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Fed’s rate strategy stymied by stubborn housing cost inflation on November 8, 2023 at 11:00 am Business News | The Hill
The Federal Reserve is facing questions about its ability to tame one of the largest drivers of inflation: the cost of housing.
Housing costs, measured as both rental costs within the consumer price index (CPI) and as mortgage rates, are one of the most interest rate-sensitive sectors of the economy, generally getting more expensive as rates go up and cheaper as rates go down.
But with the Fed now expected to keep rates higher for longer, a reprieve in shelter costs, which constitute a major portion of monthly expenditures for U.S. households, could still be a ways away.
Consumers remain hobbled by housing costs
Americans spend about 30 percent of their income on rent, according to research from Moody’s Analytics published over the summer, a record threshold initially reached last year.
Moody’s has described Americans as “rent-burdened,” arguing in April that “rent-to-income levels remain uncomfortably high.” In 2021, 20 million households that pay rent met the 30-percent income threshold and were “cost burdened,” according to the Census Bureau, an increase of about 1 million households since 2019.
“If you look at the consumer price index, the big contributor to high inflation is the shelter, both rents and owner-occupied rents,” Claudia Sahm, founder of Sahm Consulting and a former Federal Reserve economist, told The Hill.
“The increases in shelter costs have absolutely slowed down in the past six to eight months, but they take time to work their way through. … Frankly, we’ve gotten surprised at how long it’s taken and how bumpy it’s been.”
Fed faces pressure to cool down housing market
Inflation has been coming down over the past year as the Fed has been raising rates, falling to an annual rate of 3.7 percent in September from a high of 9.1 percent in June of last year.
But annual housing inflation is still around 7 percent and accounts for the vast majority of all the inflation left in the economy.
The CPI’s shelter index accounted for more than 70 percent of the total increase in all items less food and energy, the Labor Department reported earlier this month.
“The Fed needs to study the housing market at this moment very carefully, because it’s at the point where it really starts to have an effect,” Sahm said. “[Fed Chair Jerome Powell] pointed to the housing market, because it’s clear that activity there is slowing down.”
While one of the fastest Fed tightening cycles on record has driven housing costs higher, an underlying shortage of affordable, multifamily housing has also dogged the housing market.
Realtor.com puts the shortage at between 2.3 and 6.5 million homes.
Can Powell tame property owners?
Tenants-rights activists say that focusing on the financial system or even the physical supply of housing is shortsighted and neglects the fact that landlords and property owners simply have too much power over tenants, allowing them to drive up prices at will.
“Federal housing policy is designed in a way that prioritizes the industry that profits from providing housing, rather than the people who need homes,” argued the Homes Guarantee advocacy group, which wants to see rent control limitations placed on all national housing subsidy programs.
The group also wants to see the Biden administration enact a national tenants bill of rights to protect against profiteering in the housing sector as a matter of public policy.
Powell said Wednesday that effects of housing costs on the economy were becoming “significant.”
“We’re getting reports from housing that the effects of this could be quite significant,” he said, noting that activity in the housing sector has flattened out and remains well below levels of a year ago.
Housing remains in the Fed’s sights
The Fed’s latest anecdotal survey of the U.S. economy is riddled with complaints about the affordability of housing.
“Housing affordability remained extremely low, and rents remained high in the current period. Requests for assistance with housing and utility bills continued to dominate 211 [hotline] requests in New Jersey and Pennsylvania. Roughly one-third of all requests in the two states were related to housing,” the Federal Reserve Bank of Philadelphia reported in the October “Beige Book,” the Fed’s monthly summary of regional economic conditions.
Rental and home ownership affordability as measured in September by the Department of Housing and Urban Development are both near 23-year lows, while month-to-month house prices were near 20-year highs.
“Rising rents and a shortage of affordable housing continued to impact low- and moderate-income households’ ability to secure housing. Moreover, some landlords stopped accepting housing choice vouchers in order to get higher rents in the open market,” the Cleveland Fed observed.
