These low rates encourage higher home prices by making mortgages cheaper, which means that buyers can afford to pay a higher purchase price because the low rates hold down their monthly mortgage payments to affordable levels.
The low rates encouraged higher stock prices in two ways. First, the ultra-low rates induced people and institutions seeking income from their investments to buy dividend-paying stocks that had yields in the mid single digits, which were double or triple the yields available on ultra-safe fixed-income securities they would have normally bought. Second, ultra-low rates increase the present-day value of companies’ projected future earnings.
And none of the asset-enhancing benefits of the Fed’s low-rate regime directly help increase the wealth of people who haven’t got much in the way of stocks or home equity. Many low-income people lost their jobs because of covid, or have to live in peril of losing them. On top of all that, they’ve got towithout any of the offsetting financial gains that more fortunate people are getting. Where I live, gasoline costs 50 percent more than a year ago, and food costs are up substantially. If you’re living paycheck to paycheck — or stimulus check to stimulus check — constantly rising prices are pretty scary.
The one upbeat thing I see is that the rising shortage of workers has led to wage increases, which lots of companies and lots of well-off people are complaining about.But you know what? Just as I think it’s fine for businesses to make profits, I think it’s fine for workers to take advantage of labor shortages to boost their income. If companies can’t find enough workers, let them offer higher wages and higher benefits until they attract the workers they need.
Yup.
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