This article is a long-winded way of saying the housing measure in the Feds inflation index calculation is a lagging indicator (because it is more of a long-term average instead of short-term snap shot). You do a good job explaining that and suggest that a different number might be better (though possibly “noisier”). I don’t know enough to argue for or against a change, but I do have a question that the article does not address.
The Fed managers surely know that it is a lagging indicator, is it your position that they are too stupid or too rigid to let more time sensitive data affect their decision? Or is it obvious (from past moves) that they have not considered it? In other words, the measurement has its flaws (like every other aggregate index) but would a change make a difference in the decisions that are made?
I’m not trying to me argumentative or dismissive of your point. It is an honest question because I don’t know anything about what drives the Fed.
I think in 2008 the fed had a lot of indicators of a crashing economy early in the year and waited too long to take action, at which point the action they needed to take was more dramatic than what they were prepared to do. Then the fed spent all of 2021 sitting on their hands while inflation was clearly high and by August also clearly not caused just by extended UI. I don't know about this particular measure, but, yeah, it seems like the fed has a history of responding slowly.
I think what you want is a fed that targets their forecast using a stable inflation indicator but also intelligently takes very recent information into account. Frankly, I don't think they do a very good job of this, but there's not an obvious way to fix that problem based on this observation. I think the main problem they have is the fear of looking bad by being wrong, which I think is completely misplaced. If people knew the fed would quickly reverse recent decisions that looked incorrect after 2-3 months, I think it would have a stabilizing effect. The trend of the target rate would be less predictable, but the path of the overall economy would be more reliable, which is what matters.
What stands out most in my memory about the 2008 problems is the housing bubble burst that congress deserved a lot of the blame for puffing up. The irresponsible loans and unreasonable house prices that drove that bubble were going to be a problem no matter what the Fed did.
I think the Fed deserves much more blame for our current problem by waiting too long to react. But I don’t have a feel for whether a lagging housing number was responsible for that or if it was just “transitory” dreaming.
I think you are probably correct that they would rather look like heroes instead of recession instigators (like we all would, honestly). Executing hero moves in a conservative “do no harm” manner is tricky business.
Housing prices were falling before the financial crisis. The Fed just did nothing and them too little for too long until it actually started tightening money (Taper Tantrum). A decade long disaster with terrible political consequences.
Focused on housing sales and related items, while also making clear that housing markets vary wildly across geographic areas even though there is some coupling to broader economic trends.
The Federal Open Market Committee—the group that determines monetary policy—does forecast inflation among other economic predictions to guide their policy. That includes estimating future rent contributions to PCE using data such as market rents. For example, here’s the conclusions from a Feb 2022 letter from the SF Fed predicting higher inflation through sustained increases in the rental component due to higher market rents. [1]
> As the U.S. economy recovers from the effects of the COVID-19 pandemic, some increase in rent inflation should be expected, given that landlords can ask for higher rents when prospective tenants are employed and earning higher incomes. However, the extraordinarily large increases in two leading indicators of future rent inflation—asking rent inflation and house price inflation—point to significant upside risks to the overall inflation outlook. The potential increases are particularly significant for CPI inflation, which places a larger weight on shelter costs. Still, the potential additions to PCE inflation of about 0.5pp for both 2022 and 2023 are important to consider in light of the Federal Reserve’s 2% inflation target.
So the Fed is to some extent considering how current market rents will impact future inflation and using that consideration in developing monetary policy. It could be argued that the FOMC members are not putting sufficient weight on this specific consideration. Additionally, their forecasts may incorrectly estimate the future inflation contribution of rents and misguide policy. For example, in May 2022 the Richmond Fed revisited Aug 2021 predictions about future inflationary contributions of rents made by the Dallas Fed and found the predictions significantly underestimated inflation. [2]
> Growth in the PCE rent index exceeded 4 percent year over year in March, a threshold that the model predicted would not be crossed until the second quarter of 2023. Similarly, imputed rent for homeowners rose 4.4 percent in March, which the model predicted would have been attained in the first quarter of 2023. Year-over-year growth in both rent and imputed rent was over 1.5 percentage points higher than the upper confidence interval of the forecast in March.
