Inflation? Look To the Fed

It appears that the Fed will be nudging rates downward in the near future.  But that's not the biggest item coming out of Jackson Hole.

Wolf Street has the goods:

 ...Today, Powell introduced the resulting new “2025 Statement on Longer-Run Goals and Monetary Policy Strategy” that was passed unanimously by the FOMC.

The most important change in the new framework is the elimination of “average inflation” targeting, an odious strategy created in the framework of August 2020, which specified that the Fed would allow inflation to “run moderately above its 2% target” to make up for periods when it ran below the 2% target, to achieve an inflation rate that “averages 2% over time.”

The result of that “average inflation” targeting guideline of August 2020 was the inflation shock.

Inflation began raging at the beginning of 2021, but the Fed continued its near-0% policy and massive QE into early 2022. The Fed didn’t react to raging inflation for 15 months. I called it “the most reckless Fed ever” (google it).

By the time the Fed hiked for the first time in March 2022, bringing its policy rates to 0.25%-0.5%, CPI inflation was already at 8.5%. This was responsible, among other things, for the explosion of home prices (roughly 50% in less than three years), as the Fed’s massive QE, including the purchase of trillions of dollars of MBS, pushed down mortgage rates below 3%, while CPI inflation eventually exceeded 9%. This was the best free money ever. And when money is free, prices no longer matter.

This refusal for 15 months to end these crazed monetary policies of massive QE and near-0% policy rates in face of raging inflation was at least in part brought about by the Fed’s newfangled “average inflation” targeting guideline established in 2020.

In today’s framework, the Fed killed this odious concept of “average inflation” targeting and returned the framework to the previous method of inflation targeting....

Trump rants that it is very difficult for  young couples to purchase a home and he points to 'rates.'  Trump knows full-well that a RATE reduction from 6% to 5% does NOT result in a serious payment reduction.  But a PRICE reduction of, say, $150K, will.

And a Fed move is what made home-price inflation a searing reality.