In my opinion, Dr. Rutledge, you may even be underselling how much the Fed is misled, since even if housing today were inflationary like their numbers suggest (it’s not), housing is a fairly inelastic good (everyone needs somewhere to live) and clearly high interest rates heavily tamp down new housing supply and discourage home resales, so the hammer of sustained high interest rates doesn’t cleanly drive down housing costs over long periods of time unless there is causes a huge drop in overall demand (i.e. a recession). This thought process is supported by the Case Shiller Index, which is down less than 3% from its recent peak, and actually trending softly upwards the past couple of months despite high rates... Supply matters. Housing costs are not inflationary as the data suggests, but even if it was, artificially high interest rates for a prolonged period of time are hardly a ‘cure all’ for that specific ill.
Thanks for reading, Dylan, and I appreciate your comments.
In my opinion, Dr. Rutledge, you may even be underselling how much the Fed is misled, since even if housing today were inflationary like their numbers suggest (it’s not), housing is a fairly inelastic good (everyone needs somewhere to live) and clearly high interest rates heavily tamp down new housing supply and discourage home resales, so the hammer of sustained high interest rates doesn’t cleanly drive down housing costs over long periods of time unless there is causes a huge drop in overall demand (i.e. a recession). This thought process is supported by the Case Shiller Index, which is down less than 3% from its recent peak, and actually trending softly upwards the past couple of months despite high rates... Supply matters. Housing costs are not inflationary as the data suggests, but even if it was, artificially high interest rates for a prolonged period of time are hardly a ‘cure all’ for that specific ill.