The Fed Claims To Be Fighting Inflation. It May Actually Be Making It Worse.

Measuring inflation is a complex task, especially when calibrating monetary policy responses to rising prices. Residential rent, in particular, makes up for over a third of the Consumer Price Index, of which owner’s equivalent rent, closely tied to mortgage rates, accounts for a quarter. While the Fed is raising rates to bring overall inflation down, the paradox is that higher rates might actually exacerbate inflationary pressures related to rents.

In its attempt to quell the post-pandemic surge in inflation, the Federal Reserve embarked on one of its most aggressive rate-hiking campaigns. Some point fingers at the Fed or at the U.S. Administration as the culprit for the rising prices, but it’s improbable that U.S. government policy played a significant role. This isn’t just a U.S. problem; countries like Singapore, the United Kingdom, and Brazil have all faced similar inflationary surges. This strongly indicates that the root cause lies not in domestic policies but in the sharp resurgence of consumer demand at a time when the supply of goods and services was severely constrained, which had global effects.