For the Fed, taming inflation also means navigating a housing crisis

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2023-09-11 01:00:00  • 7 mins

As the Federal Reserve continues its quest to tame inflation, a stubborn lack of housing supply is propping up housing costs and even rental prices, complicating the central bank's calculus on when and whether to delay rate hikes or even cut lending rates.

Bloomberg News

Federal Reserve officials anticipate moderating housing costs driving disinflation in the months ahead, but a national shortage of homes could spoil those expectations.

Last month, during his annual address in Jackson Hole, Wyo., Fed Chair Jerome Powell said the elevated housing costs captured by recent inflation readings do not reflect the central bank's true progress on curbing price growth in that sector.

"The market rent slowdown has only recently begun to show through to that measure," Powell said. "The slowing growth in rents for new leases over roughly the past year can be thought of as 'in the pipeline' and will affect measured housing services inflation over the coming year."

Economists agree that rent growth rates have slowed down since peaking during the pandemic years and that such a trend often takes time to show up in inflation reports, given how housing costs are measured. But some say the trajectory of where shelter costs are heading is muddied by shortages in most major markets across the country.

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