Federal Reserve Chair Kevin Warsh acknowledged Friday that housing is under strain. He did not suggest that the strain is severe enough to steer
the Fed away from another interest-rate hike.
In his first address to the Federal Reserve Bank of Kansas City’s annual economic policy symposium in Jackson Hole, Wyoming, as Fed chair, Warsh
isolated housing and agriculture as weak spots in an economy he otherwise described as resilient.
“Credit and loan markets are showing few signs of policy restraint,” Warsh said. “Certain sectors — like housing and agriculture — are showing
strains. But, on balance, I would be hard pressed to describe broad financial conditions as restrictive.”
That assessment leaves the mortgage industry facing an uncomfortable reality: Housing can remain constrained by elevated borrowing costs
without becoming weak enough to stop the Fed from tightening monetary policy again.
Warsh did not commit to an increase at the Federal Open Market Committee’s Sept. 15–16 meeting. But his assessment of the economy, coupled
with his insistence that inflation must move convincingly toward the Fed’s 2% target, prompted markets to sharply increase their expectations for
a September hike.
Before the speech, futures markets assigned a roughly 35% probability to a quarter-point increase in September. The probability climbed to about
60% afterward.
Barclays now expects the Fed to raise its benchmark rate by 25 basis points in September and again in December, reversing its previous forecast
that rates would remain unchanged through the end of the year.
Housing Is The Exception
Warsh described an economy that has strengthened despite geopolitical and supply-chain shocks.
Business investment is growing at its fastest rate since 2021, consumer spending remains healthy, corporate credit is readily available, and
unemployment remains low, he said. Warsh characterized the labor market as “quite stable” and consistent with full employment…
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