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But, on balance, the Fed has been able to make up for lost ground: “With the benefit of hindsight, they probably waited too late but since they realized the need – that inflation was a bit more problematic than they thought – they’ve taken exactly the right steps. Since they realized they needed to tighten, they moved very quickly to hold interest rates to the level they needed to be. Inflation is still elevated but it’s beginning to head in the right direction.”
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Yet in the short term, consumers will feel the pinch, Barkham suggested: “Obviously, mortgages have become more expensive, credit card debt is more expensive. Probably you’ll begin to see some decline in house prices. To the extent that consumers like to have that housing equity, consumers balance sheets are going to be a little bit weaker over the course of the year. We’ve already seen declines in the stock market.”
But there’s good news on the horizon too: “On the plus side, I think they’ll begin to see cheaper goods in the retail sector,” Barkham said. “As inflation falls, it will be led down by goods prices. So I think we’ll begin to see goods prices much lower, used car prices lower. Over the course of the year, some of the high rent we’ve seen in the multifamily sector will begin to ease as well.”
Those waiting for lower rates shouldn’t hold their breath, as they’re not expected until 2024 at the earliest. In a post-meeting news conference, the Federal Reserve System’s chairman, Jerome Powell, explained the need to continue battling inflation with the rate tinkering: “Inflation data received so far for October and November shows a welcome reduction in the monthly pace of price increases,” he said, adding it would take “substantially more evidence” that inflation is headed downward.
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