Washington D.C. – In a departure from his previous support for aggressive action by the Federal Reserve Board of Governors Federal Open Markets Committee (FOMC) to control inflation, NHC CEO David Dworkin has called for an end to rate hikes. Dworkin says that raising rates above their current level is not likely to succeed in reducing inflation and may instead trigger stagflation.
“Raising interest rates hasn’t succeeded in cutting inflation,” Dworkin said in a blog post published on Sunday, April 16. “CPI is down to 5%, which may seem like a major improvement, but is it? Core CPI, which excludes highly volatile energy and food prices, has remained stuck above 5% since the end of 2021 despite FOMC rate increases totaling 4.75 points. Last week, it was reported at 5.6%, having risen in March.”
Raising rates has had a negligible impact on reducing inflation in part because it has contributed to an increase in the cost of shelter, Dworkin said, noting that the Department of Labor said shelter is “by far the largest contributor to the monthly all items increase,” noting that this “more than offset a decline in the energy index, which decreased 3.5 percent over the month as all major energy component indexes declined.” With the announcement that OPEC is cutting production, we can also expect fuel costs to be much higher in the months ahead. “ If the FOMC continues to increase rates, the cure could kill the patient and risk triggering a severe recession combined with inflation – stagflation,” Dworkin said.
Historically, Dworkin has been a strong advocate for the Fed’s aggressive efforts to control inflation through increased interest rates, despite the impact on housing. He has argued that inflation disproportionately impacts lower-income individuals, as purchases of consumer goods make up a smaller portion of high-income budgets.
Dworkin noted that “higher rates have virtually eliminated the refinance and move-up markets. This leaves the first-time homebuyer market as the remaining pillar of the residential mortgage market. It’s also the heart of the remaining market for single-family home construction. If we fail to address inflation, the likelihood of a prolonged period of stagflation will continue to increase. Stagflation is the political equivalent of two hurricanes combining to create a perfect storm. It will take everything we have to fight it. The good news is we know what we must do. Increasing housing supply is the key to success.”
“During the first two years of the pandemic, the Fed pumped $4.5 trillion dollars into the economy through quantitative easing, an experiment never before attempted. Some of this stimulus was essential to getting the country through the pandemic, but there is no question it also contributed to a dramatic increase in inflation. Congress, in the meantime, has pumped another $5 trillion dollars in the economy through multiple emergency spending bills. “We got into this together and that’s how we will have to get out of it,” Dworkin said.
Founded in 1931, the National Housing Conference is the oldest and broadest housing coalition in America. NHC is a diverse continuum of affordable housing stakeholders who convene and collaborate through dialogue, advocacy, research, and education, to develop equitable solutions that serve our common interest—an America where everyone is able to live in a quality, affordable home in a thriving community. Politically diverse and nonpartisan, NHC is a 501(c)3 nonprofit organization.