[quote=moon]Hi Rich, I cannot wait to read your updates on this article. Things have changed a lot since last October when you published this article, such as housing price keeps going up in a crazy way, mortgage rage went to 5% already, and will go even higher in a faster way than we ever expect. What do you think the affordability of housing now? Do you think the Fed will do everything (actually I meant multiple rate hikes in a short term)to control the inflation?[/quote]
I agree things have changed a lot since then. In the original article, my argument was, “prices are really high but it’s possibly sustainable IF rates stay low.” Well… that didn’t happen. So affordability is absolutely terrible — as you can see in that article, the real monthly payment is now at the level it was at the bubble peak. It’s a pretty risky situation.
Yes, I do think the Fed is serious about trying to control inflation. How that actually plays out is unknowable though. It seems likely they will keep tightening until inflation backs off, or something breaks in financial markets. The big question is which of those happen first (and given extreme valuations in so many areas of the markets, unfortunately the latter is a real possibility).
So I guess I think the Fed currently intends to tighten a lot, but if they hit that second possibility (financial market problems with inflation still high) they could change course. And btw, I don’t think that necessarily would mean that they don’t care about inflation. I think the Fed sees financial markets as the main conduit for their policy… if markets sell off, then via the wealth effect that will probably reduce inflation. So, if markets decline enough, there’s a good chance they will pause, to see if the market does the work for them.
But I’m getting ahead of myself here. I do think it’s clear that the Fed very much cares about high inflation, they have acknowledged that they were wrong about the transitory thing, and they are serious about stopping it. But nobody on earth knows how that will play out in real life. I wouldn’t want to be in their shoes right now, that’s for sure.
