When the Federal Reserve announced a 0.75% rate hike at its November meeting, some may have been left wondering when the intended effects of credit tightening will be felt throughout the economy. The Fed has raised rates at each of its past six meetings to a target range of 3.75%–4.00%, the highest level since January 2008.

The answer from Fed Chair Jerome Powell following the latest rate hike was “it will take time” for the full effects of monetary restraint to be realized, especially on inflation.

On November 11, the Bureau of Labor Statistics released inflation figures for October that underscored Powell’s point. The Consumer Price Index, a key barometer of inflation, rose by 0.4% for the month of October and contributes to a 7.7% 12-month increase. While this was the lowest annual rate of growth since January of this year — and better than predicted — it remains well above the 2% Fed target.

As inflation continues its hold, it can be worthwhile to look at how rate hikes are impacting two key parts of the economy that have long been booming: the labor and housing markets.

Labor market continues chugging along

Ahead of the latest hike, the jobs market remained strong in October, as the country added 261,000 jobs and maintained an unemployment rate of 3.7%, according to data from the Bureau of Labor Statistics. Overall, the number of jobs added decreased from September’s gain of 315,000 new jobs, and the unemployment rate rose from the previous month’s 3.5% rate.

Despite October’s small decrease in hiring, Powell noted in a recent press conference that the labor market remains very tight. “The labor market continues to be out of balance,” Powell said. A continued labor shortage can push up wages, making it harder to rein in inflation.

Some signs of change in the housing market

Powell commented on the imbalance within the housing market following the Fed’s November meeting.

He stated: “The housing market was very overheated for a couple of years after the pandemic, as demand increased, and rates were low. The market needs to get back into a balance between supply and demand.”

Although the Fed doesn’t directly control housing prices — or mortgage rates — it does set the federal funds rate. During the early days of the Covid-19 pandemic, the Fed slashed the rate to 0% to help guide the economy toward sustainable economic growth, and mortgage rates followed downward.

After months of progressive increases in the federal fund rates and mortgage rates north of 7%, recent figures show the Fed’s actions may be starting to impact the housing market.

Existing home sales fell in September, the eighth month in a row of declines, according to the National Association of Realtors. Total existing home sales dropped 1.5% from August and were down year over year by 23.8%.

Although sales are down, inventory and prices remain relatively high. The median new house price in September was $470,600, a 13.9% increase from a year ago. The higher costs of purchasing a home may begin impacting housing inventory as buyers take a wait-and-see approach.

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