Despite elevated levels, shelter prices have been declining in recent months, with owners’ equivalent rent falling to 7.1 percent in September off a high of 8.1 percent in April.
The shelter component of the CPI also stands at 7.1 percent, off a March peak of 8.2 percent.
But that descent has been touch-and-go and has been a source of surprise for economists.
“It was clear this was coming, but last month forecasters were surprised; it didn’t come down as much as we’d expected. We don’t know exactly how the translation goes between new rents and the CPI,” Sahm said.
“We know the direction of this, but exactly when it happens is not clear, and shelter makes a bigger contribution to the CPI in general, so it’s not like this inflation is just going away.”
Thirty-year fixed-rate mortgages are near their highest levels in 23 years, at 7.86 percent.
“The impact of higher rates continued to be felt across both purchase and refinance markets. Purchase applications decreased to their lowest level since 1995 and refinance applications to the lowest level since January 2023,” Joel Kan, Mortgage Bankers Association vice president, wrote in a note Wednesday.
Economists sound the alarm on bond yields
Soaring bond yields, which are closely correlated with mortgage rates, especially for longer-term maturities, were also a concern for economists watching the outcome of the Fed’s meeting.
“Powell’s focus on persistent conditions, especially regarding the rise in Treasury yields and the near-8% mortgage rate, suggests that the Fed is closely monitoring the broader economic indicators,” Jon Maier, head of investments at financial firm Global X, wrote in an analysis.
Despite the high cost of housing, home ownership rates for moderate earners rose to some of their highest levels ever during the pandemic, boosted by trillions in stimulus sent out by both the Trump and Biden administrations.
In the first quarter, the homeownership rate for Americans earning less than the median family income of $74,580 hit 53.4 percent, a number surpassed in recent decades only during the second and third quarters of 2020, when the government was helicoptering emergency cash onto households during the pandemic, according to Census Bureau data.
Powell stressed Wednesday that Fed bankers had not yet made up their mind about future rate hikes or whether Fed policy was now sufficiently “restrictive.”
“We’re not confident at this time that we’ve reached such a stance. We’re not confident that we haven’t, but we’re not confident that we have,” Powell said.
Business, Administration, News, Policy, Technology, bonds, federal reserve, Federal reserve rate hikes, housing market, Jerome Powell The Federal Reserve is facing questions about its ability to tame one of the largest drivers of inflation: the cost of housing. Housing costs, measured as both rental costs within the consumer price index (CPI) and as mortgage rates, are one of the most interest rate-sensitive sectors of the economy, generally getting more expensive as…
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The Cities Bracing for Trump’s Immigration Crackdown
In the wake of Donald Trump’s recent election victory and his promise of “the largest deportation operation in American history,” several major U.S. cities are bracing for potentially seismic shifts in their economic and social landscapes. As the nation grapples with the implications of this proposed policy, urban centers that have long been havens for immigrant communities find themselves at the epicenter of a looming storm.
Los Angeles, often dubbed the “City of Angels,” stands to lose more than its celestial nickname suggests. As a primary gateway for immigrants, the city’s vibrant tapestry of cultures and its economic engine could face significant disruption. From the bustling streets of Koreatown to the sun-drenched orchards of the Central Valley, the absence of undocumented workers could leave gaping holes in the city’s workforce and cultural identity.
Across the country, New York City, with its iconic skyline and melting pot reputation, faces its own reckoning. The Big Apple’s 5.9 million immigrants, many of whom are undocumented, form the backbone of industries ranging from construction to healthcare. The potential exodus could transform neighborhoods like Jackson Heights and Flushing, altering the very essence of what makes New York a global city.In the Sunshine State, Miami’s tropical allure belies the turbulent times ahead. Home to 2.5 million immigrants, the city’s economy relies heavily on sectors like tourism and hospitality – industries where undocumented workers often fill crucial roles. The potential deportation of these workers could send shockwaves through Miami’s economic ecosystem, from South Beach’s glitzy hotels to the agricultural heartlands of South Florida.
