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Fed Debates Pricking the U.S. Housing 'Bubble'

Contributed by mm | May 30, 2005 7:24 PM PST





I kind of feel by the end of the day, history will prove Fed is accountable for the housing bubble we are experiencing today.

From New York Times:

The issue of a possible housing "bubble," where prices become inflated by unrealistic expectations of even higher prices in the near future, poses difficult issues for the Fed.

Mr. Greenspan and other officials have long argued that it is not their job to influence the price of assets whether stock prices or real estate. Rather, they contend, the central bank's job is to keep inflation low and to promote the maximum sustainable growth without fueling inflation.

But the Fed faces an unusual problem: it has raised the Federal funds rate on overnight loans between banks eight times since last June, but long-term interest rates and mortgage rates are actually lower than they were one year ago.

The unexpected persistence of low long-term interest rates - which Mr. Greenspan called a "conundrum" in February - has driven the sales and prices of housing to record levels.
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