The Fed's Twist May Increase Inequality

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    Oct 01, 2011 8:06 PM GMT

    If it succeeds in pushing down longer-term interest rates, relatively wealthy Americans may benefit more than others


    The Result: The Well-Off Become Better-Off

    Since the GSEs and banks won't budge much, struggling homeowners who need mortgage refinancing the most won't be able to take advantage of the low interest rates resulting from Fed's actions. Those who do grab those ultra-low rates will be the relatively affluent. Renters will feel no direct impact.

    Because home sales aren't likely to suddenly soar, any additional purchases will mostly soak up some of the huge existing inventory. That means a big jump in construction jobs isn't likely either. At best, we'll see a minor uptick in employment as firms hire to meet additional demand by those relatively affluent who have more money to spend thanks to their lowered mortgage payments.

    So in the short-term, the Fed's action will leave those in the worst situations hoping for a mere trickle-down effect. A handful might find jobs a little sooner, but the rest will be left either renting or living in a home with a relatively high mortgage interest rate. And many of those borrowers will remain underwater.

    In a sense, this action will widen income inequality. Think about what's happening here. Mortgage interest rates spur refinancing. Those who take advantage will obtain smaller mortgage payments, which will boost their after-housing disposable incomes. Meanwhile, those who are unable to benefit from the low interest rates will have the same after-housing disposable incomes as before.
  • conservativej...

    Posts: 2478

    Oct 02, 2011 12:43 AM GMT
    Amen. Now if you will please, pass the butter along with the salt and pepper.