Inflation refuses to budge. In September, consumer prices rose by 8.2%. Rents rose by 7.2%, the highest pace in 40 years. Furthermore, rents are accelerating to higher figures with each passing month. In January, rents rose by 3.6%, and now the annualized rate is 10.6% (i.e., the monthly change times 12 months). The housing shortage was present years ago, yet America underbuilt homes in relation to population growth. The consequences are evident in rent growth and high home prices. Even with an anticipated fall in home prices in some markets, principally in California, homes will continue to be unaffordable while rents are squeezing non-owners. Energy prices are moderating but are still up 45% above pre-pandemic conditions.
Even with an economic recession looming, the Federal Reserve is unlikely to let up in its aggressive monetary policy of raising interest rates. The 10-year Treasury yield broke past 4% this morning, and mortgage rates will be fighting to hold at a 7% average rate in the upcoming weeks. People’s IRA and 401K retirement accounts are quickly vanishing.
The Federal Reserve is trying to cut demand to reduce inflationary pressure, but inflation can also come down by increasing supply. America has to produce more of everything, from building more homes and industrial spaces to drilling for more energy and manufacturing more electric cars. The 3 million Americans who left the workforce since the pandemic need to be incentivized to get back to work.