Keeping Interest Rates Low could Return to Bite us

National Public Radio (NPR) reports Harvard economist Martin Feldstein says the Federal Reserve’s holding the interest rate down is assisting many borrowers in buying or refinancing a house, but it is also keeping some lenders out of the market because the lower interest rates reduce the profit margins lenders can make. In the long run he says it may contribute to a rise in inflation: “There’s serious risk that they’re producing asset price bubbles that, like all bubbles when they burst, could be very damaging.” He says the lower interest rates are inflating the value of assets like homes, as well as stocks and bonds. When the economy picks back up and the Fed changes course, the prices of those assets will fall and damage the economy. “It feels good now while it’s happening but I think it lays a trap for us later on,” Feldstein says. As MHProNews has learned, he says the negative effects of inflation and asset bubbles may be a few years away.

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