Housing rebound poses challenge for Fed's inflation fight

economictimes.indiatimes.com:

Home prices are again on the rise after a brief dip last year, complicating the Federal Reserve's effort to contain inflation and raising questions about how much further policymakers will have to hike interest rates. Demand for homes around the country continues to outpace supply, despite a rapid rise in borrowing costs spurred by the US central bank.

While signs of easing price pressures have some policymakers eyeing the end of their tightening campaign, they could end up having to increase rates higher or hold them there for longer if the resilient housing market leads to slower progress on inflation, economists and Fed officials say. «If housing begins to recover more meaningfully, that raises the risk that inflation is going to be more sticky,» said Torsten Slok, chief economist for Apollo Global Management.

«The real risk here is, meaning from a markets perspective, that the Fed has to step harder on the brakes.» Policymakers are poised to lift rates by a quarter point following a two-day policy meeting Wednesday, bringing the target on their benchmark rate to a range of 5.25% to 5.5%. Projections released by Fed officials in June showed most of them foresee at least one more rate hike by year end.

Inflation is cooling after soaring to a 40-year high last summer, with the consumer price index rising by 3% in the 12 months ending in June, one-third of the rate seen a year ago. But so-called core measures of inflation, which strip out volatile food and energy prices, are proving more stubborn and leading to worries that it could take some time to bring price gains down to the Fed's 2% goal.

Shelter costs, which account for roughly 40% of the core CPI basket, are an important part of that battle. The Bureau of Labor