New Federal Reserve News Agency: High housing costs have disrupted the Fed's interest rate cut plan
楚一帆
发表于 2024-5-13 10:45:29
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Based on the Federal Reserve's May interest rate decision and recent statements from a series of officials, it is evident that the Federal Reserve has not abandoned its plan to cut interest rates within the year, and the market also expects the central bank to make its "first cut" in September.
On Saturday evening local time, Nick Timiraos, a renowned journalist known as the "New Federal Reserve News Agency," posted that the expectation that housing costs will slow down this year has always been the core basis for the Federal Reserve to believe that inflation will slow down enough to reassure it of interest rate cuts.
But after waiting for over a year, this slowdown has not yet arrived. Some analysts are concerned that due to the dynamic changes in the real estate market, this slowdown may not occur at all. If that's the case, then the reason for interest rate cuts will be greatly weakened.
In recent years, housing costs have played an important role in inflation, accounting for up to one-third of the Consumer Price Index (CPI) and about one-sixth of the Personal Consumer Expenditure Price Index (PCE), which is the Federal Reserve's most concerned inflation indicator.
Federal Reserve Chairman Powell previously stated that he expects the decrease in rental costs to ultimately be reflected in broader price data, allowing policymakers to lower interest rates at some point. Powell said at last week's press conference, "I believe that as long as rent remains low, this will be reflected in inflation data."
However, the recent series of data has sent some ominous signals. According to a survey report released by the Federal Reserve of New York on Monday, the realization of the dream of owning a house by American consumers has become even more distant. Respondents expect housing prices to rise by 5.1% in one year, higher than the 2.6% predicted a year ago; In terms of rent, respondents believe that costs will increase by 9.7% in one year, which is the second highest data in the history of the survey.
The head of Redfin Economic Research, a real estate brokerage firm in the United States, said that housing has become an economic burden on the country, and some families are no longer able to afford other necessities, including food and healthcare. People are forced to work overtime and borrow money to pay monthly housing bills.
Timiraos pointed out that in 2022, single household residential rental prices increased by 14%, but the year-on-year growth rate in February this year has slowed to 3.4%, reflecting intensified competition in the supply of new apartments and lukewarm income growth adjusted for inflation.
Housing inflation rate needs to be reduced to 3.5%
The core PCE inflation in the United States was 2.8% in March, but it was not much lower than last December. Housing costs help explain why core inflation has stagnated in recent months, rather than continuing the previously slowing trend.
Chicago Fed Chairman Goodsby stated in an interview last month that the development of the housing market did not meet the Fed's previous expectations. "However, I still believe it will slow down, and if this situation does not occur, the Federal Reserve may find it difficult to achieve its goal of reducing inflation to 2%."
Core inflation is divided into three different components: commodities, housing, and non housing services. To achieve a 2% inflation rate, the Federal Reserve does not need all of these indicators to reach 2%.
In the decade leading up to the pandemic, the core inflation rate was slightly below 2%, as commodity inflation was around -1%, housing inflation was between 2.5% and 3.5%, and non housing service inflation was slightly above 2%.
The main reason for the slowdown in inflation last year was that commodity prices returned to pre pandemic trends. To bring the inflation rate back to 2%, the non housing service inflation rate must be reduced from the current 3.5% to below 3%, and the housing inflation rate must be reduced from 5.8% to around 3.5%.
Some people doubt whether housing costs will help reduce inflation as expected. Rent is often sensitive to wages and income, and as long as wages and income steadily increase, rent may not slow down that much.
A key reason for the slowdown in market rent is that the industry is increasing the supply of record breaking new apartments. However, some industry executives have stated that these supplies are rapidly being absorbed due to increased immigration and stable growth in employment and wages.
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