Federal Reserve chair Jerome Powell states that high home prices are not something the Fed can effectively address.

For many Americans, elevated home prices have put homeownership out of reach.

On Wednesday, the Federal Reserve reduced interest rates by 50 basis points, which will decrease mortgage expenses. Nevertheless, it's unlikely to halt the increase in home prices.

The "real problem" behind high prices in the U.S. housing market is a shortage of supply, which is beyond the Fed's control to remedy.

The National Association of Realtors predicts that there is currently a shortage of approximately 4 million homes in the U.S. Due to this imbalance between supply and demand, prices will continue to be pushed upward.

Powell's remarks were made following the Fed's decision to reduce its benchmark rate, which was based on the belief that year-over-year inflation would eventually reach the central bank's target rate of 2%.

Lowering the benchmark rate to a range of 4.75% to 5% could make mortgages cheaper, potentially bringing back buyers who were previously priced out of the housing market. With rates dropping, Powell also said that "more people are likely to start moving," which could boost home sales.

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The year-over-year increase in shelter costs, which account for about one-third of total spending, is higher than the Fed's target of 2%, with a 5.2% increase as of August, according to the Consumer Price Index.

Powell stated that the CPI's shelter costs often lag behind real-time prices, meaning the recent slowdown in home and rent prices may not be fully reflected in the CPI yet.

Although Powell believes that housing inflation is decreasing, he admits that it is unclear how much additional demand lower interest rates will create in the housing market and what effect it will have on home prices.

The best thing the Fed can do for U.S. households is to lower inflation and reduce borrowing costs by normalizing interest rates. However, the supply issue will need to be addressed by both the market and the government.

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