With a 9-month lag between rents starting to come down until OER moves lower, we are getting closer to the peak in housing inflation, see chart below. The fact that inflation is coming down before we see any deterioration in the labor market is very important for markets and for the outlook for a soft landing. The Fed hitting the dual mandate with first a decline in inflation and then an increase in unemployment increases the likelihood of a soft landing. If we had first an increase in unemployment with inflation still going up, it would increase the probability of a hard landing because then we would need more demand destruction from the Fed. The bottom line is that the sequencing of how the Fed reaches its dual mandate is key for markets.
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