home sales released last week suggests that sales will fall further. reflecting the slowdown in sales, builders have responded by pulling back on starting new single - family homes. so far, the contraction in housing demand has been more pronounced than the changes in supply, and so inventories of homes for sale have increased. while inventories of existing homes are still low in historical terms, they have grown a lot for new homes. based on the current pace of sales, estimates of the number of months of supply of new homes has shot up and is now nearing the peaks seen in 2008 during the previous housing cycle. the easing in housing demand can also be seen in a slowdown in house price increases. nationwide, prices of existing homes rose by about 20 percent over the 12 months ending in may, while they rose at an annual rate of less than 10 percent in recent months. prices have even fallen in some areas of the country, especially those that saw the largest increases over the previous two years. and many builders are reportedly cutting their list prices and offering larger incentives. the combination of price cuts and slowing of new single - family construction should help builders work off excess inventory, continuing to bring the market into better balance. in addition, after mortgage rates stabilize, their drag on housing demand should ebb. while this market correction could be fairly mild, i cannot dismiss the possibility of a much larger drop in demand and house prices before the market normalizes. despite the risk of a material correction in house prices, several factors help reduce my concern that such a correction would trigger a wave of mortgage defaults and potentially destabilize the financial system. one is that because of relatively tight mortgage underwriting in the 2010s, the credit scores of mortgage borrowers today are generally higher than they were prior to that last housing correction. also, the experience of the last correction taught us that most borrowers only default when they experience a negative shock to their incomes in addition to being underwater on their mortgage. because people still need a place to live, demand for rental housing has remained quite strong. rental vacancy rates are very low. reflecting this fact, multifamily construction has been quite high this year, at a level not seen since the mid - 1980s, when the tax treatment of investment in structures was much more favorable than it is today. but demand is still much greater than supply, so rents have continued to surge. 3 / 6 bis - central bankers'speeches so what does all of this mean for inflation

tomorrow's jobs report to alter my view that we should be focused 100 percent on reducing inflation. since i last spoke about the economic outlook on september 9, we have received two important pieces of data on inflation for august, consumer price index ( cpi ) and the price index for personal consumption expenditures ( pce ). 2 both reports confirmed that overall inflation remained much too high in august. though gasoline prices fell, which was very welcome news for consumers, food prices increased notably. core pce inflation, which strips out the volatile categories of food and energy, moved up to 0. 6 percent for the month, which implies an annualized rate of inflation of about 7 percent in core goods and services. furthermore, core pce inflation is not only high, but very 1 / 6 bis - central bankers'speeches persistent, with monthly prints of core pce inflation at an annualized rate averaging about 5 percent this year. these numbers indicate that inflation is far from the fomc's goal and not likely to fall quickly. this is not the inflation outcome i am looking for to support a slower pace of rate hikes or a lower terminal policy rate than projected in the september 2022 sep. and, though there are additional data to come, in my view, we haven't yet made meaningful progress on inflation and until that progress is both meaningful and persistent, i support continued rate increases, along with ongoing reductions in the fed's balance sheet, to help restrain aggregate demand. as far as achieving our dual mandate, this is a onesided battle. we currently do not face a tradeoff between our employment objective and our inflation objective, so monetary policy can and must be used aggressively to bring down inflation. let me turn to the troubling persistence of inflation. in the past couple of inflation reports, housing services has been a major contributor to measured inflation. in the latest inflation reports, shelter prices rose 0. 7 percent on a monthly basis. housing has a large weight in price indexes, as households spend a sizable amount of their incomes on housing services. the combination of high monthly inflation and a large weight in measuring overall prices means that shelter inflation is a key driver of overall inflation. moreover, shelter inflation is a particularly persistent component of inflation and why i am focused on closely watching shelter inflation in determining my outlook for u. s. inflation. unfortunately, the message is that shelter inflation will likely remain high for several months, meaning overall core pce inflation will continue to