Business
Apr. 9—The Federal Reserve appears content with the notion that its interest rate hikes over the past couple of years have beaten down the post-pandemic surge of inflation. It has signaled three rate cuts in the coming months, although bond traders appear to believe two are more likely.
The difference is that the Fed is paying heavier attention to the Personal Consumption Expenditures price index — which excludes food and energy spending — than to the Consumer Price Index, a broader metric and the more commonly referenced measure of inflation.
The PCE is up 2.8% year to year; the CPI, 3.8%. That's a far wider gap than usual: the difference is typically 0.3 percentage points.
And what is crucial here is that housing accounts for 43% of the CPI but just 17% of the PCE.
The Fed has its academic reasons for discounting the cost of housing in evaluating inflation. But the high cost of housing — surging rents for apartments, escalating costs for purchasing a house — matters in the real lives of those navigating the economy the Fed is trying to manage.
It is, politically, a significant reason President Joe Biden gets negative ratings on the economy. It is certainly why he is lagging with younger voters compared to 2020 despite being far more in tune with their concerns and attitudes about social issues and climate.
Today's "entry generation" finds post-high school education increasingly costly and affordable housing scarce. Many cannot imagine how they will ever be able to afford to buy a house, which is typically a significant driver of personal wealth.
This economy is pretty good for those who have assets — and lacking in footholds for those without them.
Subduing inflation without a recession would be a unique achievement in monetary policy, and the Fed has yet to declare victory. But policymakers — not only in the Fed but in Congress and the White House — should understand the damage that has been done and how much more fragile the future has become.
Mankato (Minn.) Free Press Editorial Board