BAM Key Details:
- During the FOMC press conference on January 31, 2024, Jerome Powell directly addressed questions regarding housing price inflation and Senator Elizabeth Warren’s letter to the Federal Reserve.
- In his response, Powell stated the Federal Reserve’s job is “price stability and maximum employment, not housing inflation.
- Powell also discussed the issue of limited housing supply.
During the FOMC press conference on January 31, Jerome Powell, Chairman of the Federal Reserve, directly addressed concerns related to housing price inflation and Senator Elizabeth Warren’s letter to the Federal Reserve.
In response to a direct question about housing inflation from Nancy Marshall-Genzer with Marketplace, Powell clarified the Fed’s primary objectives, repeatedly stating that their focus remains on “price stability and maximum employment”—not housing inflation.
Powell also stated that the housing industry was “helped more than any other industry” at the start of the pandemic, due to the lowering of interest rates. He noted that the opposite also holds true—when rates rise, the housing market is impacted negatively.
More enduring issues, Powell stated, are centered around limited housing inventory. He expressed the issue—“there hasn’t been enough housing built”—but not a solution.
The final point in his response to Marshall-Genzer’s question was regarding rental inflation, which does come into play in the Fed’s work of lowering inflation overall. Powell stated that by looking at owner’s equivalent rent and actual rent paid by tenants, PCE calculations show that market rents are flattening, “and that will show up in inflation over time.”
Keep reading for the direct timestamps and transcripts for every time Powell mentioned housing during the press conference.
Direct Questions on Housing Inflation and Senator Warren’s Letter to the Fed
Let’s begin with the questions most specific to housing and rent inflation, along with a follow-up question about the recent letter sent by Senator Warren and three other U.S. Senators, which urged the Fed to lower interest rates in order to ease housing affordability issues.
Click on any timestamp to be taken directly to the question in the FOMC press conference video.
35:05 – Question from Nancy Marshall-Genzer, Marketplace:
“I want to ask a little bit more about housing. I’m wondering, how closely are you watching rent and housing prices as you evaluate whether and when to cut rates? And it seems like housing prices are not coming down as quickly as you expected?”
“So when we think about—you know, our statutory goals are maximum employment and price stability, and that’s what we’re targeting. We’re not targeting housing price inflation, the cost of housing, or any of those things. Those are very important things for people’s lives, but they’re not, you know—those are not the things we’re targeting.
“We’re also well aware that when we cut rates at the beginning of the pandemic, for example, the housing industry was helped more than any other industry. And when we raise rates, the housing industry can be hurt because it’s a very interest-sensitive sector.
“On top of that, we have longer-run problems with the availability of housing. You know, we have a built-up set of cities and, you know, people are moving further and further out, so there’s—there hasn’t been enough housing built. And these are not things that we have any tools to address.
“But, you know, where it comes into play very specifically in our work is inflation. Which is a combination—it’s really rental inflation. You’re taking owner’s equivalent rent and then actual rent paid by tenants, and you’re running that through the CPI calculation, or the PCE calculation, the one we look at. And what that’s telling you is that market rents are increasing at a much lower rate or even being flat, and that will show up in inflation over time, it has to—as long as that remains the case.”
36:47 – Follow-up question from Nancy Marshall-Genzer, Marketplace:
“What is your response to the letter that was sent to you by some members of Congress asking the FED to lower interest rates to make housing more affordable?”
“My response is what I started with, which is that our job, the job Congress has given us, is price stability and maximum employment.
“Price stability is absolutely essential for people’s lives…mostly for people at the lower end of the income spectrum who are living at the edges, at the margins. And so, for someone like that high inflation, in the necessities of life, right away you’re in trouble. Whereas even middle-class people have some, you know, some scope to absorb higher costs. So we have to get—it’s our job. It’s what society’s asked us to do, is to get inflation down, and the tools that we use to do it are interest rates. So, that’s how we think about that.”
Additional Remarks About Housing During the FOMC Press Conference
During the press conference, there were several other mentions of housing. Click on any timestamp below to watch each section.
Here are two mentions of the housing industry during Powell’s opening statement:
01:49: “Activity in the housing sector was subdued over the past year, largely reflecting high mortgage rates. High-interest rates also appear to have been weighing on business fixed investment.”
03:48: “My colleagues and I are acutely aware that high inflation imposes significant hardship as it erodes purchasing power, especially for those least able to meet the higher costs of essentials like food, housing, and transportation. We are highly attentive to the risks that high inflation poses to both sides of our mandate, and we are strongly committed to returning inflation to our 2 percent objective.”
17:40 – Question from Rachel Siegel, Washington Post
“Over the past few years, there have been all these real-time indicators that helped us gain a sharper understanding of where the economy was, like open table data or office attendance. You’ve talked about vacancies in the past, and I’m wondering at the start of this year what might be on that dashboard for you that’s giving you the clearest picture of the economy, including on rents, if you could touch on that.”
“Well so we’re not, you know, it’s not the pandemic, so we can actually rely on more traditional forms. People are working, they’re getting wages, and the economy is largely reopened and is broadly normalizing, as you see. So, I wouldn’t say we’re looking at that sort of more innovative data as much.
“You point to rents, so of course, we follow the components of inflation very carefully, which would be goods inflation—I talked about that a little bit. You mentioned housing inflation. So the question is, when will these lower market rents find their way into measured rents as measured in PCE inflation? And we think that’s coming—and we know it’s coming, it’s just a question of when and how big it’ll be, so. But that’s in everyone’s forecast, I would say.
“So that will help, but at the same time, we think goods inflation…it’s been giving a lot of disinflation to the effort, and probably that declines over time, but it may well have some more time to run. You know these supply chains are not perfectly back to where they were. In addition, it takes time for the healing process to get into prices. So there may be still a tailwind, we’ll find out with that. So, we look at the things that relate to our mandate very carefully, as you would imagine.”
19:59 – Question from Steve Liesman, CNBC:
“You’ve said that you would know the neutral rate by its works. So I’m wondering what you could tell me—how do you believe the neutral rate is working, telling you right now that growth is stronger? In other words, how much is the economy really being restrained right now by the current funds rate? And how much restraint does it really need additionally if inflation is still coming down?”
“So, I think you do see in the interest-sensitive parts of the economy, you do see—for example housing—you see the effects. You do.
“Your second question, though really I think is important. And that is, a lot of this has come through, a lot of the disinflationary process has come through the healing of supply chains and also of the labor market. So you’ve seen y that other set of factors is really different from other cycles and has brought—that working with tighter policy which has enabled the supply side to recover, I think is the mixture has been behind what has enabled this. So, no we really do think that we’re having an effect broadly across the economy. I would point to the sensitive parts of the economy as well as spending, generally. But it’s a joint story; it’s a complicated story.”