It may simply be that during periods of high economic volatility it is hard to estimate the future trajectory of inflation. Any predictive model developed on historical data may simply fail to extrapolate to the specific novel economic forces that cause the volatility.
In retrospect it’s easy to say that the Fed should’ve better extrapolated how surging market rents in 2021 would lead to sustained inflation as leases rolled over. But had the sudden surge been followed by a comparable collapse in rents then such predictions would also have looked foolish. The core problem may be the inability to predict the evolution of our economy during periods of high volatility.
Proof of average-rent housing disinflation: Yesterday my landlord sent me the renewal/rent increase notification for 2022-23. It was only a hair over 4%. (This is about in line with previous increases since I moved in in 2017.)
The question dominating US monetary policy is who will win the 2024 presidential election. One of the leading candidates attempted a putsch last year and failed. The governors of the fed are highly educated elites from coastal bubbles. They care more about preserving our form of government than technical measures of inflation. They’ll try to force a quick correction in order to get a boom going by 2024.
But how can we disentangle that from the Illuminati's plan to create a rally around the flag effect for Biden by starting WWIII that will end with a global government?
99.5% chance there will be a democrat and a republican. 80% chance the dem loses if there is a recession mid 2024. this is not hard to game through, people
This is an interesting new take. Is this the Republican Party line? Please don't blame us for the dismal economy over virtually every Republican president for the last 50 years! Blame the Fed!
It does fit with the new Republican, "It's the deep state preventing us from achieving greatness," mantra.
But what you said does not exploit any trade-off between employment and inflation. A quick end to inflation and rapid growth in 2024 is exactly what the dual mandate would call for.
Besides, I do not think the Fed "chose" the actual inflation because it was worried about unemployment. [It has not changed it's objective function.] Rather, it mis-estimated the amount of inflation that result from its policies operating the supply constrained setting. This was an avoidable error, the TIPS inflation expectations indicator was closer to being right, but still a technical error, not a mistaken policy.
One of the issues with using mortgage costs as part of the index is that the higher interest rates used to combat inflation lead to inflation in mortgage costs.
I feel badly for Jerome Powell, who seems like a perfectly pleasant guy who essentially did what ‘everyone’ thought was right but now likely will be remembered as one of the worst Fed Chairs in history.
Tough to see your legacy disintegrate in real time, I would think.
The Fed has two goals, not one. Price stability and maximum sustainable employment. On the former goal, the Fed has obviously dropped the ball in a few ways, but on the latter they have been immensely successful given the challenges they have faced. We've seen what is probably the best job recovery in American history over the last two years. Obviously, the Fed doesn't deserve all the blame or all the plaudits for either result; the White House and Congress both played a significant role in maintaining employment during the pandemic and the fiscal stimulus that probably caused some of the inflation we are seeing.
I fundamentally disagree that the asset price runup during the pandemic was a good thing & that the Fed should have been reacting more strongly to the market distortions that arose from CARES, CARES II and (especially) ARP. Instead the fed just pulled as hard as they could in the same direction, causing and then ignoring huge demand-driven shortages in durable goods and housing. Then they participated in what was, at best, highly motivated reasoning around the 'transitory nature' of inflation and failed to take action before things got out of control.
Do I think the Fed did anything glaringly wrong or obviously counterintuitive at any point in the process? No, I think given the experience of the prior decade they had no real reason to think that there was any likelihood of inflation resulting from an increase in the money supply. However, the signs were there and, frankly, it is their job to have noticed them.
At the end of the day we'll see how this inflation unwinds.
