Morici: As Fed Meets, Ordinary Folks Should Trim Spending
The Fed has been purchasing $85 billion in mortgage-backed securities and longer term Treasury Bonds -- economists call this quantitative easing.
These purchases have fueled, until recently, rock bottom mortgage rates and a much heralded surge in housing prices. The latter could well prove unsustainable, because Wall Street speculators have been doing a lot of the home buying, even as the demand for home ownership is the United States is actually waning. More Americans are choosing to rent -- many young families, saddled with huge student debt and earning less than their parents, can't consider purchasing a piece of suburb heaven.
The Zillow Survey of 105 economic forecasters, in which I participate, has the surge in housing prices slowing significantly in 2014 and 2015. This deceleration could turn into a housing market collapse if the Fed pulls back on easy money too quickly, and many more homeowners could owe more than their homes are worth.
Car sales and prices have been booming, as Ford
If you genuinely need a new car, this may be the best time to get that good deal on financing. Especially because auto loan rates will hit the used car market hard, lowering your trade in value.
Stock prices have soared -- investors can't get much interest on bonds, and dividend yielding stocks have been the best alternative. As the Fed pushes up interest rates, well-rated corporate bonds and the debt of the better-run state governments will become attractive, and stocks, especially dividend paying stocks, will lose their appeal.