Chicago, the “City of Big Shoulders,” may find those shoulders significantly weakened. With 1.7 million immigrants in its metropolitan area, the Windy City’s diverse neighborhoods and industries face an uncertain future. From the meatpacking plants to the tech startups, Chicago’s economic resilience could be tested like never before.
In the Lone Star State, Houston and Dallas stand as twin testaments to the complexities of immigration policy. These Texas titans, each home to large immigrant populations, could see their booming economies stumble. The construction sites that dot their ever-expanding skylines and the service industries that keep these cities humming could face unprecedented labor shortages.
Out West, the San Francisco Bay Area’s reputation as a bastion of innovation and progress could be challenged. The region’s tech industry, often reliant on immigrant talent, might find itself grappling with a new reality. From Silicon Valley’s coding campuses to the agricultural expanses of the Central Valley, California’s economic powerhouse could face a reckoning. Phoenix, rising from the Sonoran Desert, could see its growth trajectory altered. As Arizona’s urban center, it stands at the forefront of the immigration debate, potentially facing not just economic impacts but social and political upheaval as well.
These cities, along with others like San Diego and Las Vegas, are not just facing potential economic disruptions. They are staring down the barrel of profound social change. Family separations, community fragmentation, and the erosion of cultural enclaves built over generations are all possible consequences of mass deportations. Moreover, the fiscal implications are staggering. Undocumented immigrants contribute billions in taxes annually, often without receiving the full benefits of their contributions. Their sudden absence could leave gaping holes in city budgets, potentially affecting public services and infrastructure projects.
As these urban centers brace for impact, the debate rages on. Supporters of stricter immigration policies argue for the need to enforce laws and protect American jobs. Critics warn of economic devastation and the unraveling of America’s urban fabric. What’s clear is that America’s cities stand at a crossroads. The coming months and years will likely reshape urban landscapes in ways both visible and invisible. From the foods we eat to the services we rely on, from the neighborhoods we call home to the very character of our cities, the impacts of this proposed immigration crackdown could be far-reaching and long-lasting. As the nation watches and waits, these cities – vibrant, diverse, and economically vital – find themselves on the front lines of a policy that could redefine what it means to be an American city in the 21st century.
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How Trump’s Deportation Plans Could Reshape Major Cities
In the wake of Donald Trump’s recent election victory, his ambitious plans for mass deportations have thrust America’s urban centers into the spotlight. As the nation grapples with the potential implications of what Trump calls “the largest deportation operation in American history,” cities across the country are bracing for significant changes that could reshape their economic, social, and cultural landscapes.
The stakes are particularly high for metropolitan areas like New York, Los Angeles, Houston, Dallas, and Miami, which host the largest populations of unauthorized immigrants. These cities, along with other major urban hubs such as Chicago, Washington D.C., and San Francisco, stand at the forefront of a looming transformation that could reverberate throughout the nation.
Economic Tremors
Economists warn that the proposed deportations could send shockwaves through urban economies. Mark Zandi, chief economist at Moody’s, cautions that businesses would face “significant challenges” if a substantial number of immigrants were removed. Industries such as construction, hospitality, and healthcare—pillars of urban economies—could face severe labor shortages.
Joe Brusuelas, chief economist at RSM, emphasizes the potential ripple effects: “The native-born workforce cannot meet current labor demands.” This labor gap could lead to increased wages, potentially rekindling inflation—a concern that looms large over city planners and policymakers alike.
Community Fabric Under Strain
Beyond economic considerations, the social fabric of cities hangs in the balance. Elena, a Nicaraguan immigrant in Houston, voices a fear echoed in immigrant communities across the nation: “I’m scared… This is my home.” The threat of family separations, particularly in mixed-status households, casts a long shadow over urban neighborhoods.
Immigrant advocacy groups like FIEL are mobilizing, advising clients to prepare for “anything that can happen.” This atmosphere of uncertainty could lead to decreased community engagement and cooperation with local authorities, potentially impacting public safety and community cohesion.
