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Inflation and the housing market
Policymakers at the Federal Reserve are expected to cut interest rates for the first time in four years, but will it help home buyers? Real estate expert John Adams explains what you need to know.
Inflation has made it almost impossible for first-time buyers to purchase a house. The Federal Open Market Committee of the Federal Reserve is meeting Tuesday and Wednesday afternoon, and it's widely expected to declare victory over inflation and begin cutting interest rates for borrowers. But will it help home buyers or simply cause prices to go higher? FOX 5 real estate expert John Adams explores the dilemma.
Whether you can afford to buy a house is a matter of supply and demand. Too many buyers want to buy too few houses, so the price goes up.
If we cut interest rates, more people can afford to buy, which causes more demand for the same supply, so the price goes up.
So, why do we have inflation in the first place?
The Eccles Building, location of the Board of Governors of the Federal Reserve System and the Federal Open Market Committee on June 2, 2016, in Washington, DC. (Photo by Brooks Kraft/ Getty Images)
1. Government alone causes inflation
Inflation is driven by the government’s actions — specifically, through deficit spending and the expansion of the money supply. When the government spends beyond its revenue and finances this by printing money, it devalues the currency, leading to rising prices. The government’s control of fiscal policy and the central bank’s monetary policy make them the sole creators of inflation.
2. Fiscal discipline is the only solution
To control inflation, the government must align its spending with its revenue. This means reducing excessive spending and fostering economic growth to naturally increase tax revenues. By balancing the budget or significantly reducing deficits, the government can avoid the need to print money and thus prevent inflation from spiraling further out of control.
3. The Federal Reserve can’t fix everything
While the Federal Reserve raised interest rates over the past four years in an attempt to manage inflation, this is only a short-term solution. Relying solely on interest rate manipulation is insufficient and unsustainable.
The real issue lies in government overspending and rising national debt, which the Fed’s actions cannot resolve. Long-term fiscal reform is necessary to ensure economic stability and safeguard the value of the dollar.
In 1955, Federal Reserve Chair William Martin made the famous analogy that in times of economic expansion the Fed should "remove the punch bowl" before the party gets out of hand.
The Bottom Line: The Party is Over
The era of easy money and unchecked government spending is causing inflation that’s making it harder for Americans to own their own homes.
We’ve got to face reality: inflation and national debt can no longer be ignored. Without immediate action to control government spending and pay down the debt, inflation will continue to erode the economy, leaving future generations to pay the price.
Congress must take responsibility and implement lasting fiscal reforms, as relying on the Federal Reserve alone will not solve these systemic issues. The time for action is now.