How Rising Rents Crashed the Stock Market

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Tuesday’s decline in stocks was the largest in more than two years. A steep rise in housing inflation was a big reason. KevinTDugan explains

a home. That means a whole lot of people out there are looking for a place to live right now, and odds are good they have more money to throw at the problem than you do. It also shows that inflation has come for the so-called “core” parts of the economy, which the Fed pays closer attention to. I’m fact, the core gauge of inflation rose by 0.6 percent, much higher than predicted, with shelter making up nearly half of that rise.

Here’s a quick refresher on recent history: Last year, when prices started to rise, the Federal Reserve dismissed them as transitory and kept on with a giant bond-buying program while keeping borrowing costs near zero, blaming supply chain snarls, and making a bet that the COVID vaccines would fix the economy. That didn’t happen. Inflation peaked above 9 percent in June, and the central bank’s chair, Jerome Powell, has had to deal with questions about why he was so behind the curve.

So the drop in stock prices today was the biggest since June 2020, when we were just a few months into the coronavirus pandemic. It was also a reflection of a lack of optimism since almost all of the selling came at the end of the day, after investors had time to digest the report.

Most commenters are focused on next week’s Fed meeting where the question is whether Powell will hike rates by half a percentage point or keep up the fastest pace of increases in 40 years. In reality, it was always unlikely that anything the inflation report said would have caused the Fed to go gentler on the economy, and the importance was always on what would come after. Now, though, there are calls to jam up rates evenand go even longer than ever before.

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