Economy U.S. economy has already seen 75% of the impact from Fed’s hikes, IMF says

[LeonardoBjj]

PUBLISHED TUE, JAN 16 20248:27 AM ESTUPDATED 4 HOURS AGO
Jenni Reid

• The International Monetary Fund estimates that the U.S. economy has already seen about 75% of the transmission from monetary policy, the organization’s Deputy Managing Director Gita Gopinath said at the World Economic Forum on Tuesday.
• The euro area has more still to come because it began hiking rates later, she said.
• François Villeroy de Galhau, governor of France’s central bank, said he believed the feed-through from monetary policy decisions to financial conditions was more or less over in the euro zone.

Around three quarters of the effects of tighter monetary policy have already fed through to the U.S. economy, according to an analysis by the International Monetary Fund.

“We have to recognize that there has been a lot of resilience in the economy despite the rate hikes that we have seen ... our estimate is that for the U.S. about three quarters, or 75%, of the transmission has already gone through, and the rest will go through this year,” the IMF’s Deputy Managing Director Gita Gopinath said at a CNBC-moderated panel at the World Economic Forum on Tuesday.

There is more transmission still to feed through in the euro area, where interest rate hikes started later, she said.

The U.S. economy has maintained stronger growth than was widely expected since interest rates began rising in March 2022, though several strategists have spoken of a potential recession this year. The euro zone economy, meanwhile, has fallen into stagnation. The European Central Bank began hiking in July 2022.

“What is universally true is we have households and corporations with stronger balance sheets. And we’ve seen effects, but we’ve also seen resilience,” Gopinath said on the panel.

“Labor markets are slowing but at a much more gradual pace. Which is why I think at the IMF we feel that a soft landing scenario, the probabilities have come up quite a bit, because inflation has come down without needing that much of a loss in terms of economic activity.”

François Villeroy de Galhau, governor of France’s central bank, noted on the same panel that there were two lags in transmission: from monetary policy decisions to financial conditions, and from financial conditions to the real economy.

“About the first lag, I think the transmission is more or less over,” he said. “In Europe, what is key is the transmission through banks, because as you know, the bank credit channel is about two thirds or three quarters in Europe, much more than in the U.S.”

“What is more difficult is the second lag ... here it’s much more difficult to assess, and it strongly depends on various sectors. If I take real estate for instance, I think most of the transmission has happened already because it’s very sensitive to interest rates. For other sectors, we will see,” Villeroy added.

https://www.cnbc.com/2024/01/16/us-...t-of-monetary-transmission-imfs-gopinath.html

 

[SandisLL]

When I see IMF advices to Ukr I might clearly get that they doesn't have clue what stuff war is and are living in diferent planet.

While interest rates imho should had been rised, while slower and not too high like these are today.
Eurozone will get more impact from this stuff than U.S ....

 

[Rob Battisti]

The other 25% is the impending housing market crash

 

[Islam Imamate]

The other 25% is the impending housing market crash

Why do you think the housing market will crash?

 

[Rob Battisti]

Why do you think the housing market will crash?

I was being facetious. I am uncertain about the housing market. The only thing saving it right now is the fact that people with great interest rates won’t sell thereby keeping the supply low. I don’t know what will happen when the rates go down.

 

[Islam Imamate]

I was being facetious. I am uncertain about the housing market. The only thing saving it right now is the fact that people with great interest rates won’t well thereby keeping the supply low. I don’t know what will happen when the rates go down.

You think low supply is saving the housing market? I think its the opposite, we need more supply don't we?

 

[Rob Battisti]

You think low supply is saving the housing market? I think its the opposite, we need more supply don't we?

I think the only thing keeping the housing prices from crashing is the low supply. It depends on what we qualify as “the housing market”. If it’s housing prices, the low supply is good. If it’s affordability, the low supply is bad.

I think we are in a weird position where demand is low and supply is low so it’s all locked in place. If interest rates stay high like they are now, demand because of that fact stays low. If supply increases at the same time as high rates — housing prices would crash.

I think we want to avoid that.

we need rates to fall slowly in order for people to want to buy and sell again.

That or if we can see a substantial increase in wages which is unlikely.

 

[Jack V Savage]

You think low supply is saving the housing market? I think its the opposite, we need more supply don't we?

Partly depends on whether you want the rich to get richer or vice versa.

But it's really a local thing. Lots of places have very low demand and are seeing prices fall. Some places have huge shortages and have extremely high prices, to the point that middle-class buyers are priced out. Nationwide on average, we spend a lower percentage on shelter than ever, I believe, but the local issue is so acute in some places that it slows overall growth by artificially lowering population in extremely high-productivity areas.

 

[Rob Battisti]

Nationwide on average, we spend a lower percentage on shelter than ever,

I’d love to see how you came up with this

 

[Islam Imamate]

I think the only thing keeping the housing prices from crashing is the low supply. It depends on what we qualify as “the housing market”. If it’s housing prices, the low supply is good. If it’s affordability, the low supply is bad.

I think we are in a weird position where demand is low and supply is low so it’s all locked in place. If interest rates stay high like they are now, demand because of that fact stays low. If supply increases at the same time as high rates — housing prices would crash.

I think we want to avoid that.

we need rates to fall slowly in order for people to want to buy and sell again.

That or if we can see a substantial increase in wages which is unlikely.

Why would it crash? Couldn't it come down over time? Beyond that I don't think its good to artificially limit supply to maintain home values, that's what got us into this mess in the first place so if anything we need to increase supply as much as possible as quickly as possible so that housing can be more affordable right?

Partly depends on whether you want the rich to get richer or vice versa.

