Central bankers in Europe had a busy morning. The Bank of England raised rates to the highest level in 13 years, and the Swiss National Bank unexpectedly hiked interest rates for the first time since 2007. Back stateside, today we look at the Fed's message and new housing data.

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Today's newsletter, edited by Javier E. David, is 605 words, a 2-minute read.

1 big thing: A whatever-it-takes Fed

Fed Chair Jerome Powell takes media questions. Photo: Olivier Douliery/AFP via Getty Images

It was always going to be a difficult task to bring inflation down without triggering a major economic downturn. Yet the Federal Reserve's messaging this week suggests the central bank has accepted that the pathway to lower prices will undermine growth and jobs.

  • While the Fed seeks to avoid a recession, its leaders recognize that a whatever-it-takes battle against inflation will inflict collateral damage on the economy.

Why it matters: Inflation is now public enemy No. 1. So don't expect the central bank to relent and offer relief just because the stock market keeps dropping or layoffs start to surge, as they have in the past.

State of play: When prices surged last year, the Fed saw it as a temporary phenomenon. Then, starting late last year, it took a more aggressive stance and started tightening monetary policy ā€” at the time seeing a benign pathway in which growth would continue but inflation would come down.

  • Now, Fed officials give the sense they fear high inflation will become entrenched, and the Fed will do what it has to do to stop that from happening, damn the consequences.

What they're saying: "The worst mistake we could make would be to fail" in bringing down inflation, Chair Jerome Powell told reporters yesterday. "It's not an option. We have to restore price stability. We really do. Because it's the bedrock of the economy."

  • He said "there are pathways" to bring down inflation while keeping the labor market strong, but that "those pathways have become much more challenging due to factors that are not under our control," including the Ukraine war.

By the numbers: In forecasts published yesterday, the median Fed official now expects the unemployment rate to rise to 4.1% at the end of 2024, up from 3.6% now. In March, they had expected the jobless rate to hold steady for the next two years.

  • There is certainly nothing too alarming about a 4.1% unemployment ā€” it's been higher than that 80% of the time since 1947.
  • But there are no examples in recent decades of the jobless rate rising by half a percentage point or more in any context other than a recession. It's possible in theory, but in practice, it just doesn't happen.

In Powell's telling, bringing down inflation is ultimately in the service of a better situation for workers.

  • "We don't seek to put people out to work," he said. "But we also think that you really cannot have the kind of labor market we want without price stability."

The bottom line: This is going to be a bumpy ride for the economy, regardless of whether it ends up technically being a recession or not.

2. šŸ  Latest sign of cooling: Housing starts drop

Data: St. Louis Federal Reserve Bank; Chart: Axios Visuals
Data: St. Louis Federal Reserve Bank; Chart: Axios Visuals

There was a drop-off in homebuilding last month, with the latest data suggesting the housing market's momentum is slowing.

  • Housing starts fell 14% in May from the prior month to the lowest level in over a year. Activity is 3.5% below the same time last year.
  • Building permits, a proxy of future construction, fell to an annualized 1.7 million units, an eight-month low.

The bottom line: Builders are still breaking ground on new homes at a faster pace than at any point in the decade leading up to the pandemic, but construction activity is slowing.

  • It's difficult to say how much of that comes from ongoing material shortages versus softening demand from buyers in the face of rising mortgage rates.

šŸ“ˆ The average rate for a 30-year, fixed-rate mortgage rose to 5.78%, Freddie Mac said today in its latest weekly survey ā€” the highest since 2008.

  • The rate jumped over half a percentage point, the biggest one-week increase since 1987.