What we talk about when we talk about affordability
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Anyone in politics can tell you that "affordability" is primed to be the number one issue on voters' minds as we head into the 2026 midterms.
But affordability is a catch-all term and, among policymakers, there's less consensus around how to fundamentally address cost-of-living concerns that have dragged down President Donald Trump's approval ratings.
Is it prescription drug prices? Health coverage premiums? Sticker shock at the meat counter? Electricity bills? All the above? Morning Money asked more than a dozen economists and policy wonks for their view on what sector, good or service is having the largest impact on the public's perception of affordability.
The most cited answer: It's housing.
— "For many households, the promise of building wealth through homeownership has not been within reach in recent years," said Matthew Luzzetti, the chief U.S. economist at Deutsche Bank, citing the National Association of Realtors affordability index. "That has been a key factor behind the apparent divergence between some measures of economic strength and the common perception that the economy is not in good shape."
— Stephanie Kelton, a professor of economics and public policy at Stony Brook University and a former adviser to Sen. Bernie Sanders (I-Vt.), noted that home prices have climbed by more than 50 percent since just before the pandemic, and the 30-year fixed mortgage rate has risen by more than more than 75 percent, and home insurance costs are up nearly 50 percent.
And those who've seen their wealth expand as home prices soared — as is the case for many with low-interest home loans (or no mortgage at all) — aren't immune from the doom and gloom.
"A couple of years ago, my son (18 at the time) said, 'I'm never going to own a home,'" Kelton wrote in an email. "This is a gut-punch for millions of parents, including those of us who are comfortably locked into a ~3 percent mortgage."
— David Kelly, the chief global strategist and head of the Global Market Insights Strategy Team for J.P. Morgan Asset Management, made a similar point: "Younger households can't afford the rent, can't afford the mortgage and are finding it very hard to achieve the homeownership that their parents had attained at an earlier age."
The challenge for Trump is that housing affordability is not something that's easily resolved (h/t Cassandra Dumay).
The economic conditions that gave rise to the national housing shortage didn't occur overnight. Pricing and wage growth trends were weighing on aspirant homebuyers well before the president took office. The pernicious housing shortages in major metro areas were decades in the making. And homebuilder sentiment has been dinged by tariff and immigration policies that are central to Trump's broader agenda.
Lower interest rates would obviously help — which partially explains Trump's frequent harangues against Federal Reserve Chair Jerome Powell — and the president's signature tax bill included changes that could boost the supply of rental units. Trump pledged last month to unveil "some of the most aggressive housing reform plans in American history" in early 2026.
Beyond housing, the other factors experts cited as having a pronounced impact on the public's sentiment on affordability — a slowing labor market, utility costs, health and child care service inflation — show little signs of fading. And the pessimism we're seeing in political surveys and consumer sentiment has grown acute during a period of relative economic stability.
Workers' earnings climbed faster than inflation over the last year, according to the Labor Department. Consumer spending has remained solid — largely thanks to the wealthy — but household balance sheets are in good shape.
None of that screams "affordability crisis." But it suggests that higher price levels will only further dim sentiment — particularly if the labor market continues to soften.
"If anything, the weakness in the economy, objectively speaking, was more the slowdown in job growth and the rise of the unemployment rate," said Jason Furman, a Harvard professor who served as President Barack Obama's top economist. "I would not be surprised if that continues and becomes the bigger political issue this year."
It's MONDAY — Welcome back! We hope you're rested and ready for what's going to be a very, very busy 2026. As always, send all your econ policy thoughts, Wall Street news, personnel moves or general insights to me at: ssutton@politico.com.
DRIVING THE WEEK
MONDAY … The ISM Manufacturing Index is out at 10 a.m. …
TUESDAY … Richmond Federal Reserve Bank President Tom Barkin will speak at the Raleigh Chamber Economic Forecast 2026 at 8 a.m. …
WEDNESDAY … The ADP employment report for December is out at 8:15 a.m. … The Labor Department will release the job openings and labor turnover report for November at 10 a.m. …. The ISM Services Index is out at 10 a.m. … The Federalist Society for Law and Public Policy Studies holds a virtual discussion at noon on "Regulation and Fair Access to Banking" … Federal Reserve Vice Chair for Supervision Michelle Bowman delivers remarks at the California Bankers Association's 2026 Bank Presidents Seminar at 4:10 p.m. …
THURSDAY … The Labor Department will release productivity estimates for the third quarter at 8:30 a.m. … The Securities and Exchange Commission has a closed meeting at 2 p.m. …
FRIDAY … The Labor Department will release the jobs report for December at 8:30 a.m. … Minneapolis Fed President Neel Kashkari gives welcome remarks and participates in a fireside chat at the regional bank's virtual 2026 Regional Economic Conditions Conference …
Venezuela
What's next? — The overnight military operation that led to the capture of Venezuelan leader Nicolás Maduro was a major event whose ripple effects may soon be visible in Taiwan, Cuba and other geopolitical hotspots, POLITICO Magazine reports. While Trump has asserted that the U.S. will "run" Venezuela in the near term, the next steps are hazy, per Nahal Toosi.
