Economist Warns of 'Doom Loop' Between High Rates and Housing Supply

Torsten Slok, chief economist at Apollo Global Management, warned clients about the unintended consequences of high interest rates on the housing market. Slok outlined a 'higher rates, higher rent doom loop,' suggesting that when rates are high, builders build less, leading to rising rents and sustained inflation. This warning followed the FOMC's unanimous decision to raise the benchmark rate by 25 basis points, targeting 3.75% to 4%. The Consumer Price Index remains at 3.4%, above the Fed's 2% goal.

The current policy environment presents a structural feedback loop for the Federal Reserve. Fed Chair Kevin Warsh now faces the challenge of curbing prices without inadvertently strangling the housing supply needed to ease inflation. Rapid swings in Treasury yields are also adding complexity to lending conditions.