Jonathan Levin says that slowing economic growth, cheaper commodities and bloated inventories could shift monetary policy outlook drastically. The wild card is the pace of rising home prices…(Bloomberg)
As Powell said last month, he wants to see a “series” of reports with inflation coming down before he entertains a change in strategy. A widely followed nowcast from the Cleveland Fed suggests that the consumer price index, excluding volatile food and energy prices, posted a month-over-month decline in June and may do so again in July. A third decline in August would give the Fed a strong excuse to change its story.
However, Levin argues that housing could throw a monkey wrench in those plans…
Housing flows into inflation through rents and a category called owners’ equivalent rent, a metric based on surveyed estimates of what people think their homes would rent for. As such, reported housing inflation lags market prices by many months. Because of the mechanics alone, housing is likely to keep exerting upward pressure on the index into 2023