Cities at a Crossroads
As the debate intensifies, cities find themselves at a crossroads. Some, like New York and Los Angeles, have historically positioned themselves as “sanctuary cities,” often at odds with federal immigration enforcement. The impending clash between federal policy and local governance promises to be a defining feature of this new political landscape.
Meanwhile, the logistical challenges of implementing such a massive deportation operation remain daunting. Questions abound regarding detention facilities, transportation networks, and the sheer manpower required to carry out Trump’s vision.
Looking Ahead
As America’s urban centers brace for potential change, the full impact of Trump’s deportation plans remains to be seen. Legal challenges are all but certain, and the resilience of America’s cities will be put to the test.
What is clear is that the coming months and years will be pivotal for urban America. As Jason Miller, a senior Trump adviser, puts it, the plan is to “immediately reinstate” immigration policies from Trump’s first term. For America’s cities, this could mean a period of unprecedented change, challenge, and, potentially, transformation.
As the nation watches and waits, the story of America’s cities in the face of this ambitious deportation plan is just beginning to unfold. The outcome will undoubtedly shape the future of urban life in America for years to come.
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Donald Trump Wins 2024 USA Election
Based on the election results, Donald Trump has indeed won the 2024 U.S. presidential election, defeating Vice President Kamala Harris. Here’s an analysis of the key statistics and implications:
Electoral College Victory
Donald Trump has secured the presidency by winning crucial battleground states and flipping some key states that were previously held by Democrats. The final Electoral College tally is still being determined, but Trump has surpassed the 270 electoral votes needed to win.
Battleground State Performance
Trump’s victory was largely secured by winning several critical swing states:
- Wisconsin: Trump’s win here was pivotal in securing his path to victory.
- Pennsylvania: This state flipped back to Republican control.
- Georgia: Another key state that Trump managed to win back.
- Michigan: Trump successfully flipped this traditionally Democratic stronghold.
Popular Vote and Voter Priorities
While the final popular vote tally is still being calculated, exit polls provide insight into voter priorities:
- Economy and democracy were top concerns for voters.
- Abortion and immigration also played significant roles in voter decision-making.
Congressional Control
The election results extend beyond the presidency:
- Republicans are set to take back the Senate majority, securing at least 51 seats.
- Control of the House of Representatives remains undetermined.
Media Implications
The outcome of this election could be seen as a challenge to mainstream media narratives for several reasons:
- Polling Discrepancies: Many pre-election polls suggested a tight race or even a slight Harris advantage in key states. Trump’s victory, particularly in battleground states, may indicate that polls underestimated his support.
- Narrative Shifts: Throughout the campaign, much of the mainstream media focused on Trump’s legal challenges and controversies. His victory suggests that these issues may not have resonated with voters as much as economic and policy concerns.
- Voter Priorities: The emphasis on issues like the economy and immigration in voter decision-making may indicate a disconnect between media focus and voter concerns.
- Electoral Predictions: Many mainstream outlets were cautious about predicting a Trump victory, even as results began to favor him. This hesitancy could be seen as a reflection of broader media skepticism about Trump’s chances.
- Underestimation of Trump’s Base: The results suggest that Trump’s core support remained strong and potentially grew, despite negative coverage in much of the mainstream media.
It’s important to note that while the election outcome may challenge some media narratives, it doesn’t necessarily invalidate all mainstream reporting. The complex factors influencing voter behavior and the challenges of accurate political forecasting remain subjects of ongoing analysis and debate.
As the dust settles on this historic election, both the media and political analysts will likely engage in extensive reflection on the factors that led to Trump’s victory and the implications for future political coverage and analysis.
Bolanle Media is excited to announce our partnership with The Newbie Film Academy to offer comprehensive courses designed specifically for aspiring screenwriters. Whether you’re just starting out or looking to enhance your skills, our resources will provide you with the tools and knowledge needed to succeed in the competitive world of screenwriting. Join us today to unlock your creative potential and take your first steps toward crafting compelling stories that resonate with audiences. Let’s turn your ideas into impactful scripts together!
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