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The U.S. housing market has a simple issue of affordability.
But Jerome Powell and his colleagues at the Federal Reserve do not believe they can resolve this tension in the current economic expansion on their own.
“We're not targeting home price inflation or housing costs or anything like that,” Powell said at a January press conference. “Those are things that are very important to people's lives. But they're not. You know, they're not what we're targeting.”
Rather, the Fed is trying to fulfill its dual mission of achieving maximum employment and price stability, which it defines as an average of 2% inflation. The central bank's struggle with the latter part of its mandate is why interest rates are so high and are expected to remain so this week.
Moreover, housing costs, especially rent, remain the biggest factor behind persistently high inflation. Home prices are at record highs. And the outlook for whether the market will have the supply needed to meet demand is mixed at best.
When Powell appeared on Capitol Hill earlier this month, lawmakers urged him to do something about housing costs. The Fed chairman did not offer a solution, but said the housing market was in a “very difficult situation.”
At least one question related to housing is expected to be posed to the Fed chair when Powell takes the stage on Wednesday. But we're not expecting a better answer.
After all, back in 2022, Chairman Powell called for a “reset” of the U.S. housing market after low interest rates and rapidly changing consumer desires caused a frenzy during the pandemic. And although Chairman Powell said earlier this year that housing market activity was “subdued,” the Fed chairman clearly sees the central bank as being able to lower interest rates, the only indirect tool in the market. ing.
“We're also very aware that, for example, when we cut interest rates at the beginning of the pandemic, the housing industry was helped more than any other industry,” Powell said at a news conference in January.
“Increasing interest rates could hurt the housing industry because it is a sector that is very sensitive to interest rates. On top of that, we have long-term issues with housing availability. … There's not enough housing. And these are not things we have the tools to address.”
And they don't.
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