FX

Fed’s George: US house prices remain above pre-pandemic trend

Kansas City Federal Reserve President Esther George said US house prices remain above the pre-pandemic trend and one can argue it is in part due to quantitative easing.

She added that the distributional effects of this are at the expense of first-time homebuyers.

Key comments

US house prices remain above pre-pandemic trend and one can argue it is in part due to quantitative easing.
    
The distributional effects of this is at the expense of first-time homebuyers.
    
As we tighten policy, dynamics of excess savings is going to be key factor for the economic outlook.
    .
Higher savings could provide further impetus to consumption
    
Could well take a higher interest rate for some time to convince households to hold on to savings.
    
Current data suggests savings is elevated across the spectrum.
    
But lower income households are running down their buffers more quickly.
    
Reduced inflation will mean we have to incentivize saving over consumption.
    
Wage growth remains strong.
    
Understanding wage growth important to tracking overall path of inflation.
    
Workers who switch jobs are seeing greater wage growth.

A calmer labor market with less churn could reduce inflationary pressures.
    
Many of my contacts report problems with low worker engagement, a drag on productivity.

US Dollar update

The dollar retreated across the board on Tuesday, as investors looked past worries about China’s COVID flare-ups and ahead of Wednesday’s Federal Open Market Committee Minutes. Analysts at TD Securities see the minutes shedding light on the FOMC’s deliberations regarding the expected downshift in the pace of rate increases. ”With that said, policymakers will also emphasize that the terminal rate is likely edging higher vs prior expectations as the labor market remains overly tight.”

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