This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Have low mortgage rates set the stage for inflation?

In recent years, the Federal Reserve Board's monetary policy has been focused on maintaining historically low mortgage rates to support the housing market through the recession. However, the lengthy period of low long-term interest rates has some concerned that inflation looms just around the corner.

To get a better understanding of whether consumers should be concerned that a prolonged period of record-low mortgage rates will lead to inflation, we interviewed Farrokh Hormozi, economics professor at Pace University, and Ray Hill, an economics and finance professor at Emory University.
Q: With the Federal Reserve's “easy-money policies” designed to combat the recession and promote economic recovery, some people are worried that we are setting the stage for a bout of hyperinflation. Do you think this is a valid concern; and, if so, why?
Farrokh Hormozi, Ph.D.
Chair of the Graduate Public Administration Program and Economics Professor at Pace University

A: Fear of inflationary effect from monetary policy such as we've seen from the Federal Reserve Board in recent years is not new. More than four years ago, people expressed concern that the “easy-money policy” of the Fed, particularly the quantitative-easing policy (QE), would lead to inflation - and rightly so, except for one thing. The underlying foundation of this effect is based on the simple, erroneous assumption that easy money generates excess demand feeding inflationary pressure.

This is elementary economics; however, there are two problems with this assumption:

First: The argument may be - or in fact is - valid in a closed economy, but not for the economy of the United States. In a closed economy, a limited-supply condition cannot support the excess demand generated by injecting additional money into the closed economy, thereby triggering inflationary pressure. But the American economy is not a closed economy, and the experience of the past quarter century supports that argument.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free


Chart of I:DJI
DOW 17,050.75 +138.46 0.82%
S&P 500 1,995.83 +15.91 0.80%
NASDAQ 4,810.7880 +19.6360 0.41%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs