Yesterday’s S&P Case-Shiller composite 20 index of house prices rose 0.39% MoM (sa), in September, taking house price inflation up to 3.0%, and in line with personal disposable incomes growth. According to Research Analyst Rob Carnell at ING, “There is nothing wrong with this as the level of both existing and new homes for sale versus the prevailing rate of sales is low, relative to historical averages and demand in the US, whilst not exactly roaring, is ticking along nicely.” Moreover, at 3.0%, house price inflation is not threatening, and it has come back from (at its worst) a decline of nearly 19% (YoY) during the depths of the crisis. However, “The only real issue with all of this is that is makes the Fed’s continued attempts to convince us that policy is on hold not just through this year and next, but the year after and much of the year after that looking difficult to understand.” Carnell warns. Tying policy to the unemployment rate, as the Fed seems keen to do, ties super-accommodative policy to the most lagging of all economic indicators, and assumes that policy will still be incredibly loose right up until the point when there is no cyclical slack at all. Whilst we remain very relaxed about consumer price inflation, asset price inflation – housing for example – remains a risk.