Wednesday, August 10, 2005

US housing boom vexes the Fed

This from BBC:
As the Federal Reserve raises interest rates in the US for the 10th time, its inability to control accelerating house price inflation is worrying analysts.

Put simply, in many parts of the US buying a home is now unaffordable for all but the most wealthy, and the Fed hopes a rates rise will help to start cool things down.

The boom has been fuelled by the record low mortgage rates, which fell sharply when the Fed cut rates after 9/11.

But so far, long-term interest rates, which determine mortgage rates, have stubbornly refused to move despite the Fed's 2.5% increase in base rates.