Supply problems -- primarily Russian invasion-related issues and China's zero COVID policy -- probably account for about half of current inflation (https://www.bloomberg.com/news/articles/2022-06-21/supply-issues-account-for-half-of-us-inflation-rise-study-shows#xj4y7vzkg). If true, that means that we're seeing around 4% inflation from demand-related causes, primarily driven by government spending and Fed policy. While the Fed's inflation target is 2%, many think it should be higher, like around 3%. In other words, right now we have around one percentage point excess in underlying inflation, the kind the Fed deals with and should be focused on in its future-oriented actions.
If the Fed did make a mistake in not reacting more strongly to core inflation, then, it was hardly a huge mistake and one that, ceteris paribus, could be managed pretty easily. And in return we got a huge boom in hiring and pretty good wage growth at the lower tiers. Not bad!
The problem of course is that "ceteris paribus." The huge bump up in inflation is because of continuing supply problems and that's not in the Fed's ambit. The best it can do is to bring demand down to the current levels of supply, which is an unhappy solution, but probably necessary because of the panic about inflation rates.
Core inflation registers over 6% and it excludes energy and food costs which are 90% of Russia's impact.
China impact is more broad, but exports from China to the US are up 30%! through April of 2022 than they were in 2019 so while their zero covid policy is impacting things, its more they just haven't been able to keep up with demand.
Homes are considered investments whereas rents are considered as consumption of housing services. If you include home prices in the inflation index you're probably including mortgage costs, which means home prices (and thus the inflation index) mechanically increase when you raise interest rates.
But won’t that comport with a lot of people’s experience of the inflation in the economy.
I feel like it would be good to have a technocratic look at what’s happening in the economy that’s how many people are experiencing it so it’s not anecdata all the way down in terms of what’s happening to the prices of all the things that people pay for.
Not because it should necessarily inform monetary policy but so we can have something like a true understanding of what people are experiencing.
Homes don't increase in value they depreciate like most durable goods, the land underneath them just appreciates faster masking the depreciation of the house.
Agreed but I don't think they set out to limit supply for the purpose of investment, I think it probably had to do with racial politics (minorities can't move in next door if there is no next door) and now we are in this local minimum with no obvious way out.
At no point has the dominant limitation on housing been racial politics. If it was, we'd see the worst housing affordability in the South in the years during and following Jim Crow.
The structures, maybe, although the shelf-life can bee much, much longer. The home I grew up in is 120 years old, for example. That's very slow depreciation.
But the land value is even more proper to think of as an investment. In some sense it's a claim on future productivity
Looking at home prices wouldn’t give you an insight into what people are experiencing. Just because home prices and interest rates are rising that doesn’t mean anything to someone who is 10 years into a 30 year mortgage.
Good points. But it ignores what the Fed COULD pay more attention to: the Treasury Inflation Protected Securities -- TIPS -- expectation rate. It DOES include expectations concerning food and fuel and it enlists the crowdsourcing abilities of (potentially) million of participants in the bond markets. TIPs signaled that people had ceased believing that eh Fed would achieve it 2% target at least by September and the Fed did not move until November. TIPS would be even more useful if Treasury would issue them in more tenors, 1,2,3,7 15 and 30 instead of just 5 and 10.
"And by the same token, the insane surge in spot rents in the summer of 2021 was not a sudden and dramatic blow to Americans’ living standards because, again, very few people actually signed new leases during that moment. The aggregate ups and downs of housing costs are more gentle, as the BLS says."
The cratering of prices in 2020 decreased overall price appreciation by what looks to be 45% or so and then the 2021 run up in prices increases it by what looks like 150%. in BLS terms.
Given that we have the Apartment List percent numbers, I think you can calculate what percentage of the rental population signed new leases during this time, and it seems like it should be a significant number if the overall rate of price appreciation for all apartment rents is oscillating over a 200% spread.
Edit:
In fact: Isn't it as simple that a 2% runup in BLS price during a 10% increase in Apartment List price means that 20% of the rental population has signed to pay the newly increased price during the time period being measured?
I've never liked the concept of OER, beginning when I learned about it in college econ. It just seems too homo economicus. Plus it seems to involve a lot more guessing than measuring. And if the majority of people live in homes they own, shouldn't we assume that if everyone rented instead that rental prices would dramatically fall, and therefore OER is not representative to begin with?
