Here’s a list of articles discussing the Federal Reserve’s rate move tomorrow at the close of the 2-day Federal Open Market Committee meeting. Oil-based inflation concerns have kept the pressure on the FOMC to keep raising rates.


One Response to “[List-o-links] Housing: Tipping Point For Fed?”

  1. Larry Littlefield says:

    Inflation is rising rapidly because the CPI bases its housing cost component on rents, which are also rising rapidly. With sales prices leveling off, if the CPI used those prices as a surrogate for the cost of owner occupied housing, inflation would seem lower and there would be no need to raise rates.

    HOWEVER during the bubble, as people exited rental units for owner occupied housing, rents were depressed, and that kept the CPI down. Yet if you did not own a home and wanted one, your cost of living soared — due in part to the effect of cheap credit –and the CPI did not reflect this.

    If the FEDs stop now, it would in effect have ended up using whatever measure of housing price inflation would make the CPI seem lower, and would have ignored housing price inflation on the upside and reacted to it on the downside — a Bernanke put. The result will be inflation and (yet another) transfer from younger generations to older onces.

    Housing price affordability relative to income is going to have to be restored, folks. There aren’t enough very affluent people willing to live as if they were poor for 40 years paying off 40 year mortgages to support the current prices. We’ll either have to have inflation, allowing at least some people’s income to catch up with today’s prices, or price cuts, or both.

    BTW, if the FEDs cut interest rates to support housing, foreigners could stop buying U.S. bonds, the dollar could tank, and rates could soar anyway.