Chicago’s Fed President Moskow said in a speech today that a probable slowdown in U.S. housing markets “should be an important factor in bringing growth back to potential” as the Fed has forecast for 2006 and 2007.
But if housing remained solid “this would heighten the risk of above-trend GDP growth” and could be inflationary, he said.
So they want housing employment to go down, or they want housing to crash? That will reduce employment and reduce inflation.
Since inflation is really much higher than they state in the official numbers, they have to try to reduce it much more than they acknowledge. But this is the first time I’ve heard the Fed make a connection with housing to inflation.
Moskow also let everyone know that this game cannot go on:
“An economy the size of the United States cannot run large current account deficits indefinitely,” Moskow said. Eventually countries investing in the United States, such as China, Japan, developing East Asian nations and major oil exporters, “will reach their desired allocations of U.S. assets,” he said. “They’re going to want to bring back and invest in their own countries,” Moskow said, adding that the timing and pace of such a trend was hard to estimate.
.
