Three indicators: Housing falls, the yen splutters, supply chain breathes : The Indicator from Planet Money When interest rates are on the up and up, the housing market tends to slide down and down. That, plus the declining value of the Japanese yen, and updates about the global supply chain on indicators of the week.

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Housing, yen, supply chains vs. the Fed

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And I'm Adrian Ma.

WOODS: For indicators of the week, we take three of the most revealing indicators throughout the economy, and we give you a little bit of a story behind them. So this week, for indicators of the week, we're joined by our colleague from Planet Money, Alexi Horowitz-Ghazi. Welcome to the show.

ALEXI HOROWITZ-GHAZI, BYLINE: Thank you for having me - crash-landing from across the monetary solar system.

MA: And, Alexi, you've beamed in during a pretty big week because this past week, everyone was looking at Jerome Powell, the head of the Federal Reserve, and looking at, like, what is he going to announce with interest rates?

WOODS: I mean, in the end, it wasn't that much of a surprise. It was three-quarters of a percentage point. I think a lot of people were expecting that. But yeah - a big week. So, Alexi, take us away.

HOROWITZ-GHAZI: Right. Today on the show - how this continued ratcheting up of interest rates is slowing down our housing market, plus, what other central banks around the globe are doing, particularly Japan.

MA: And finally, we revisit a supply chain indicator we introduced you to way back in January of this year - all of that coming up after the break.


WOODS: When Jerome Powell held his press conference on Wednesday announcing that the Fed was lifting interest rates, he gave some pretty interesting answers to journalists at the end of the talk at the Q&A. He was talking about various parts of the economy, what he saw happening, what he thought could happen in the future. And we just had to look further. So, first of all, we're going to focus on housing, which I think you have been looking into, Alexi.

HOROWITZ-GHAZI: That's right. My indicator is 6.29%, which is the current fixed mortgage rate in the U.S., according to Freddie Mac. And in fact, these are the highest mortgage rates we've seen since 2007. It's more than double what you would have paid to take out a mortgage a year ago.

WOODS: OK, I obviously waited too long.

HOROWITZ-GHAZI: One of the places where a lot of us might see the effects of these higher interest rates in the wild is in the housing market. Obviously, home prices have seen this enormous rise since the beginning of the pandemic, some 30- to 40% over the past couple of years. And I don't know where you boys stand, but as a casual Zillow-lurking millennial, this has all been a little bit depressing.

WOODS: Yeah, I protect myself by not going onto Zillow.

HOROWITZ-GHAZI: You know - 'cause, like, the idea of owning a home has just felt more and more out of reach. But we are not the only ones fretting over this. None other than Jerome Powell expressed his concerns over the red-hot housing market during that press conference on Wednesday.


JEROME POWELL: What we need is supply and demand to get better aligned so that housing prices go up at a reasonable pace and that people can afford houses again. And I think we...

HOROWITZ-GHAZI: Now, mortgage rates are not directly tethered to federal interest rates. It's not a 1-to-1 relationship. But they are set around what mortgage lenders and other financial institutions expect the Fed to do in the future. So these interest rate increases have helped push mortgage rates to this decade-long high, and that seems to be having an effect on existing home sales, which are currently down 20% from where they were last year, declining for seven straight months, and on house prices.

WOODS: All right. That's the money. That's the important one, right?

HOROWITZ-GHAZI: Exactly. That's the stuff of inflation. Numbers just released by the National Association of Realtors show that home prices are rising at a slower rate than over the past two years and that they've actually declined around 6% since June. It's the largest two-month decrease in almost a decade.

MA: It sounds like you're saying, like, in the big picture, we've gone from, like, astronomically high, to just, like, very high.

HOROWITZ-GHAZI: Yes, that's right. But it may not be time to start downloading that app again...


HOROWITZ-GHAZI: ...Darian...

WOODS: All right.

HOROWITZ-GHAZI: ...Because none of this is actually helping to address the fundamental problem on the supply side of the housing market. Housing inventory is still really low, so it'll likely be a long while before the market cools down for Zillow-curious youngsters like you and I to get into the game.

WOODS: Well, I hear that there is some market opportunities in the yen, though. So my indicator is 24 years. It's been 24 years since Japan's central bank tried to strengthen the value of the Japanese yen, which has been looking pretty weak recently.

HOROWITZ-GHAZI: Still young enough to date Leo DiCaprio.

