It's generally accepted among economists and investors that the Federal Reserve has an impossible task of getting inflation under control without widespread and lasting damage to the economy.
It's time for a reality check. In fact, it's looking more and more like the central bank may have a far easier time curbing inflation than is widely expected.
The reason why is that deep structural shifts in the economy caused by the pandemic, changes in the composition of the housing stock and an evolution in cultural norms have made household formation much more flexible than anytime in the past.
Perhaps more than anything, it's that last point that will be the difference between an economy that requires a sharp rise in unemployment to bring down inflation and one that simply needs a brief but firm tap on the brakes.
When the Fed began boosting rates earlier this year there was justifiable concern that the effort would backfire. After all, many of the drivers of inflation were outside the central bank's direct control.
Take residential real estate, for example. The Fed doesn't have any direct control over rents and what indirect control it does have tends to push rents in the wrong direction. A straightforward consequence of the Fed's tightening of monetary policy and the resultant jump in mortgage financing costs was that demand for homes fell.
The natural corollary to falling home demand should be upward pressure on rents. After all, if fewer Americans could afford to buy, doesn't that mechanically lead to more renters? That's a problem because the largest component by far in core inflation is shelter costs, or the user cost of housing.
The quandary, then, was how would the Fed bring down core inflation when the largest component is determined by rents and the central bank's primary tool — raising interest rates — was working to drive rents upward? The traditional answer has been to drive up unemployment.