one of the most interest rate – sensitive parts of the economy. we have seen that sensitivity in mortgage rates and mortgage originations. as shown in figure 4, 30 - year fixed - rate mortgage rates were close to 3 percent when the federal funds rate was near the zero lower bound in 2020 and 2021. rates surged in 2022 as the federal funds rate increased. consistent with the increase in mortgage rates, mortgage origination volume has fallen significantly. the current restrictive stance of monetary policy has weighed on the housing market. that is helping to bring supply and demand into better balance and put downward pressure on inflation. one aspect of inflation that has gotten a fair amount of attention is housing and rental costs. this is because housing costs make up such a large share of household budgets. to calculate housing services inflation, government statistics don ’ t use home prices because a home is partly an investment. instead, housing services inflation is computed using monthly rents that capture what tenants pay to rent a house or apartment and what homeowners would, in theory, pay to rent their own home. the way this calculation is derived means changes in market rents — or what a new tenant pays to rent — take a long time to pass through to pce housing services prices, as shown in figure 5. in this figure, notice that increases in market rents, the blue and red lines, peaked in 2022, and pce housing services inflation, the black line, lagged market rents and peaked in 2023. lags in housing services inflation the primary reason for this lag is that market rents adjust more quickly to economic conditions than what landlords charge their existing tenants. this lag suggests that the large increase in market rents during the pandemic is still being passed through to - 6existing rents and may keep housing services inflation elevated for a while longer. this observation is important because it is an example of one of the underlying sources of lags with which monetary policy affects inflation. another factor affecting pass - through of restrictive monetary policy is that fixedrate mortgages are common in the u. s. it is often argued that this loan structure dampens the effect of monetary policy. figure 6 shows that the 30 - year fixed mortgage rate is about 7 percent, while the average outstanding mortgage rate is about 4 percent. this lower outstanding mortgage rate is due to households who locked in rates during lowerinterest periods, including when the fed cut the target range for the federal funds rate to near zero shortly after

##ncies are lost. there is a flight to safe - haven investments, many of which are in developed nations. perhaps, given the circumstances, it was inevitable that the impressive and rapid growth experienced by the economies in the asian region would encounter a temporary slowdown or pause. i say temporary because there is no reason that above - average growth in countries that are still in a position to gain from catching up with the prevailing technology cannot persist for a very long time, provided their markets are opened to the full force of competition. nonetheless, free - market, even partially free - market, economies do periodically run into difficulties because investment mistakes invariably occur. and, as i noted earlier, many of these mistakes arose from government - directed or influenced investments. when this happens, private capital flows may temporarily turn adverse. in these circumstances, individual companies should be allowed to default, private investors should take their losses, and government policies should be directed toward laying the macroeconomic and structural foundations for renewed expansion. new growth opportunities must be allowed to emerge. although the economies of the troubled asian countries were usually characterized by a combination of current account deficits, large net foreign currency exposures, and constraints on exchange rate fluctuations, one cannot generalize that these are always signs of impending difficulties. large current account deficits, per se, are not dangerous if they result from direct investment inflows that are not subject to rapid withdrawal and that generate an increase in income sufficient to compensate the investors. foreign currency exposures need not be a problem if positions are properly managed and the risks are recognized. fixed exchange rates, also, are not necessarily a problem. indeed, if they can be sustained, they yield extensive benefits in lower risk and lower costs for all international transactions. but a small open economy can maintain an exchange rate fixed to a hard currency only under certain conditions. both austria and the netherlands, for example, have been able to lock their currencies against the deutsche mark because their economies are tightly linked through trade with germany, they mirror the bundesbank ’ s monetary policies, and they are perceived to engage in prudent fiscal policies. were it not for issues of national identity and seignorage, they could just as readily embrace the dm as their domestic currency without any economic disruption. other economies, such as argentina and hong kong, have fixed their exchange rates essentially through currency boards. changes in dollar reserves directly affect the monetary base of those economies. but when exchange rates are fixed, with or