US National Home Price NSA Index has gone up 45% from January 2020 to June 2022.  Since Fed increased interest rates seven times 2022, the average 30-year fixed rate mortgage became 6-7%. Sales of existing homes have fallen (Timiraos, 2022, December 25).

Particularly, according to US Census Bureau data, US household percentage of the entire population has been steady and entire population over age 16 seems to grow very low or lower than before the Pandemic (see figure 5). This offers some background picture of house ownerships (FEDS notes, 2022, May 06). As single ownership increased during the Pandemic, this may be related to the behavioral change. For example, professionals working remotely may have purchased a residential place.

Recent Wall Street Journal said that some mortgage banker warned that the full effects of high interest rate have yet to be felt (Timiraos, 2022, December 25).

Price of goods became high under Covid -19 Pandemic when people got cash support and purchased items online. That is a demand side picture of US inflation.  Chinese lockdown and US port bottleneck strains (Berger, 2022, January 28) brought supply chain disruption (Shih, 2022, July 22), which is a supply-side picture to price increase and inflation.

There has been increasing worries including Senator Elizabeth Warren and economist John Cochrane, saying Federal Reserve is not fully equipped with a right tool in this new type of inflation (Varadarajan, 2022, February 19). Mr. Cochrane pointed out that softening demand with high interest may have limit as compared to supply expansion. 

Senator Elizabeth Warren blamed Putin’s invasion to Ukraine for US inflation (Warren, 2022, July 24). She described as US could have been in a full economic recovery until Fed began to increase interest rate. Oil price has been a big contribution to inflation, which she highlighted. She warned that one medicine in kitchen cabinet does not cure all illnesses, meaning high interest is not a remedy in this type of inflation. She was looking at supply side of inflation.

As Wall Street Journal correspondent for Federal Reserve described in the newsletter (Sparshott, 2022, November 5), Jerome Powell emphasized price stability prior to soft landing or even recession in this juncture. Thus, Jerome Powell implied that there will be longer tightening with lower hikes, possible half percentage point. Fed has a tool to tame demand side of inflation.

If Putin ends war in Ukraine and China loosens its lockdown policies for Covid spread, will everything go back to normal? Maybe. Realistically, however, this may result in long inflation as there is no coordinated efforts to tame inflation, at least not materialized yet.

Provided with The Blue Ocean Asset Management Partners, LLC. Further information, please contact us