In his January press conference, Fed Chief Jay Powell accepted some responsibility for the sharp rise in housing prices during the pandemic.

“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.”

This statement implies that, were it not for the pandemic, the current inflation picture wouldn’t be burdened by sticky, elevated housing prices. But, that’s just not true. The problem developed long before anyone heard of COVID-19. During both the 2000-2003 recession and (especially) the 2007-2009 recession, the Fed slashed interest rates in order to save the housing market from steep price slumps. The Fed’s belief that it could eliminate the natural cycles which have always existed in our economy ultimately led to even worse fluctuations. The current housing crisis was brought on by fifteen years of historically low interest rates – not just the pandemic rescue.

Now, the Fed says they don’t have the tools to fix the problem they created. That much is probably true. Runaway prices usually require a recession to bring them back to trend. But, the least the Fed could do is own up to the problem that they themselves created.

Futures are off moderately, testing the 10-DMA as we approach the open. But, of course, VIX hasn’t been hammered back below its 200-DMA yet.

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