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Breitbart Business Digest: The Housing Market Shows Interest Rates Are Too Low
The idea that interest rates are not high enough is beginning to gain a foothold at the Federal Reserve.Neel Kashkari, our esteemed monetary shepherd from the Minneapolis Fed, has once again taken to the digital pen with commendable transparency to point out that the economy is not behaving as you might expect it to if the Federal Reserve’s monetary policy were all that restrictive. Kashkari’s focus is on the housing market. This makes sense. Housing is considered one of the most interest-rate-sensitive segments of the economy because homes are typically purchased with mortgages. As a result, the housing market is one of the primary channels through which monetary policy is transmitted to the real economy. Here’s how that works. When the Fed raises its target for overnight interest rates for loans between banks, this tends to raise yields on longer term bonds because these are essentially just a series of short-term loans. Because mortgage-backed securities are a somewhat close substitute for Treasuries, mortgage rates tend to follow the yield on 10-year Treasuries. Higher interest rates make buying homes less affordable. They can either depress home prices or at least slow down the rise in prices by reducing demand. They also tend to slow down home building, which is an economically intensive activity that employs lots of labor, materials, and manufactured products. So, if you can slow down the housing market, you can probably slow down the economy and reduce inflation. Posted by: Skidmark 2024-05-09 |
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