Does the FED have it all wrong?

I'm growing increasingly concerned by Jerome Powell's recent comments about corrections being needed in the employment market and in the housing market.

He seems to imply that deep corrections are needed, but I'm not sure he and the FED are relying on the right data or the right reading of the economy based on the fundamental changes happenning in real time.

The easy supply of money for nearly 15 years has certainly added to the pressure on asset prices in the recent past; and reducing the supply of money (raising rates) some degree is clearly necessary to ease excess pressure and reign in inflation.

But...there's more going on than just the supply of money.

Pandemic supply chain issues, changing preferences in the supply of labor (gig economy and creator economy growing), and the systemic lack of housing production due to legacy (bad) zoning have just as much if not more impact.

People are exiting the labor market. We should encourage more immigration to compensate.

We're not building enough homes. We need to move away from local control over zoning to better plan and build housing regionally.

These are fundamental structural changes happening in the preference for people in the labor market, and there are often too many roadblocks to production in the housing market. We also know that the Fed is over-reliant on poor sampling for housing market data (which leads to a poor understanding of real housing market price and rent motion overall).

I get it. Inflation is a serious problem. A wage-price spiral can be devastating. Asset bubbles are dangerous.

But the FED got caught behind. And now raising rates too far, too fast will overcompensate, shut down demand too far, and create excessive hardship for people unnecessarily (lost jobs, etc). It will also shut down the building of new homes which is necessary to avoid a repeat cycle.

I'm hoping the FED is looking deeper into the underlying factors at play and giving hard thought as to what they can actually moderate through monetary policy.

What are you seeing out there? Comment below! 👇