The Federal Reserve has its sights set on taming inflation as prices continue to rise for American consumers. During a Wall Street Journal conference, Fed Chair Jerome Powell stated that the central bank was not counting out tightening policy past a neutral range for interest rates adding that "no one should doubt our resolve" in controlling rampant inflation. "We will go until we feel we're at a place where we can say financial conditions are in an appropriate place, we see inflation coming down. We'll go to that point. There won't be any hesitation about that," said Powell.

Americans are being hit hard with rising prices on pretty much everything while the Fed tries to make the softest landing possible coming out of the pandemic. The latest spending pain is once again gas as rising oil prices push the average well past $4, $5 and in some places $6 per gallon.

While part of the equation has to do with Russia's invasion of Ukraine, the lack of demand during the pandemic era resulted in less production. Now that demand has roared back there has been a tightening in the market due to the limited production over the last couple of years.

Americans are still spending despite the steep inflation. The Commerce Department's report shows retail sales up 0.9% month-over-month which was just shy of the 1% forecast. Speaking to CNBC, LPL Financial Chief Economist Jeffrey Roach said, "Retail sales in April show that the consumer is weathering the inflationary headwinds, rising for the fourth consecutive month. Core categories show signs that consumers are likely dipping into savings to offset the decline in real wages. If pricing pressures can moderate enough to relieve some of the pressure on consumers, we expect a rebound in economic growth in Q2."

Homebuyers are feeling the acute pressure of rising prices as they put bids in on homes and homebuilders are also feeling the strain. Homebuilder sentiment dropped to its lowest level since the onset of the pandemic falling 8 points to 69. While anything above 50 is considered strong, this is the fifth consecutive month that this measure has declined. The cost of materials to build a new home has risen by 19%, according to the National Association of Homebuilders, while the median cost for a new home in March of this year hit $436,700 (U.S. Census Bureau).

Mortgage rates continue to rise along with inflation but we did see a brief respite from increases in the week ending May 20. Freddie Mac's 30-year fixed rate mortgage average delivered May 19 shows the 30-year fixed-rate mortgage average was down slightly to 5.25%. Freddie Mac's economists note rates are contributing to waning purchase demand and declining homebuilder sentiment. 

Not surprisingly, existing home sales hit their lowest level since the start of the pandemic declining 2.4% month-over-month in April, according to the National Association of Realtors. The NAR shows that existing home sales were down 5.9% year-over-year and inventory at the end of April was a scarce 2.2-months supply. That means at the current pace we would run out of inventory in 2.2 months. The continued hope is that rising prices and rising interest rates will slow down demand enough to let the market settle down. The Mortgage Bankers Association shows that purchase mortgage application was down 12% week-over-week for the week ending May 13 and down 15% year-over-year. Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting, said in a statement, "Purchase applications fell 12 percent last week, as prospective homebuyers have been put off by higher rates and worsening affordability conditions. Furthermore, general uncertainty about the near-term economic outlook, as well as recent stock market volatility, may be causing some households to delay their home search."