The problem is potentially even worse. This paper finds that raising interest rates causes rents to temporarily go UP as raising the cost of borrowing pushes some people out of buying and into renting. The trend likely doesn’t reverse until you get true recessionary conditions.
“ in contrast to house prices, housing rents increase in response to contractionary monetary policy shocks. We also find that, after a contractionary monetary policy shock, rental vacancies and the homeownership rate decline. This combination of results suggests that monetary policy may affect housing tenure decisions (own versus rent).”
This article is a long-winded way of saying the housing measure in the Feds inflation index calculation is a lagging indicator (because it is more of a long-term average instead of short-term snap shot). You do a good job explaining that and suggest that a different number might be better (though possibly “noisier”). I don’t know enough to argue for or against a change, but I do have a question that the article does not address.
The Fed managers surely know that it is a lagging indicator, is it your position that they are too stupid or too rigid to let more time sensitive data affect their decision? Or is it obvious (from past moves) that they have not considered it? In other words, the measurement has its flaws (like every other aggregate index) but would a change make a difference in the decisions that are made?
I’m not trying to me argumentative or dismissive of your point. It is an honest question because I don’t know anything about what drives the Fed.
I think in 2008 the fed had a lot of indicators of a crashing economy early in the year and waited too long to take action, at which point the action they needed to take was more dramatic than what they were prepared to do. Then the fed spent all of 2021 sitting on their hands while inflation was clearly high and by August also clearly not caused just by extended UI. I don't know about this particular measure, but, yeah, it seems like the fed has a history of responding slowly.
I think what you want is a fed that targets their forecast using a stable inflation indicator but also intelligently takes very recent information into account. Frankly, I don't think they do a very good job of this, but there's not an obvious way to fix that problem based on this observation. I think the main problem they have is the fear of looking bad by being wrong, which I think is completely misplaced. If people knew the fed would quickly reverse recent decisions that looked incorrect after 2-3 months, I think it would have a stabilizing effect. The trend of the target rate would be less predictable, but the path of the overall economy would be more reliable, which is what matters.
What stands out most in my memory about the 2008 problems is the housing bubble burst that congress deserved a lot of the blame for puffing up. The irresponsible loans and unreasonable house prices that drove that bubble were going to be a problem no matter what the Fed did.
I think the Fed deserves much more blame for our current problem by waiting too long to react. But I don’t have a feel for whether a lagging housing number was responsible for that or if it was just “transitory” dreaming.
I think you are probably correct that they would rather look like heroes instead of recession instigators (like we all would, honestly). Executing hero moves in a conservative “do no harm” manner is tricky business.
Housing prices were falling before the financial crisis. The Fed just did nothing and them too little for too long until it actually started tightening money (Taper Tantrum). A decade long disaster with terrible political consequences.
Just as a data source for those curious: AEI's housing center sucks up a big pile of data and has it in some (potentially) useful formats -
https://www.aei.org/housing/housing-market-indicators/
Focused on housing sales and related items, while also making clear that housing markets vary wildly across geographic areas even though there is some coupling to broader economic trends.
The Federal Open Market Committee—the group that determines monetary policy—does forecast inflation among other economic predictions to guide their policy. That includes estimating future rent contributions to PCE using data such as market rents. For example, here’s the conclusions from a Feb 2022 letter from the SF Fed predicting higher inflation through sustained increases in the rental component due to higher market rents. [1]
> As the U.S. economy recovers from the effects of the COVID-19 pandemic, some increase in rent inflation should be expected, given that landlords can ask for higher rents when prospective tenants are employed and earning higher incomes. However, the extraordinarily large increases in two leading indicators of future rent inflation—asking rent inflation and house price inflation—point to significant upside risks to the overall inflation outlook. The potential increases are particularly significant for CPI inflation, which places a larger weight on shelter costs. Still, the potential additions to PCE inflation of about 0.5pp for both 2022 and 2023 are important to consider in light of the Federal Reserve’s 2% inflation target.