— Secretary of State Marco Rubio on Sunday asserted that an oil "quarantine" gives the U.S. leverage over Venezuela's government, which is now led by Maduro's hand-picked oil minister and Vice President Delcy Rodríguez, whom The WSJ describes as a "hardline socialist."
As hard as it sounds — The future of Venezuela's economy will depend on its massive oil reserves. For years, U.S. oil companies have been angling for ways to reclaim assets that were seized by Venezuela's government nearly two decades ago. Now, Trump wants U.S. industry to take immediate action. That's a tall order, Ben Lefebvre, Zack Colman and James Bikales report.
— More from Ben, Zack and James: "People in the industry said the administration's message has left them still leery about the difficulty of rebuilding decayed oil fields in a country where it's not even clear who will lead the country for the foreseeable future.
— 'They're saying, "you gotta go in if you want to play and get reimbursed,"' said one industry official familiar with the conversations … 'But the infrastructure currently there is so dilapidated that no one at these companies can adequately assess what is needed to make it operable.'"
In the meantime — OPEC+ is sticking with plans to pause oil supply increases as it assesses the fallout of Maduro's capture, per Bloomberg.
And there's a prediction market angle — From Herb Scribner of Axios: "Traders on Polymarket appeared to anticipate Maduro's capture late Friday night, before President Trump announced it early Saturday morning."
Trade
MIA — More than two months after Trump and Chinese leader Xi Jinping's "amazing meeting" in South Korea, there's still no formal language outlining the terms of their agreement, Phelim Kine and Ari Hawkins report. The fuzziness around the terms is lowering expectations for a broader trade deal in 2026.
Blocked — Over the holidays, Trump blocked U.S. photonics firm HieFo Corp's $3 million acquisition of Emcore, a New Jersey-based aerospace and defense firm. The White House asserted that HieFo is "controlled" by a Chinese citizen, and that the deal "threatens to impair the national security of the United States."
At the regulators
While you were out — The U.S. District Court for the District of Columbia ordered White House budget director and acting Consumer Financial Protection Bureau chief Russ Vought to cease efforts to shutter the bureau while the courts consider a lawsuit brought by the National Treasury Employees Union, per Aiden Reiter.
The Economy
Wages up — The minimum wage in 19 states climbed at the start of the year, CNBC's Natalie Wu reports. The increases will add an estimated $5 billion in earnings nationwide, according to a December report by the Economic Policy Institute.
Outlook — Torsten Slok expects the U.S. economy to continue to expand in 2026, but "growth will likely soften over the next few quarters as tariffs continue to be implemented, while inflation remains above target at 3 percent, keeping interest rates higher for longer," according to the Apollo Global Management economist's year-ahead white paper. Headwinds are also emerging in the form of student loan balances and growing divides between wealthy and low-income households.
Fed File
Ch-ch-ch-changes — From the Brookings Institution's Aaron Klein: "Trump's attacks on Fed independence are likely illegal, and the consequences of him personally ordering dramatic interest-rate cuts could be profoundly harmful, but preserving the status quo would also be a mistake. The central bank has long abused its power in ways that benefit the financial sector at the expense of everyone else."
Wall Street
More Trump-branded crypto — Declan Harty reports that Trump Media & Technology Group — the Truth Social parent company whose largest shareholder is Trump — plans to offer its shareholders a new crypto token "in the near future." Shareholders will be eligible to receive one of the tokens for every share in Trump Media stock they own, the company said in a statement.
Don't stop — The S&P 500, Nasdaq, Dow Jones Industrial Average and Russell 2000 small cap index all posted double-digit gains last year. Wall Street analysts think the bull run will continue in 2026, per The WSJ's Krystal Hur.
Jobs report
Former Commodity Futures Trading Commission official Amir Zaidi is returning to the agency as newly minted Chair Mike Selig's chief of staff, per Declan.
Josh Wilsusen has rejoined Morgan Stanley as a managing director and head of government relations. He was previously the executive vice president and senior government affairs officer at the Securities Industry and Financial Markets Association (SIFMA) and was counsel to the House Financial Services Committee under former Chairman Michael Oxley (R-Ohio).
The Mortgage Bankers Association has hired Alexandra Brinton as its next vice president and chief financial officer. She joins the MBA from the American Association of Airport Executives, where she served as controller.
