Fed’s Restrictive Policy Affects Housing and Job Markets Amid Steady Inflation

The Federal Reserve’s restrictive monetary policy is significantly impacting the housing market and other sectors sensitive to interest rates, despite US inflation holding steady at an annual rate of 3.4% in September, based on data from the Bureau of Economic Analysis. The average rate for a 30-year fixed-rate mortgage has climbed to 7.9%, reaching levels not seen since 2000, according to Freddie Mac’s records.

Even with high inflation and interest rates, the US economy saw strong growth in the third quarter, recording a GDP growth rate of 4.9%, up from 2.1% in the second quarter. This economic performance is attributed to the current administration’s economic agenda. Moreover, the labor market added 336,000 jobs in September, with upward revisions of job gains for July and August amounting to 119,000.

On Friday, it was reported that core Personal Consumption Expenditures (PCE) inflation, which excludes energy and food prices, decreased to a yearly rate of 3.7%. At the same time, consumer spending increased by 0.4% in September, signaling a potential for another interest-rate hike. Nonetheless, rising borrowing costs suggest that the benchmark interest rate is likely to remain unchanged in the upcoming meeting.

Service-sector inflation rose to 0.4% from 0.1% last month when excluding housing and energy components. Conversely, the overall PCE price index increased by 0.4%, largely driven by rising energy prices.

Despite low unemployment rates and strong economic growth under Jerome Powell’s leadership at the Federal Reserve, there is a consensus that interest rates will stay at their multi-decade highs for the foreseeable future due to the Fed’s stringent monetary policy.

Looking ahead, Bill Adams, the chief economist for Comerica Bank, forecasts a slowdown in real GDP growth to 0.7% in the fourth quarter and just 0.5% in the first quarter of the following year. This anticipated decline is primarily a result of high borrowing costs, the resumption of student loan payments, and ongoing conflicts in the Middle East. He also noted that the consumer price index (CPI), another measure of inflation, recorded a rate of 3.7% in September.