OPINION: The Federal Reserve is likely to brush aside any signs of progress in tamping down inflation expectations, or in tapering effective demand by destroying wealth and slowing the growth of incomes. An unnecessarily hard landing is likely.
The Federal Reserve can’t see the probable economic crash that is coming because it’s still looking into the rearview mirror, where it sees nothing but high inflation.
Powell didn’t even hint that the Fed was making significant progress in controlling shelter costs. Maybe Powell was just trying to stay on the hawkish message he’s been trying to deliver, but, then again, maybe Powell and other policy makers really don’t get it. House prices fell at a 6.9% annual rate in July after a historic increase in home prices of more than 20% a year, according to the repeat-sales index reported by the Federal Housing Finance Agency on Tuesday. The Case-Shiller Index, which is a three-month average, fell at a 2.9% annual rate.
We’re all renters now However, it’s not the price of houses that determine the measurement of shelter costs in the price indexes, nor do actual out-of-pocket expenses for mortgages, taxes, insurance and maintenance play any role in the government’s assessment of the cost of living. Any assumption that the cost of living of the 84 million families that own their home should be measured by what the 47 million who rent pay is not just ridiculous, it’s fatally flawed. In times of low inflation, it might be acceptable, but in times of high inflation, this assumption is sending out a misleading message.
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