So the Fed is to some extent considering how current market rents will impact future inflation and using that consideration in developing monetary policy. It could be argued that the FOMC members are not putting sufficient weight on this specific consideration. Additionally, their forecasts may incorrectly estimate the future inflation contribution of rents and misguide policy. For example, in May 2022 the Richmond Fed revisited Aug 2021 predictions about future inflationary contributions of rents made by the Dallas Fed and found the predictions significantly underestimated inflation. [2]
> Growth in the PCE rent index exceeded 4 percent year over year in March, a threshold that the model predicted would not be crossed until the second quarter of 2023. Similarly, imputed rent for homeowners rose 4.4 percent in March, which the model predicted would have been attained in the first quarter of 2023. Year-over-year growth in both rent and imputed rent was over 1.5 percentage points higher than the upper confidence interval of the forecast in March.
It may simply be that during periods of high economic volatility it is hard to estimate the future trajectory of inflation. Any predictive model developed on historical data may simply fail to extrapolate to the specific novel economic forces that cause the volatility.
In retrospect it’s easy to say that the Fed should’ve better extrapolated how surging market rents in 2021 would lead to sustained inflation as leases rolled over. But had the sudden surge been followed by a comparable collapse in rents then such predictions would also have looked foolish. The core problem may be the inability to predict the evolution of our economy during periods of high volatility.
[1] “Will Rising Rents Push Up Future Inflation?”, https://www.frbsf.org/economic-research/publications/economic-letter/2022/february/will-rising-rents-push-up-future-inflation/
[2] “Revisiting Forecasts for Rent Inflation”, https://www.richmondfed.org/research/national_economy/macro_minute/2022/mm_05_24_22
Proof of average-rent housing disinflation: Yesterday my landlord sent me the renewal/rent increase notification for 2022-23. It was only a hair over 4%. (This is about in line with previous increases since I moved in in 2017.)
Christ, I was wayyyyy too merciful on my tenants down the block from you.
2%, lol.
Lol guess I’m not as lucky as I thought.
Lol, well next year I know better haha.
Whatever, they’re good kids and demand none of my time.
The question dominating US monetary policy is who will win the 2024 presidential election. One of the leading candidates attempted a putsch last year and failed. The governors of the fed are highly educated elites from coastal bubbles. They care more about preserving our form of government than technical measures of inflation. They’ll try to force a quick correction in order to get a boom going by 2024.
But how can we disentangle that from the Illuminati's plan to create a rally around the flag effect for Biden by starting WWIII that will end with a global government?
Are you saying the fed governors are indifferent to who wins?
No one even knows who will be running yet in 2024, how can they be anything but indifferent at this stage?
99.5% chance there will be a democrat and a republican. 80% chance the dem loses if there is a recession mid 2024. this is not hard to game through, people
This is an interesting new take. Is this the Republican Party line? Please don't blame us for the dismal economy over virtually every Republican president for the last 50 years! Blame the Fed!
It does fit with the new Republican, "It's the deep state preventing us from achieving greatness," mantra.
That sounds like what they ought to do whatever they think about the 2024 election. Their mandate is stable preces and maximum employment.
there mandate has a strong internal tension, that gives them leeway to either fight inflation or rev the economy, as their whims may dictate
But what you said does not exploit any trade-off between employment and inflation. A quick end to inflation and rapid growth in 2024 is exactly what the dual mandate would call for.
Besides, I do not think the Fed "chose" the actual inflation because it was worried about unemployment. [It has not changed it's objective function.] Rather, it mis-estimated the amount of inflation that result from its policies operating the supply constrained setting. This was an avoidable error, the TIPS inflation expectations indicator was closer to being right, but still a technical error, not a mistaken policy.
From an Electrical Engineer's point of view, this seems like a pretty simple application of control theory.
Can we just replace the Fed with a PID controller?
