BloombergOctober 29,2022
One of the biggest components of rising CPI is rent or owner’s equivalent rent on a year-over-year basis. As the Fed prepares to hike rates yet again this week to tame inflation, it’s worth asking whether its actions will have any impact on rents.The chart below suggests it won’t. In fact in 2001 even as the Fed was cutting, rents went up. And in 2006, owner’s equivalent rent was falling well before the Fed acted. The danger to risk assets is clear and present: if a pause in the rate hike cycle does not come soon, stocks are in for a rough ride.
As the Fed keeps hiking, all it is likely to do is drive the economy into a recession and potential stagflation, which appears to be happening in Europe. Euro-area inflation surged to a fresh all-time high, while the bloc’s economy lost momentum.