Housing Economy

Fed on Hold with Limited Inflation Progress

At the conclusion of its April-May meeting, the Federal Reserve holds the federal funds rate constant at a top target of 5.5%. It was noted in a statement by the Federal Open Market Committee that, “Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. In recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective.”

The FOMC’s statement also noted, “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

According to Eye On Housing, Overall, the central bank continues to look for lower inflation readings, with the data having shown limited progress in recent months. An important reason for the lack of inflation reduction remains elevated measures of shelter inflation, which can only be tamed in the long-run by increases in housing supply. Ironically, higher interest rates are preventing more construction by increasing the cost and limiting the availability of builder and developer loans necessary to construct new housing.

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