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The US housing market has a simple problem: affordability.
But Jerome Powell and his colleagues at the Federal Reserve don't see this tension in the current economic expansion as theirs to resolve.
"We're not targeting housing price inflation, the cost of housing, or any of those things," Powell said in a press conference in January. "Those are very important things for people's lives. But they're not — you know, those are not the things we're targeting."
The Fed, rather, seeks to fulfill its dual mandate of achieving maximum employment and stable prices, which it defines as inflation that averages 2%. The central bank's struggles on this latter part of its mandate are why interest rates are so high and are expected to remain there this week.
Moreover, housing costs — and rent, specifically — remain the biggest factor in keeping inflation elevated. Home prices are at record highs. And the outlook on whether the supply needed to meet demand will make its way to the market is mixed, at best.
Earlier this month, when Powell appeared on Capitol Hill, he was urged by lawmakers to do something about the cost of housing. Without proposing a solution, the Fed chair said the housing market is in a "very challenging situation."
When Powell takes to the dais on Wednesday, we expect at least one question on the matter of housing to make its way to the Fed chair. But we don't expect better answers.
After all, back in 2022, Powell called for a "reset" in the US housing market after low rates and a rapid shift in consumer desires created a frenzy during the pandemic. And while Powell called activity in the housing market "subdued" earlier this year, the Fed chair clearly views the central bank as being able to pull a single, indirect lever in the market — interest rates.
"We're also well aware that when we cut rates at the beginning of the pandemic, for example, the ... housing industry was helped more than any other industry," Powell said in his January press conference.
"And when we raise rates, the housing industry can be hurt, because it's a very interest-sensitive sector. On top of that, we have longer-run problems with the availability of housing. ... There hasn't been enough housing built. And these are not things that we have any tools to address."
And so they won't.
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