One of the issues with using mortgage costs as part of the index is that the higher interest rates used to combat inflation lead to inflation in mortgage costs.
There’s an interesting deep-dive in the context of the Canadian economy here: https://jbconsulting.substack.com/p/on-shelter-futures-part-1
Adjusted for quality, movie ticket prices these days look even worse when compared to the 1970's
I feel badly for Jerome Powell, who seems like a perfectly pleasant guy who essentially did what ‘everyone’ thought was right but now likely will be remembered as one of the worst Fed Chairs in history.
Tough to see your legacy disintegrate in real time, I would think.
I don't think he will be remembered as one of the worst chairs
His actions in 2020, along with Mnuchin and co., basically saved us from another Great Depression
Why don't you think that? I'm not claiming it is fair but the Fed basically only has one goal and he has obviously failed to accomplish it.
I'm not sure on what other basis you would measure the success or failure of a Fed Chair.
The Fed has two goals, not one. Price stability and maximum sustainable employment. On the former goal, the Fed has obviously dropped the ball in a few ways, but on the latter they have been immensely successful given the challenges they have faced. We've seen what is probably the best job recovery in American history over the last two years. Obviously, the Fed doesn't deserve all the blame or all the plaudits for either result; the White House and Congress both played a significant role in maintaining employment during the pandemic and the fiscal stimulus that probably caused some of the inflation we are seeing.
That's a fair take.
I fundamentally disagree that the asset price runup during the pandemic was a good thing & that the Fed should have been reacting more strongly to the market distortions that arose from CARES, CARES II and (especially) ARP. Instead the fed just pulled as hard as they could in the same direction, causing and then ignoring huge demand-driven shortages in durable goods and housing. Then they participated in what was, at best, highly motivated reasoning around the 'transitory nature' of inflation and failed to take action before things got out of control.
Do I think the Fed did anything glaringly wrong or obviously counterintuitive at any point in the process? No, I think given the experience of the prior decade they had no real reason to think that there was any likelihood of inflation resulting from an increase in the money supply. However, the signs were there and, frankly, it is their job to have noticed them.
At the end of the day we'll see how this inflation unwinds.
Supply problems -- primarily Russian invasion-related issues and China's zero COVID policy -- probably account for about half of current inflation (https://www.bloomberg.com/news/articles/2022-06-21/supply-issues-account-for-half-of-us-inflation-rise-study-shows#xj4y7vzkg). If true, that means that we're seeing around 4% inflation from demand-related causes, primarily driven by government spending and Fed policy. While the Fed's inflation target is 2%, many think it should be higher, like around 3%. In other words, right now we have around one percentage point excess in underlying inflation, the kind the Fed deals with and should be focused on in its future-oriented actions.
If the Fed did make a mistake in not reacting more strongly to core inflation, then, it was hardly a huge mistake and one that, ceteris paribus, could be managed pretty easily. And in return we got a huge boom in hiring and pretty good wage growth at the lower tiers. Not bad!
The problem of course is that "ceteris paribus." The huge bump up in inflation is because of continuing supply problems and that's not in the Fed's ambit. The best it can do is to bring demand down to the current levels of supply, which is an unhappy solution, but probably necessary because of the panic about inflation rates.
That doesn't make sense.
Core inflation registers over 6% and it excludes energy and food costs which are 90% of Russia's impact.
China impact is more broad, but exports from China to the US are up 30%! through April of 2022 than they were in 2019 so while their zero covid policy is impacting things, its more they just haven't been able to keep up with demand.
https://www.census.gov/foreign-trade/balance/c5700.html
The Fed most certainly does not have one goal.
“ one of the worst Fed Chairs in history.”
Eugene Meyer and Arthur Burns would be at this point still clearly ahead.
No, the NGDP targeters and the forecast targeters. knew better.
But wait, why don’t central banks look at home
prices? I what would be the Downside to measuring home prices and rent and then sorting them out according to the proportion of each in the economy?
