History tells us that the Federal Reserve's inflation-fighting playbook starts with the U.S. housing market. It goes like this. The central bank begins by applying upward pressure on mortgage rates. Soon afterwards, home sales fall and homebuilders begin to cut back. That causes demand for both commodities (like lumber and concrete) and durable goods (like refrigerators and doors) to fall. Those economic contractions then slowly spread throughout the rest of the economy and, in theory, help to rein in runaway inflation.
That's exactly what we saw last year: The Fed started jacking up interest rates, mortgage rates spiked, and the U.S. housing market slipped into an old school housing downturn—with its hardest punch being packed out West.
