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Powell addressed the Federal Reserve’s overall efforts Tuesday in Washington.
Federal Reserve Chair Jerome H. Powell has spent a lot of time talking about disinflation in the US economy and how his efforts in the past half-year have led to those results – a reduction in inflation.
However, housing is one economic component that has not experienced it – at least not to the degree Powell would like.
Powell shared those sentiments while speaking Tuesday during an event in Washington, D.C., hosted by The Economic Club of Washington.
“We’ve not seen it in housing, but we expect to in the second half of 2023,” he said, responding to event interviewer David Rubenstein, co-founder and co-chairman of The Carlyle Group.
Housing is measured as a lagging indicator in the data the Federal Reserve considers.
Speaking in November, Powell said, “Housing inflation tends to lag other prices around inflation turning points, however, because of the slow rate at which the stock of rental leases turns over.
“The market rate on new leases is a timelier indicator of where overall housing inflation will go over the next year or so. Measures of 12-month inflation in new leases rose to nearly 20 percent during the pandemic but have been falling sharply since about midyear [2022].”
It’s All About Getting to 2%
Powell repeatedly said on Tuesday that the Fed’s goal is to get inflation to a 2% annual rate while “preserving maximum employment.” (Powell said that 2% is the current global standard for inflation.)
Inflation measured at 6.5% at the end of 2022.
“We expect to make significant progress this year; we’re going to react to the data that we see along the way,” he said. “Inflation is not going to go away quickly and painlessly. It’s not going to be smooth. It’s probably going to be bumpy. We have the tools to reduce it. It will take into 2024 to achieve this.”
The most noteworthy data that Powell and the Fed saw came Friday with the jobs report. The country added more than a half-million jobs in January (traditionally a month when employers cut their workforce).
That number was more than most expected. It put the country’s unemployment rate (3.4%) at the lowest it has been since May 1969.
Two days earlier, the Fed announced a quarter-point hike in the prime lending interest rate, putting it into a range of 4.5% to 4.75%, its highest since September 2007 just before the Great Recession.
“[When you see a jobs number like that], it shows what we’ve been saying for a while and that it’s a process that’s going to take a while,” Powell said. “Ongoing increases are expected. We’ll get to [2%] over time.”
He said inflation at a steady 2% would create price stability for economies, employers, and citizens.
“Having that stability is so beneficial; it’s what helps to sustain a healthy job market,” he said.
The Federal Open Market Committee (FOMC) next meets March 21-22, one of eight it schedules annually.