Reality bites. And at a decidedly inconvenient time for Federal Reserve board chairman Jay Powell. In a little over a month, he will meet his international peers at their annual get-together in Jackson Hole, Wyoming. He must decide whether to compete for the Banality-of-the-Year Award by repeating that the Fed will continue to buy $40 billion (£29 billion) of mortgage-backed securities in addition to $80 billion of treasuries every month, full stop.
Alternatively, he can admit what the recent minutes of the last meeting of his monetary policy team reveal — many of his colleagues worry that the housing market is overheated and threatens to abort the economic recovery now in full swing. And add that he is willing to tighten policy early in 2022 by tapering monthly purchases of mortgage-backed securities and, perhaps, treasuries, risking a “taper tantrum” by investors and a market collapse.
In the background is a fundamental change in Fed policy. He is aiming at an “inclusive” recovery, one in which black and Hispanic groups “continue to get supported” even if the overall unemployment rate is as low as it can go. That might make red-hot his favourite temperature and tilt him towards continuing quantitative easing (QE) purchases at current monthly levels.
That the housing market is beyond robust, there is no question. Buyers have learnt that meeting the full asking price is often the opening shot in an ensuing bidding war in which gazumping is ubiquitous. The median price of existing homes rose last month by 23.56 per cent from a year earlier, to a record $350,300. Prices for new houses jumped 18.1 per cent to an average of $374,400.
Americans are awash in cash, with the saving rate at 24.7 per cent compared with 8.3 per cent in February 2020, just before we realised that China had exported Covid. No surprise that consumer confidence has risen for five consecutive months to the highest level since the onset of the pandemic.
Read in The Times