The Fed Chairman Promises Inflation Will Cool

The Fed chairman Jerome Powell promised that the central bank will use all its tools to prevent the consolidation of high inflation.

According to FX Street, the chairman of the Board of Governors of the Federal Reserve System stressed that, if necessary, the US Central Bank will raise interest rates further, however, he predicted that inflationary pressures are expected to last until March 2022.

The imbalances observed in 2021 will need to be normalized because otherwise, they could create conditions for persistence in the derailment of inflation. And so, the US Federal Reserve’s 2% inflation target may not be met. Two of the components that we will need to take into account in estimating inflation are housing prices and rising Labor market costs.

The housing market
The Covid-19 pandemic upset the housing market. The historically low-interest rates on mortgages, combined with a shortage of housing, created a trend of rising prices which is expected to be maintained also in the year 2022. Buyers most likely will face similar trends to those of the last two years, namely high housing prices, low inventory.

Homes are much more expensive now compared to the older generations when they bought their first home. Population growth as well as the fact that people are now living longer than the older generations make the housing stock decrease. Even before the pandemic, there was low housing stock in most countries worldwide.

In the European Union it is indicative that in the third quarter of 2021, house prices increased compared to the same quarter of 2020 by 9.2% and by 8.8% in the euro area. Based on the year 2010, it is observed that since the middle of 2010, house prices in the EU have risen by up to 40% as shown in the chart below.

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https://www.fxstreet.com/analysis/the-key-components-for-taming-inflation-202201171016

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