WOODS: Yeah. Like, in the meantime, you could have been born and dated Leonardo DiCaprio. That's the kind of timespan we're talking about. And this sort of uncommon activity was foreshadowed in Jerome Powell's press conference on Wednesday. Jerome Powell was asked whether the Fed was worried about triggering recessions and problems overseas because by raising interest rates in the U.S., that creates a strong dollar. And from a foreign country's perspective, a strong dollar is terrible for their debt if they're denominated in U.S. dollars or for their consumers who have to pay higher import prices.


POWELL: We are very aware of what's going on in other economies around the world and what that means for us and vice versa.

WOODS: So soon after Jerome Powell's reply, Japan's central bank started selling its U.S. dollars and buying up yen to increase its value. And the background to all this is that Japan faces a really different economic problems than the U.S. Like, inflation is just not the same issue there that it is in much of the rest of the world. And unlike in the U.S. and other places where central banks are lifting rates, the Bank of Japan thinks that consumers are not spending enough. So it's encouraging them to spend by holding interest rates super low, like, close to zero - in fact, slightly negative. So it's really encouraging people and also businesses to take up these low-interest loans and to spend.

MA: I mean, what I hear you saying is that if we want to buy a house, we should move to Japan.

WOODS: Yeah. Like, the yen is really cheap at the moment. So as the Fed lifts U.S. interest rates, the gap widens between high interest rates in the U.S. and the super low interest rates in Japan. So currency traders move their money away from Japan and towards the U.S., and that means the yen plummets. And so the yen has been falling very fast this year. But it all got a bit too much for Japan's government. So the government is going in to fight back against the currency traders.

HOROWITZ-GHAZI: All right. Thank you for that, Darian. Adrian, you're up next. What do you got?

MA: So my indicator of the week, it has to do with, I guess, something connected to the root of what all these central banks are doing, which is trying to fight inflation. And during his speech this week, Jerome Powell talked about how a big part of inflation has been driven by a bunch of shocks to the global supply chain. Of course, you got the pandemic but also the Russia invasion of Ukraine and shutdowns in China driven by its zero-COVID policy. But there is a little glimmer of good news this week as far as the global supply chain goes, and that is because according to this thing called the Global Supply Chain Pressure Index, things are looking up. For background, the Global Supply Chain Pressure Index, it's an indicator that was actually created this year by some economists at the Federal Reserve Bank of New York. And what it does is it smashes together data on international shipping and manufacturing from the U.S. and Europe and Asia. And out of all that, they come up with a single number to try and gauge just, like, how chaotic and overstretched the global supply chain is.

HOROWITZ-GHAZI: That sounds like a very useful number. I wish I had one of those for my therapist.


WOODS: Alexi's Pressure Index.

MA: Exactly. I mean, so - and this is the beauty of an index, right? We actually talked about this Global Supply Chain Pressure Index back in January of this year, partly because we just wanted to celebrate the birth of a new indicator but also because we thought, here is a number that's going to help us understand how this pandemic economy is unfolding. Back in January, the index was at 3.6. Currently, it's around 1.5. That's my indicator - 1.5.

HOROWITZ-GHAZI: All right. 1.5. Doesn't sound too bad. Sounds kind of relaxed, like the supply chain had a spa weekend or something.

MA: (Laughter) Yeah. The point is, it's a good thing, right? One point five is less than half of what it was back in January, which means that delivery times have gone way down and manufacturers are working through a lot of their backlogged orders.

WOODS: That all sounds like it's an improvement to the system. But I imagine some of it is also, like, reduced demand, which is maybe a more complicated picture.

MA: Yeah. And that may not necessarily be a good thing depending on where you are in the economy. But, you know, inflation is essentially supply and demand being out of whack, and supply chain problems just make that worse. So less pressure on the supply chain means less pressure on inflation. But one thing to keep in mind here is that even though we are seeing this index go down, the New York Fed economists, they say that supply chain pressure is still at historically high levels. Congestion is still a problem at some U.S. ports. And, you know, we're not even near the holiday season yet, which means things could still get a lot more crunchy supply-wise.


WOODS: This episode was produced by Corey Bridges with engineering from Josh Newell. It was fact-checked by Kathryn Yang. Viet Le is our senior producer, and Kate Concannon edits the show. THE INDICATOR is a production of NPR.

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