Homes are considered investments whereas rents are considered as consumption of housing services. If you include home prices in the inflation index you're probably including mortgage costs, which means home prices (and thus the inflation index) mechanically increase when you raise interest rates.
But won’t that comport with a lot of people’s experience of the inflation in the economy.
I feel like it would be good to have a technocratic look at what’s happening in the economy that’s how many people are experiencing it so it’s not anecdata all the way down in terms of what’s happening to the prices of all the things that people pay for.
Not because it should necessarily inform monetary policy but so we can have something like a true understanding of what people are experiencing.
Cars generally don't increase in value over time, homes do.
Homes don't increase in value they depreciate like most durable goods, the land underneath them just appreciates faster masking the depreciation of the house.
You're right, I was just using the colloquial definition of "homes," that is the package of land and the building.
Thank you for being magnanimous about my punk reply.
What we ought to do is beside the point here — an inflation index needs to measure how we currently do things, not how we wish we did things
Agreed but I don't think they set out to limit supply for the purpose of investment, I think it probably had to do with racial politics (minorities can't move in next door if there is no next door) and now we are in this local minimum with no obvious way out.
At no point has the dominant limitation on housing been racial politics. If it was, we'd see the worst housing affordability in the South in the years during and following Jim Crow.
The structures, maybe, although the shelf-life can bee much, much longer. The home I grew up in is 120 years old, for example. That's very slow depreciation.
But the land value is even more proper to think of as an investment. In some sense it's a claim on future productivity
Looking at home prices wouldn’t give you an insight into what people are experiencing. Just because home prices and interest rates are rising that doesn’t mean anything to someone who is 10 years into a 30 year mortgage.
Good points. But it ignores what the Fed COULD pay more attention to: the Treasury Inflation Protected Securities -- TIPS -- expectation rate. It DOES include expectations concerning food and fuel and it enlists the crowdsourcing abilities of (potentially) million of participants in the bond markets. TIPs signaled that people had ceased believing that eh Fed would achieve it 2% target at least by September and the Fed did not move until November. TIPS would be even more useful if Treasury would issue them in more tenors, 1,2,3,7 15 and 30 instead of just 5 and 10.
When I'm president you will be my first nominee for fed chair and then you can fix it.
"And by the same token, the insane surge in spot rents in the summer of 2021 was not a sudden and dramatic blow to Americans’ living standards because, again, very few people actually signed new leases during that moment. The aggregate ups and downs of housing costs are more gentle, as the BLS says."
The cratering of prices in 2020 decreased overall price appreciation by what looks to be 45% or so and then the 2021 run up in prices increases it by what looks like 150%. in BLS terms.
Given that we have the Apartment List percent numbers, I think you can calculate what percentage of the rental population signed new leases during this time, and it seems like it should be a significant number if the overall rate of price appreciation for all apartment rents is oscillating over a 200% spread.
Edit:
In fact: Isn't it as simple that a 2% runup in BLS price during a 10% increase in Apartment List price means that 20% of the rental population has signed to pay the newly increased price during the time period being measured?
I've never liked the concept of OER, beginning when I learned about it in college econ. It just seems too homo economicus. Plus it seems to involve a lot more guessing than measuring. And if the majority of people live in homes they own, shouldn't we assume that if everyone rented instead that rental prices would dramatically fall, and therefore OER is not representative to begin with?
The problem is potentially even worse. This paper finds that raising interest rates causes rents to temporarily go UP as raising the cost of borrowing pushes some people out of buying and into renting. The trend likely doesn’t reverse until you get true recessionary conditions.
https://www.federalreserve.gov/econres/ifdp/files/ifdp1248.pdf
“ in contrast to house prices, housing rents increase in response to contractionary monetary policy shocks. We also find that, after a contractionary monetary policy shock, rental vacancies and the homeownership rate decline. This combination of results suggests that monetary policy may affect housing tenure decisions (own versus rent).”
The article seems to assume that the Fed doesn't know what Matt knows. I have to believe that they do know. (Fingers crossed.)