Homegold ivestingInflation Fightin’ Fed? Fed Can’t Fight Food And Energy Inflation, But They Can Crash The Housing Market (To Tame Total Inflation, Fed Would Have To Raise Rates To 21.38%!) – Confounded Interest – Anthony B. Sanders
Inflation Fightin’ Fed? Fed Can’t Fight Food And Energy Inflation, But They Can Crash The Housing Market (To Tame Total Inflation, Fed Would Have To Raise Rates To 21.38%!) – Confounded Interest – Anthony B. Sanders
May 21, 2022
Inflation Fightin’ Fed?
Kansas City Fed President Esther George said The Fed isn’t focused on impact of rates on stocks (or pension funds, apparently).
The inflation that is crushing Americans is due to energy and food price increases. That is, the non-core inflation. Under Biden, food is up 63%, gasoline is up 92% and diesel prices are up 112%. But The Fed doesn’t consider food and energy prices, per se.
If we look at the Taylor Rule considering fighting inflation including food and energy, The Fed would have to raise their target rate to … 21.38%.
Now, The Fed can clearly cool-off the housing market by raising rates. In fact, my fear is that they go too far and crash the housing market. The Fed will NEVER get to 20% again like we last saw under Volcker in 1981. 20% rates certainly cooled home prices back then and Fed rate hikes helped crash the housing market in 2008.
So, when The Fed says they want to be the inflation-fightin’ Fed, we must be aware what The Fed can and cannot do. They can’t tame the inflation beast in the form of food and energy prices (unless they crash the economy), but they can crush home prices.