The U.S. economy and the housing industry have performed better than expected this year. However, both are showing signs of weakness in the face of the Federal Reserve’s battle against runaway inflation. In January 2021, the inflation rate was 1.4% below the Fed’s target of 2.0%. As inflation rapidly expanded, peaking in June at 9.1%, it was treated as transitory. No monetary action was taken by the Fed until March 2022, when it raised the Fed funds rate by a mere 25 bps, the first of 10 hikes totaling 500 bps by May 2023.

The Fed paused rate increases this month, but is expected to resume them with another 25 bp increase in July. The consumer price index (CPI) inflation rate in May registered at 4.0% with core inflation (excluding food and energy) rising at an annual rate of 5.3% which is still too high. The justification for the June pause was to evaluate what impact the rapid rate increases and recent bank failures (which have resulted in tightening standards for commercial lending) will have on the slowing economy. The Fed maintained its current pace of quantitative tightening, rolling off its balance sheet $60 billion of treasury securities and $35 billion of mortgage-backed securities. It is not anticipated that there will be any monetary easing until the first or second quarter of 2024.