Kevin Warsh's Challenge

"Kevin Warsh has a reputation as an inflation-hawk. He resigned from the Federal Reserve Board of Governors in 2011 after it embarked on a second round of quantitative easing (QE) and became a critic of "institutional drift" at the central bank. This would presumably put him at odds with President Donald Trump, a fan of lower interest rates in his New York real-estate developer style, who has dismissed the idea of affordability politics as a "hoax.""

"Yet Warsh in recent weeks has set aside Warsh 1.0 in favor of Warsh 2.0, who echoes the president in calling for lower interest rates while still maintaining that he will maintain "central bank independence." The president's most recent board appointee prior to Warsh, Stephen Miran, has walked in lockstep with Trump in voting for rate cuts and insisting that inflation should not get in the way."

"Both the Personal Consumption Expenditures (PCE) index, the Fed's favored measure of inflation, and the Consumer Price Index (CPI) have lingered above the Federal Reserve's stated inflation target of 2 percent since March 2021. The Producer Price Index (PPI) last month reached 6 percent year-over-year, or 4.4 percent if you exclude volatile commodities like energy and food. Despite some of the most aggressive rate hikes in the central bank's history beginning in July 2022, inflation has remained elevated and the Federal Reserve has not reached its target."

"This eats away at the average consumer, who may see his salary catch up to sticker price inflation but will not see it keep up with home prices. The president may offer 50-year mortgages as a proposed solution to higher home prices, fueled by artificially flooding markets with new money to lower interest rates, but this will not address the increasing unaffordability of homes to young people."

Inflation has remained above the Federal Reserve’s 2 percent target since March 2021, with both PCE and CPI lingering above goal and PPI rising to 6 percent year over year. Despite aggressive rate hikes starting in July 2022, inflation has not returned to target. The resulting pressure reduces consumer purchasing power, especially as salaries may rise with sticker inflation while home prices continue to outpace affordability. Lowering interest rates is presented as a way to support housing costs, including proposals such as long-term mortgages. However, lowering rates without controlling inflation may worsen affordability challenges for younger buyers and does not directly solve home-price unaffordability.

Read at The American Conservative