The American Spectator

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(Page 6 of 10)

Arnold Ahlert br> Boca Raton, Florida /p>

In his article, "Depressed About Paulson," Philip Klein wrote, "Under Greenspan's leadership, the Fed slashed interest rates 13 times from January 2001 to June 2003, bringing the federal funds rate from 6.5 percent to 1 percent, where it stayed until mid-2004. By keeping rates so low for so long, the Fed helped push mortgage rates to their lowest levels since the Eisenhower era. That spurred stratospheric growth in housing prices and created the easy money environment that allowed banks to issue increasingly risky loans."

The Fed does not control long term (mortgage) rates. This assumption that many people have (that the Fed Funds rate somehow controls -- or even worse -- that it is synonymous with -- long term mortgage rates, is wrong. Mortgage rates are a product of market supply and demand (mortgage backed securities) and are primarily driven by inflation. If you want to see how mortgage rates are driven, simply watch the leading indictors of inflation such as the CPI.

p>Here's a case in point. The last six times that the Fed cut the Fed Fund Rate, there was a temporary drop in long term mortgage rates, but in each of those six cases, the long term rates rose. This flies in Mr. Klein's assertion that the "Fed helped push mortgage rates to their lowest levels..." through the lowering of the FFR. br> -- Don Layton /p> p> LAST ACTION HILLARY br> Re: Andrew Cline's American Woman : /p>

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