by Charles Hugh Smith
Of Two Minds
The Fed’s god-like powers will be revealed for what they really are: artifice and illusion.
The Fed will be proven catastrophically wrong about inflation for the simple reason that inflation isn’t transitory, it’s sticky: when prices rise due to real-world scarcities and higher costs, they stay high and then move higher as expectations catch up with reality.
Consider the dynamic of Fed-inflated bubbles raising rents. The house that once sold for $200,000 is sold to a pool of investors for $800,000, and the property taxes, insurance and debt service rise accordingly: even though the house didn’t change, thanks to the Fed’s bubble, the entire cost structure is higher.
So what happens next? The investors jack the rent up to cover the higher costs. As for refinancing to lower the monthly mortgage payment–that trend has reached the end of the line. As inflation gathers steam, mortgage rates can only go up, not down.