But it's really a local thing. Lots of places have very low demand and are seeing prices fall. Some places have huge shortages and have extremely high prices, to the point that middle-class buyers are priced out. Nationwide on average, we spend a lower percentage on shelter than ever, I believe, but the local issue is so acute in some places that it slows overall growth by artificially lowering population in extremely high-productivity areas.

That's how I see it. There are lots of places with low housing costs and you will see some folks argue the idea that there is no housing crisis because you can just move to West Virginia where housing prices are low. But the engines of the nation's economy are its great metropolises like NYC, LA, and Miami so limiting how many people can live there and add to the overall size and agglomeration effects of these cities because of low housing supply would seem to be a hindrance.

 

[AWilder]

You think low supply is saving the housing market? I think its the opposite, we need more supply don't we?

i was really hoping one of the silver linings of Covid would be a shift to more work-from-home jobs making smaller cities and rural areas more appealing as the cost of living is cheaper. But, of course those places have shit infrastructure, shitty school systems, and zero investment. IMO the housing problem is mostly local, there's tons of places that have empty homes, they just aren't desirable places. For example the textile industries all left the Carolinas for Asia and there's so many little textile towns that are just a shell of their former selves.

 

[Rob Battisti]

Why would it crash? Couldn't it come down over time? Beyond that I don't think its good to artificially limit supply to maintain home values, that's what got us into this mess in the first place so if anything we need to increase supply as much as possible as quickly as possible so that housing can be more affordable right?

That's how I see it. There are lots of places with low housing costs and you will see some folks argue the idea that there is no housing crisis because you can just move to West Virginia where housing prices are low. But the engines of the nation's economy are its great metropolises like NYC, LA, and Miami so limiting how many people can live there and add to the overall size and agglomeration effects of these cities because of low housing supply would seem to be a hindrance.

It would depend on the rate in which the supply rose. I am not totally confident on the housing market but my best guess is when rates go down, prices will go up proportionally.

The unaffordability will remain the same.

The only real risk to me is if the supply rises too fast which would shock the system but I’m doubtful that would happen.

To your other point, yes if you have a NYC income you could move to WV but the wage wouldn’t come with you in most cases.

Just because less expensive areas exist doesn’t mean they are less expensive for the people who live there.

Nationally, housing cost is at an all time high when you look at income to housing expense. This is why Jacks comment about housing never being more affordable is very strange and I’d love to know his calculation.

 

[Rob Battisti]

i was really hoping one of the silver linings of Covid would be a shift to more work-from-home jobs making smaller cities and rural areas more appealing as the cost of living is cheaper. But, of course those places have shit infrastructure, shitty school systems, and zero investment. IMO the housing problem is mostly local, there's tons of places that have empty homes, they just aren't desirable places. For example the textile industries all left the Carolinas for Asia and there's so many little textile towns that are just a shell of their former selves.

This will exist forever though. You need decades of businesses with better paying jobs coming into the area before things turn around. Example: Austin.

 

[Jack V Savage]

I’d love to see how you came up with this

Memory. But it was a little off:

Spending on Housing: It Hasn’t Really Increased in the Past 40 Years

Are Americans spending more of their income on housing than in the past? Using data from the Consumer Expenditure Survey back to 1984, the answer is pretty clear: no. In fact, it has declined mildl…

economistwritingeveryday.com

Falling for housing over the past 40 years, flat for shelter (which is a narrower category). If you go back more than 40 years, there have been periods of lower spending on housing, though because of other relative price declines, what you see is a massive cratering in combined food, clothing, and housing relative to incomes.

Anyway, kind of a sideline to the post.

 

[Jack V Savage]

That's how I see it. There are lots of places with low housing costs and you will see some folks argue the idea that there is no housing crisis because you can just move to West Virginia where housing prices are low. But the engines of the nation's economy are its great metropolises like NYC, LA, and Miami so limiting how many people can live there and add to the overall size and agglomeration effects of these cities because of low housing supply would seem to be a hindrance.

Yeah. The housing issue is real, but I'm just saying it's a local issue with some national effects.

 

[rearnakedchoke]

Bidenomics works! Just because people screaming it doesn’t, doesn’t make it tru.

 

[Rob Battisti]

Memory. But it was a little off:

Spending on Housing: It Hasn’t Really Increased in the Past 40 Years

Are Americans spending more of their income on housing than in the past? Using data from the Consumer Expenditure Survey back to 1984, the answer is pretty clear: no. In fact, it has declined mildl…

economistwritingeveryday.com

Falling for housing over the past 40 years, flat for shelter (which is a narrower category). If you go back more than 40 years, there have been periods of lower spending on housing, though because of other relative price declines, what you see is a massive cratering in combined food, clothing, and housing relative to incomes.

Anyway, kind of a sideline to the post.

This is, of course, a terrible and inaccurate post and article.

In 1984 the median household income was 71% of the median household price. Today it’s 17%.

This doesn’t even account for the fact of mortgage interest rates. Going back even 3 years the same $400k house not including taxes would cost you $1300 a month versus close to $2300 today.

Yes, mortgage rates were higher in the 80s, but still as a % of income both rent and mortgage costs are substantially higher today compared to income.

 

[Jack V Savage]

This is, of course, a terrible and inaccurate post and article.

"Inaccurate" = accurate but not inline with your preferred narrative, no?

 

[Rob Battisti]

"Inaccurate" = accurate but not inline with your preferred narrative, no?

Is my data wrong?

 

[Jack V Savage]

Is my data wrong?

It's not the same data series. It's like if I said, "rainfall was X last year." And then you did your usual attack and added, "rainfall was not X five years ago."