“It is of paramount importance to get inflation down,” she said to get markets to prepare for what’s coming. And they’re preparing.
Fed Governor Lael Brainard, one of the biggest doves on the Fed’s monetary policy committee, explained this morning in detail that inflation is hitting lower-income households much worse than higher-income households, and that it is hitting disadvantaged households, such as those with limited access to online shopping, even harder, and their inflation rates are far higher than the national average inflation rates because the basket of goods they’re buying is systematically different, and that they’re spending nearly all their money on necessities, and that they often cannot substitute items whose prices have jumped with lower-cost items, because they’re already buying the lowest-cost items to begin with, and there is no way to go lower on the ladder. They can only buy less, such as buying less of the cheapest store-brand cereal, which is the example she used.
It was an indictment of Consumer Price Inflation, depicting it as the scourge that it is for the people at the lower half of the income scale. And then she said that the Fed would have to, and will, crack down on inflation to get this under control.
Upon the speech, whose text was released in advance earlier this morning, the average 30-year fixed mortgage rate spiked by 18 basis points to 5.02% today, the highest since November 2018.
But back in November 2018, this measure of mortgage rates by Mortgage News Daily, had peaked at 5.05% briefly, before the Fed buckled under Trump’s withering attacks. But back then, inflation was below the Fed’s target, and now inflation is spiking and out of control, and it’s the White House that is now under withering fire from voters over the spike of consumer prices. There isn’t anything in recent years that compares to this. The comparison has to be to the 1970s.
And instead of fretting about the spiking mortgage rates, Brainard agreed that the market was beginning to price in the coming “expeditious increase in the policy rate” and “a more rapid reduction in the balance sheet” compared to last time:
“Consistent with these expectations, we have already seen significant tightening in market financing conditions at longer maturities, which tend to be most relevant for household and business decision-making. For instance, 30-year mortgage rates have increased more than 100 basis points in just a few months and are now at levels last seen in late 2018,” she said.
https://wolfstreet.com/2022/04/05/mortgage-rates-breach-5-two-year-10-year-treasury-yields-spike-after-fed-dove-brainard-explains-how-inflation-is-much-worse-for-lower-income-households-than-cpi-shows/