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Why The Fed Needs to Raise Rates

fed raises ratesBack in my 1990s loan officer days, most of my business involved refinances as opposed to purchases.

As a result, I watched rates daily and resented Alan Greenspan every time he bumped the Fed Funds rate, even though I knew it was probably a good thing.

Everyone in real estate (both agents and loan officers) probably feels the same way b/c higher rates slow down our business.

This feeling even extends to our President, it turns out, as he recently criticized the Fed for raising rates (something Presidents are not supposed to do).

His perspective probably stems from his background in real estate.

The WSJ recently had a column addressing this same issue.

Economist Martin Feldstein was the author and his primary point was that we need higher rates now so that the Fed has some “ammo” to fight with when the next recession inevitably hits.

The Fed needs to sharply lower rates to stimulate the economy when it slows down, but the Fed can’t do so if rates are too low already.

Other reasons excessively low rates are bad for economies include the risk or creation of asset (stock and real estate) bubbles that usually pop, and the reliance upon debt financing for expansion (that can’t go on forever).

We can also look to Japan, as it has tried the low rate experiment for decades now, and it hasn’t gone well (to put it mildly).

Anyway – here’s to hoping the Fed keeps pushing rates higher.

Jay Voorhees
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646