Federal Reserve, Inflation and Your Home

With the newly elected congress being dominated by Democrats, their economic vision could clash with the Federal Reserve Chairman, Ben Bernake.

Bernake is scheduled to make his semiannual address on the economy in February where Democrats, led by House Financial Services Chairman Barney Frank are expected to turn up the heat on Bernake. The Federal reserve could raise interest rates if inflation remains elevated. This in spite of the housing slump which is slowing the economy.

Some major issues Bernake can expect from congress include the slowing of economic growth over the past two quarters. The fact that Bernake is against trade sanctions with China. He feels trade with China will strengthen the yuan which will lead to controlling inflation.

The wage inflation issue will be a major issue. Bernake feels the boost in the minimum wage will only have a small effect on inflation overall, however the Federal Reserve panel says their preferred measure of prices rose to 2.4% during the year which is out of Bernakes comfort zone of 1-2%. If the wage increases are passed onto consumers in the form of price increases this could worsen inflation.

Mortgage Rates ( As of December, 08-2006 7pm eastern time)
15yr. Current- 5.35% Prior Month- 5.83%
30yr. Current- 5.29% Prior Month- 5.81%
1yr. ARM Current- 5.29% Prior Month- 5.36%

Source: www.bloomberg.com

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