For nearly 18 months, the U.S. Federal Reserve has been tapping — and then standing — on the brakes of the nation's economy with its monetary policy to try to tame spiraling post-pandemic inflation.
It worked. The task is largely completed — inflation fell to 3.2 percent in July, compared with 8.5 percent in March 2022, when the Fed began jacking up interest rates — and the fears of a broad recession in the U.S. have mostly abated. The Federal Open Market Committee's aggressive actions, raising rates 11 times during this short timespan, appear to have brought an overheated economy in for a soft landing, something few thought possible in early 2022.
But while the Fed can properly take a laudatory victory lap for its accomplishment, it's also the proper time for the committee to reconsider its monetary policy direction before it causes unintended damage. We believe that some of the inflationary pressures still lingering in the economy are the result of broader, long-term demographic changes to American society as well as geopolitical forces that U.S. monetary policy is unable to alter.
Lower birthrates in recent decades and longer life spans have given the United States its highest percentage of dependents — defined as the combined total of those younger than 15 and older than 64 — compared with those of working age in nearly 50 years, according to the World Bank.
The lingering impact of COVID on supply chains as well as Russia's continuing war against Ukraine have put upward pressure on the prices of goods and services. And corporate profit taking in the face of unprecedented supply shortages during and after the pandemic has also pushed prices up in ways largely immune to higher interest rates.
We cannot in good faith argue that interest rates should start coming down. We see no evidence, especially in our industry, of supplies outpacing demand or of widespread demand destruction that would call for the Fed to intervene to stimulate the economy. What we do see, though, is how higher interest rates have suppressed leasing and led consumers to take out longer-term loans to keep payments affordable. Neither is good long term — for this industry or for consumers.
Put another way: We don't need the Fed to hit the accelerator on the economy, just ease up on the brakes.
It's OK if we coast for awhile.
