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Housing is also a huge contributor to inflation, and hiking rates kills demand for new construction as effectively as it kills demand for all other housing. The

Housing is also a huge contributor to inflation, and hiking rates kills demand for new construction as effectively as it kills demand for all other housing. They're making the housing crisis worse in the long term, just as they did in 2008.

hnuser847 4y ago
It's wild. The Fed brought interest rates down to zero and created a massive asset bubbled fueled by cheap debt. Now they're cranking up interest rates to pop they bubble they created, and we're supposed to applaud them for carefully maintaining "stable prices". All they've done is put us through an economic rollercoaster where most of us ended poorer in the end.
- chasd00 4y ago
  well don't forget, in 2008/9 they were fighting a deflationary spiral. That was the biggest fear and Bernanke even said he'd drop bags of money from helicopters before getting trapped in that situation. There were lots of voices warning of the inevitability of high inflation but the deflationary conditions soaked it up until now. I think the real problem is the pandemic was not a deflationary situation, we just turned off production quite literally and then increased demand by giving everyone money for not producing anything. /not an economist just a normal everyday guy
  - mitthrowaway2 4y ago
- mullingitover 4y ago
  The crazy part is that they dropped reserve requirements to zero for banks at the beginning of the pandemic, and for all the hiking of rates the reserve requirements are still at zero. They slammed on the brakes while the other foot is still flooring the gas pedal.
fleddr 4y ago
This is the thing that so many people miss. New buyers want lower prices yet when that actually happens, new construction stops. Thus creating a massive backlog and shortage for the future, leading to the next bubble.
s1artibartfast 4y ago
Actually, per the BLS report, cost of shelter is increasing slower than average inflation: 6.6% vs 8.2% for the average. The big drivers are energy costs at 19.8% annually and food at 11.2% annually.
- junofan 4y ago
  Actually the CPI is weighted. You can find the weights here [1]. Note that the weight for housing is much, much higher than the weights for food and energy costs. That plus historically high levels of inflation in housing means that housing is a big driver of inflation. [1]: https://www.bls.gov/cpi/tables/relative-importance/home.htm https://www.bls.gov/cpi/tables/relative-importance/home.htm
  - s1artibartfast 4y ago
    6.6% for housing is less than the 8.2% total average so it will always pull the average down. This is true no matter what the weighting is. Total Inflation would be even worse if you weighted housing less.

hnuser847 4y ago

It's wild. The Fed brought interest rates down to zero and created a massive asset bubbled fueled by cheap debt. Now they're cranking up interest rates to pop they bubble they created, and we're supposed to applaud them for carefully maintaining "stable prices". All they've done is put us through an economic rollercoaster where most of us ended poorer in the end.

chasd00 4y ago
well don't forget, in 2008/9 they were fighting a deflationary spiral. That was the biggest fear and Bernanke even said he'd drop bags of money from helicopters before getting trapped in that situation. There were lots of voices warning of the inevitability of high inflation but the deflationary conditions soaked it up until now. I think the real problem is the pandemic was not a deflationary situation, we just turned off production quite literally and then increased demand by giving everyone money for not producing anything. /not an economist just a normal everyday guy
- mitthrowaway2 4y ago
mullingitover 4y ago
The crazy part is that they dropped reserve requirements to zero for banks at the beginning of the pandemic, and for all the hiking of rates the reserve requirements are still at zero. They slammed on the brakes while the other foot is still flooring the gas pedal.

fleddr 4y ago

This is the thing that so many people miss. New buyers want lower prices yet when that actually happens, new construction stops. Thus creating a massive backlog and shortage for the future, leading to the next bubble.

s1artibartfast 4y ago

Actually, per the BLS report, cost of shelter is increasing slower than average inflation: 6.6% vs 8.2% for the average. The big drivers are energy costs at 19.8% annually and food at 11.2% annually.

junofan 4y ago
Actually the CPI is weighted. You can find the weights here [1]. Note that the weight for housing is much, much higher than the weights for food and energy costs. That plus historically high levels of inflation in housing means that housing is a big driver of inflation. [1]: https://www.bls.gov/cpi/tables/relative-importance/home.htm https://www.bls.gov/cpi/tables/relative-importance/home.htm
- s1artibartfast 4y ago
  6.6% for housing is less than the 8.2% total average so it will always pull the average down. This is true no matter what the weighting is. Total Inflation would be even worse if you weighted housing less.