With first-time home buyers getting priced out of the housing market, already elevated rental inflation will continue to dog the economy. The result will be a faster pace of rate hikes, a higher interest rate when the Fed stops and an end to hopes the US can avoid recession.
What a difference a week makes! A recession still seemed likely but avoidable only a week ago. But recent data give me pause. It's not just that a recession could happen sooner rather than later but inflation is also likely to stay high enough to force the Federal Reserve to keep raising rates just as the economy is weakening. I’m not just talking about an acceleration in the Fed’s timetable — so-called front-loading -- but an increase in the overall amount of policy tightening. And that not only makes recession unavoidable but significantly increases the chances that the recession in the US starts as early as this year.