Chart of the Day
Posted at 3:45 p.m. on July 17, 2013
— Cullen Roche points out that while the Consumer Price Index measurement of inflation (in red) is”running much cooler than most presume,” if you add real estate prices into the mix (in blue), there is actually evidence of much hotter inflation.
” Had we tracked something like the OHAPI in the early 2000′s we would have never fallen for the idea that inflation was low during the biggest housing boom in US history. Had the Fed been viewing price changes through a gauge like this they might have been faster to tighten policy and get ahead of what was clearly a dangerous trend.”
“Are we getting into a dangerous environment like we saw in 2007? I certainly don’t think so quite yet, but Fed policy should be proactive and not reactive. To me, the path forward appears obvious. I think QE is having more destabilizing than stabilizing effects here and the Fed could probably do a great deal to cool real estate trends before they potentially get out of hand again by simply ending the QE program.”