Balancing rising consumer prices and falling home prices, the Federal Reserve decided today to keep short-term interest rates steady.
Bankrate.com compares the Fed’s place in the economy to the pivot point of a teeter-totter in this helpful explanation of the potential ramifications of an interest-rate bump in either direction. Here’s a bit from that piece:
If the Fed were to raise rates to push overall inflation down, house prices probably would fall more — and if there’s one sure way to anger homeowners, it’s to threaten property values. According to the National Association of Realtors, half of the houses resold in January cost less than $210,600. A year earlier, half of the houses resold cost less than $217,400. That’s a 3.1 percent drop in the median price in a year.
If the Fed were to cut short-term interest rates, house prices might stop falling eventually, but prices for other things would rise even faster than they’ve been going up. In the 12 months ending in February, the consumer price index went up 2.4 percent, well above what is believed to be the Fed’s target range of 1 percent to 2 percent. When you exclude food and energy, consumer prices rose 2.7 percent in the 12 months ending in February.