Stubbornly High Rents Prevent Fed (Ständigt denna bostadspost)

Fed plans to cut interest rates because it expects a slowdown in housing costs to eventually drag inflation close to its 2% target.

The problem: It has been waiting for that slowdown for 1½ years now, and it still hasn’t arrived.

The slowdown might simply be delayed. But some analysts worry it’s not going to happen because of changing dynamics in the housing market.

If so, that would significantly weaken the case for lower rates.

Housing has played a large role in the inflation of recent years because its cost rose so much and carries such large weight.

It is one-third of the consumer-price index

and around one-sixth of the price index of personal-consumption expenditures, the Fed’s preferred inflation measure.

Housing inflation has indeed slowed from a peak of 8.2% one year ago - but only to 5.6% in March

To understand why, break core inflation into three different baskets: goods, housing and nonhousing services.

To get all the way to 2% inflation, the Fed doesn’t need 2% for all those categories.

Nick Timiraos Wall Street Journal 11 May 2024

Englund