What is the Fed looking at, labor market or housing market?

The CPI and PPI have not shown much inflation during the current Fed tightening cycle. The US labor market is showing some pressure recently. But given the “global labor arbitrage” (using economists' term), the labor cost is not likely out of control. It seems to me the Fed is looking at the housing market. The asset price stability is not officially Fed’s mandate so the Fed will never explicitly state that.

They say the Fed won’t stop tightening until something breaks. In 1994 tightening cycle, it’s the bond market. In 1999, it’s the equity market. This time, the housing market?

 

i think greenspan wants to go out a hero. he will not do anything to rock the boat in the few months he has left.

 

i agree...dudes been a disaster over last 7-8 years

cuttin rates in the midst of an EXPLOSION...that was bright

now to make up for it.(had to be done) .the lowering of rates has cause another Explosion
the housing crash will hurt more then the market crash

everyone has sucked their house dry with multiple re-financing/interest only loans and taken trips to Disney world on their Harleys...

once those baloon payments come due on those 5 condo's you own....look out below

PS...anyone who doesnt think this market is a bubble..turn on CNBC or any magazine....when its on the front cover....its time to book your profits

Watchin Cramer talk bout Home BUilders reminds me of him in 2000 talking bout YHOO and AMZN

 

My feeling is that right now the dumb money is being sucked in during the final frenzy while the pros are quietly pulling money out of the housing market, much like the first half of 2000 in the equity market.

 

100% agreement

puttin my apt on the market as we speak

f it

 

That’s one of the important things to keep in mind when we speculate when Greenspan will end the tightening campaign.

After the equity bubble burst in 2000, he defended himself by saying it’s better for the Fed to let the bubble burst itself and clean up the mass afterward than to take a pre-emptive action to stop the bubble in the first place.

I’m not sure that’s what he really thinks since his tightening in 1999 is the direct cause of the 2000 crash. It would be not that bad if he started to raise rate in 1997. So he stopped the equity bubble in 2000 but a bit too late. But either way he assumed that asset market, equity or housing, is something the Fed is closely watching. If he feels that something has to be done to the housing market (the “froth”) he’ll want to do it himself.

 

That is (I think) because CPI and PPI are constructed nowadays in such way that they do not show real inflation. Note, this is only my opinion, though boys at Pimco might agree. Anyway, hedonic adjustment is the key word.

But, as in whole, i have really hard time seeing what in earth is happening with Fed and US economy. Strange times indeed.

 

One thing people complained about is when we buy a PC with 3.3 GHz speed that costs the same as a PC of last year that had a speed of 2.2 GHz, the index will show a decrease of price. This makes some sense although your out-of-pocket money doesn't decrease.

What I think is happening is that the housing sector is sucking all the money. But it counts not as living expense but as investment.

 

as per CPI/PPI...i am pretty sure it counts for rental rates...not mortgage rates...or housing value

someone may want to look into that

housing prices have skyrocketed...rents have remained flat

replacing rents with housing prices...and you'll see inflation

i konw i cant afford to buy now the house i currently live in that i bought 3 years ago

anyone can verify that?

 

that is correct.