Here’s what Fed Chair Jerome Powell said about real estate today
After 10 consecutive rate hikes, the Federal Reserve announced at today's meeting that it would hold rates steady.
Key points:
- As Wall Street and other observers had predicted, the Fed announced no rate hike today.
- However, Chair Powell did note that there could be further hikes later this year.
- Powell also discussed housing’s relationship to inflation and predicted a cooling off in leasing and rents.
Today's Federal Reserve meeting had the potential of being one of the most consequential of this economic cycle. But instead of voting to raise rates yet again — which Wall Street and financial journalists had betted against — Chairman Powell signaled that the Fed would hold steady.
For now.
Powell was clear to note that the Fed would likely raise rates at least one or two more times later this year, but would not specify when this could happen. However, he did comment on some of the sectors that have been hit hardest by Fed policy, particularly housing.
"Since early last year, we have raised our policy rate by five percentage points. We have been seeing the effects of our policy-tightening on demand in the most interest rate sensitive sectors of the economy, especially in housing and investment," Powell said during his prepared remarks, also expressing that the economy still "has a long way to go" until we are back down to 2% inflation.
And indeed, the Fed's fight against inflation has sent borrowing costs soaring, which in turn has cooled off what was an overheated housing market. But the Fed's monetary policy has also had an unintended consequence with housing: Nobody wants to give up their sub-3% mortgage rate. Current homeowners who refinanced or bought at record-low interest rates aren't listing their homes for sale, leading to a major inventory crunch.
But there could be a shift in the rental sector, Chairman Powell said to a journalist during the Q&A segment. When asked about where the "disinflation" is coming from, Powell noted that while inflation has been moving in the right direction in recent weeks, there could be further cooling in the housing market.
"In terms of housing services inflation, that's another big piece, and you are seeing there that new rents and new leases are coming in at low levels and it's really a matter of time as that goes through the pipeline," he said. "In fact, I think any forecast that people are making right now about inflation coming down this year will contain a big dose of disinflation from that source. But again, that probably is going to come slower than we would expect."