Secret #64 – The Fed’s Mandate is Stable Prices… EXCEPT House Prices

House prices have NOT been included in the U.S. Consumer Price Index since 1982. 

House prices are one of the most sensitive parts of the economy to interest rates. Nowhere else can you buy something with only 5% down and borrow the rest of the money with a 30-year loan. 

Lower interest rates increase the demand for houses more than anything else households buy and that eventually leads to higher house price inflation but NOT higher general inflation as measured by the Fed because house prices aren’t included in how the Fed calculates inflation anymore.

That 1982 change in the way the U.S. calculates inflation did, however, help the Fed “lower” its published inflation rate. An easy way to lower inflation is to measure it differently.

Some other countries do include house price inflation when calculating their inflation rates.