Waller's Speech Points To Housing Market As Key To Outlook

Gov Waller's speech on the US's "red hot" housing market provides a good survey of both upside inflation and (lack of?) financial stability risks from the residential real estate sector. Expect the housing market to be a key area of focus for the Fed in H2 2022 and beyond as policymakers assess both MBS reinvestment policy and the "stickiness" of inflation pressures (of which shelter is a key component).

• "Based on various measures of asking rents, some recent research suggests that the rate of rent inflation in the CPI will double in 2022. If so, rent as a component of inflation will accelerate, which has implications for monetary policy."
• "unlike the housing bubble and crash of mid 2000s, the recent increase seems to be sustained by the substantive supply and demand issues I have detailed—not by excessive leverage, looser underwriting standards, or financial speculation"
• "As housing costs continue to increase, housing will likely become an ever-larger share of household budgets.. With housing costs gaining an ever-larger weight in the inflation Americans experience, I will be looking even more closely at real estate to judge the appropriate stance of monetary policy."