The Fed’s efforts to fight housing inflation have backfired

CNBC’s Jim Cramer said Wednesday that the Fed’s “only way” to fight inflation is by raising interest rates “backfired.”

In its fight to curb housing inflation in particular, Cramer continued, the Fed has been trying for months to not only slow inflation but also reduce home values ​​and the cost of rent.

The reality is different. “Actually, the price hike, at this point, is boosting the price of shelter,” he said.

Cramer used a hypothetical real estate developer as an example, who is looking to take advantage of higher rents in a particular area. Typically, he said, developers will go to a bank (most likely a regional bank) to secure financing.

But due to the glut of money supply in the pandemic era, banks have stockpiled liquidity in long-term bonds, making it difficult to provide loans to this developer. Now that interest rates have been raised, Cramer said, those banks can’t sell those long-term bonds without realizing a big loss: a situation similar to what happened with the Silicon Valley bank crash.

Increased interest rates raise tougher lending standards, Cramer said, making it harder to get a loan from a bank, which in turn restricts the housing supply, meaning home values ​​stay high and rents don’t fall as much. The central bank would like.

“They beat themselves up,” Cramer said.

Fed Chairman Jerome Powell is a “prudent” president, but other, more hawkish policymakers want to keep raising interest rates, he said, whether or not there is an actual need.