In Greg Ip’s Page One Article [Fed Suggests It’s Close to Ending Run of Rate Rises: New Manufacturing Data Underpin Officials’ View
Of Waning Inflation Risk [WSJ]](http://online.wsj.com/article/SB113631313219336678.html?mod=home_whats_news_us), “Federal Reserve officials are less worried about inflation and thus may raise interest rates just one or two more times in the next few months, minutes of their December meeting suggest.”
Language in the FOMC minutes suggests 1-2 more increases in the federal funds rate as economic data was weaker than expected.
>The minutes said Fed officials’ inflation concerns had “eased somewhat”
>since the previous meeting Nov. 1. They noted that slowing housing-price gains
>would restrain consumer spending, and that officials had to be “mindful of the
> lags in the effect” of past rate increases on the economy. These factors all
>weigh in favor of the Fed halting its policy-tightening soon.
My chief complaint with the Fed in the Greenspan, that it always seemed to me that they go 1-2 more rate increases than actually warranted, and it up loosening economic policy within 18 months. Its refreshing to see concern that the effects of their strategy has not taken full effect on the economy yet. In addition, the weakening economy and lower inflation threat may actually influence long term mortgage rates to decline within the year, which would provide stimulus to the housing market. Then again, it may not.
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I too often question whether the Federal Reserve is doing too much too soon, or too little too late (or some variation thereof). But the fact is they seem to get “it” right more often than they miss. Like the rest of us, they have to learn as they go along. And let’s not forget how many interests are at stake. Everyone from the President on down has their own agenda in mind, some of whom would benefit from one monetary policy, while others would do better by another, and so forth. And all this despite the political environment in Washington, which at times seems more reminiscent of the Cold War.
I think a great misconception is that higher real estate prices equal a healthy economy. While this may be true for a broad spectrum of real estate related industries and investors, it often becomes a detriment to other industries. Many businesses are faced with higher operating costs, be it in the form of increases in commercial rents or higher housing costs for their employees. When real estate values increased at a moderate pace, other economic factors compensated, (as with increases in worker productivity and consumer spending). During the past several years, this is how the US has maintained a healthy economy, despite a global economy awash in cheap labor. But what if real estate values increase “excessively”? That is, don’t we run the risk that increasing real estate values might overpower other (compensating) economic factors and create economic opportunity for geographic areas with lower operating and living costs?
So maybe the Federal Reserve is doing too much too soon, or too little too late. Or maybe “it” is just right.