Northeast

By Walker & Dunlop’s Research Department Inflation and a New Era of Monetary Tightening Amid 40-year high inflation rates, home prices that have surged by over 40 percent in the past three years and double-digit price increases in basic necessities such as food, gas and electricity, the United States seems to be beset on all sides. Inflation has become the question of the day with little relief even after monetary tightening began earlier in the year. After a quarter point increase in the Federal Reserve target rate in March, the Fed implemented a whopping 50 basis point increase in the target Federal Funds rate in May after April inflation remained at 8.2 percent, near the March high of 8.6 percent.[1] The central bank’s goal is to reduce inflation to an annual rate of approximately 2 percent. The employment base, the Fed’s other prime objective, seems to remain strong. Unemployment (at 3.6 percent in April) remains low and employment growth of 390,000 in May beat economist expectations. The Fed’s job now is to beat inflation and prevent it from becoming embedded in consumer expectations. Why? Because once inflation becomes embedded in expectations, it changes consumer behavior and becomes somewhat of a …