July and begin cutting.

In its post-meeting statement, the FOMC said it also “anticipates that ongoing increases in the target range will be appropriate.” Addressing the Fed’s nearly $9 trillion balance sheet, made up mainly of Treasurys and mortgage-backed securities it has purchased over the years, the statement said, “In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.”

Fed Chairman Jerome Powell at his post-meeting news conference hinted that the balance sheet reduction could start in May, and said the process could be the equivalent of another rate hike this year.

The indication of about 175 basis points in rate increases this year was a close call: The “dot plot” of individual members’ projections showed eight members expecting more than the seven hikes, while 10 thought that seven total in 2022 would be sufficient.
“We are attentive to the risks of further upward pressure on inflation and inflation expectations,” Powell said at the news conference. “The committee is determined to take the measures necessary to restore price stability. The U.S. economy is very strong and well-positioned to handle tighter monetary policy.”
Officials also adjusted their economic outlook on multiple fronts, seeing much higher inflation than they expected in December and considerably slower GDP growth.

Stock picks and investing trends from CNBC Pro:

Committee members bumped up their inflation estimates, expecting the personal consumption expenditures price index excluding food and energy to reflect 4.1% growth this year, compared with the 2.7% projection in December 2021. Core PCE is expected to be 2.7% and 2.3%, respectively, in the next two years before settling to 2% over the longer term.
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures,” the statement said.
On GDP, December’s 4% was sliced to 2.8%, as the committee particularly noted the potential implications of the Ukraine war. Subsequent years were unchanged. The committee still expects the unemployment rate to end this year at 3.5%.
“The invasion of Ukraine by Russia is causing tremendous human and economic hardship,” the statement said. “The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.”
Stocks initially reacted negative to the announcement but then bounced back. Bond yields momentarily moved higher, with the benchmark 10-year Treasury note rising to 2.22% before receding.

“Ultimately, they’ve come through with a clear message, that the Fed has a path forward to continue to tighten in response to this overwhelming concern around inflation,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “The question is, will it be enough and are they even recognizing that they’ve … perhaps fallen behind the curve?”

Changing course

The central bank had slashed its federal funds rate in the early days of the pandemic to combat a shutdown that crippled the U.S. economy and financial markets while sending 22 million Americans to the unemployment line.
But myriad factors have combined to force the Fed’s hand on inflation, a condition that policymakers last year dismissed as “transitory” before capitulating. Officials over the past two months have strongly indicated that interest rate hikes are coming, with the main question left for investors being how many increases and how quickly they would come.
The current trend of price increases, at their fastest 12-month pace in 40 years, has been fed by demand that has far outstripped supply chains that remain clogged if less so than their pandemic-era peaks. Unprecedented levels of fiscal and monetary stimulus — more than $10 trillion worth – have coincided with the inflation surge. And the Ukraine war has coincided with a major spike in oil prices, though that has abated in recent days.
Heading into this week’s FOMC meeting, markets had been pricing in the equivalent of about seven 0.25% hikes this year, according to CME Group data. However, traders were split about 50-50 over whether the Fed might hike 50 basis points in May, as some officials have indicated could happen if inflation pressures persist.
Prices are up 7.9% year over year, according to the consumer price index, which measures a wide-ranging basket of goods and services. Energy has been the biggest burden, as gasoline prices have risen 38% in the 12-month period.

However, price pressures have broadened out from simply gas and groceries.
For instance, clothing prices, after plummeting in the early days of the pandemic, have risen 6.6% over the past year. Motor vehicle repair costs are up 6.3% and airline fares have jumped 12.7%. Rent of shelter costs, which make up nearly one-third of the CPI, have been moving up sharply in recent months and are up 4.8% year over year.
All of those cost increases have left the Fed’s 2% inflation target in the dust.
The Fed in September 2020 approved a new approach to inflation, in which it would let it run hotter in the interest of a full and, most notably, inclusive employment goal that spans across race, gender and wealth. However, the change in approach was followed almost immediately by more pernicious inflation than the U.S. economy had seen since the days of the Arab oil embargo and inflation that peaked in the early 1980s at nearly 15%.
In those days, the Paul Volcker-led Fed had to jack up interest rates to a point where they tipped the economy into recession, something central bankers now want to avoid. Back then, the funds rate eclipsed 19%.
Baird said the Fed will need to live up to its promise to be “nimble” if it is to continue to assuage market fears about runaway inflation.
“Will the path that they’ve laid out be enough to bring inflation back down to more comfortable levels in some reasonable time frame? The possibility certainly exists that they could get more aggressive,” he said.

WATCH LIVEWATCH IN THE APP More

Alibaba’s headquarters in Hangzhou, China, on Wednesday, Nov. 10, 2021.
Qilai Shen | Bloomberg | Getty Images

Check out the companies making headlines in midday trading.
Alibaba, JD.com, Pinduoduo — Shares of Chinese companies listed publicly in the U.S. surged as Beijing signaled support for the stocks. The Chinese government said it supports the listing of businesses overseas and that its crackdown on technology companies should end soon, according to Chinese state media. Alibaba jumped 36.7%, JD.com added 39.4% and Pinduoduo rallied 56%.

AeroVironment — The defense stock jumped 9.8% after NBC News reported that the White House was considering supplying drones made by AeroVironment to the Ukrainian government to help fend off Russian forces.
Lockheed Martin — Shares of the defense contractor dropped 6.1% after Bloomberg News reported that the Pentagon would cut its request for F-35 fighter jets in the new fiscal budget proposal.
Boeing — Boeing shares rallied 5.1% after Baird added the aerospace company to its bullish fresh picks list. While the company’s stock is down year-to-date, investors should buy the dip as deliveries of the 737-Max are expected to resume in China even amid the recent surge in Covid-19 cases, analysts wrote.
Micron Technology — The semiconductor stock surged 9%. Bernstein analysts upgraded Micron to outperform, saying the firm will see huge gains after supply issues are resolved later this year.
Spotify — The streaming company’s stock price jumped more than 6% in midday trading. Spotify signed a stadium and shirt sponsorship deal on Tuesday with Spanish soccer team FC Barcelona. The team members will wear the Spotify logo on their uniform shirts for the next four years.

Starbucks — Shares of Starbucks climbed 7.9% after the coffee giant announced CEO Kevin Johnson’s retirement following five years on the job and said that Howard Schultz will return as interim CEO. JPMorgan analysts also upgraded Starbucks to overweight and said its shares could rally 22% despite recent China restrictions.
Nvidia — The chipmaker’s stock price surged 6.6%. Analysts at Wells Fargo added Nvidia to their “signature picks” list, saying the stock’s recent tumble has created an attractive risk/reward profile. Wells Fargo also expects upbeat announcements at Nvidia’s upcoming investor day.
Nike — The sportswear company’s stock price spiked 4.9%. Bernstein said Tuesday that supply chain issues have created a buying opportunity in Nike, which analysts expect will maintain its top position in China.
NortonLifeLock — Shares for NortonLifeLock tumbled 13.3% after Britain signaled that the cybersecurity company’s $8.6 billion deal to acquire competitor Avast may get an “in-depth” probe by antitrust regulators.
— CNBC’s Hannah Miao, Jesse Pound and Samantha Subin contributed reporting.

WATCH LIVEWATCH IN THE APP More