Fed's Rate Hikes Freeze Housing Market, Fueling Rents and Inflation
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The Fed's policy of rapidly raising interest rates to combat inflation has caused mortgage rates to spike, freezing the housing market. This is preventing home prices from falling and slowing inflation.
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With few homes being listed for sale, more people are forced to rent, pushing up rental prices and core inflation measures.
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The Fed should reverse its reduction of mortgage bond purchases to bring mortgage rates back down and reopen the housing market. This would allow home prices to fall and rental inflation to ease.
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The pandemic requires creative solutions - the Fed should "tap the gas" on mortgages while "pumping the brakes" on Treasuries to target housing-driven inflation.
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Keeping the housing market locked up will continue to push up stubbornly high rental inflation. The Fed needs an "unusual solution" before inflation becomes entrenched.