Wednesday, March 17, 2004

The Fed isn't raising interest rates for now, but

Alan Greenspan, the Fed chairman, has warned that interest rates are too low to be sustainable indefinitely. At its last meeting on Jan. 28, the Fed's policy committee retreated from an open-ended commitment to keep rates low for "a considerable period."

So, sometime in the next few years, Greenspan expects that interest rates will be going up.

But he was also recently, in his usual somewhat oblique way, touting the benefits of adjustable-rate mortgages, observing that holders of fixed-rate mortgages "might have saved tens of thousands of dollars had they held adjustable-rate mortgages" instead. The reason the homeowners would have saved that money, of course, is that interest rates were dropping, and their adjustable rates would have dropped along with them.

Yet he makes his speech touting adjustable rate mortgages at a time when he clearly expects interest rates to be going up over the next few years -- raising the payments of anyone foolish enough to get an ARM now. It seems that Greenspan, the erstwhile disciple of Ayn Rand, has at long last discovered the value of charity. Toward the banks.


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