Cooling rent prices will bring inflation back to 2% next year, Treasury Secretary predicts

Treasury Secretary Janet Yellen says cooling rent prices will soon feed through into inflation figures, helping the Federal Reserve achieve its 2% target "as we get into next year."

Shelter costs have been one of the biggest inflation drivers since the beginning of the year, with rent prices growing nearly twice as fast as headline inflation.

But according to Yellen, there's often a considerable lag until rent prices are reflected in CPI data because surveys and lease renewals take time.

"That has been holding housing cost increases above normal levels. I feel pretty confident that is something that will come down over the next year and keep moving inflation down," Yellen said during an interview with Yahoo Finance.

Her prediction that inflation will return to 2% next year is more optimistic than Fed policymakers, who anticipate reaching this target only in 2026.

The latest figures from the National Association of Realtors show median house prices hit $419,300 in May—a new record high.

Yellen admitted that fixing the issue of housing affordability is difficult but stressed that the Biden administration "wants to use every tool we have" to help consumers.

One of them is a $100 million fund for affordable housing, which, according to Yellem, is meant to address the lack of supply that had led to surging property prices.

Vice President Kamala Harris said the investment is designed to "lower rents and help more Americans buy a home" and is part of a broader plan to build two million units of affordable housing nationwide.

During the interview, Yellen was also asked when she thought the Fed would cut interest rates. She said this would depend on economic data but that policymakers wouldn't delay a cut unnecessarily.

"They certainly don't want to cause a recession when it's unnecessary, and that's the balancing act that they have," Yellen added.

Election wooing

The new affordable housing policy indicates the Biden administration is keen to woo voters ahead of November's election. Polls have repeatedly shown that the economy is the top issue for voters as they head to the ballot box.

But a Reuters/Ipsos poll shows that, as of May 2024, Biden's disapproval rating has surged to 59%—the lowest level in two years.

The president has been attempting to shift some of the blame for elevated housing costs onto landlords, and even accused them of "rent gouging" earlier this year.

But that led to a backlash from the National Apartment Association, which criticized his rhetoric."It's far past time to remove politics from housing and help America’s renters," a statement earlier this month said.

While a step in the right direction, Biden's push for affordable housing may not be enough to win over voters.