Once in a while this word pops up as a threat to the economy. This happened most recently a few weeks ago when it was revealed that consumer prices fell 2.1 percent over the last 12 months, the largest drop in 59 years. The doomsayers took that message and ran with it. If deflation comes it will be the result of a collapse of the world economy. However, the mainstream recognized that this drop in inflation was really the result of a moderation of energy prices. Remember, last year when oil prices were spiking towards $150 per barrel? The bursting of the oil bubble saw prices plummet to just over $30 per barrel in a matter of months and subsequently moderate in the $60 to $75 range.
Can the lack of inflation can be seen as good news? The Federal Reserve Board has indicated that even though the worst is over for the economy, a slow recovery is forecast and that means they need to keep rates very low for the immediate future. With no threat of inflation, there is no pressure on the Fed to reverse course too early. Low rates are absolutely essential to keep the economy moving.
This means that great deals for consumers on purchases such as cars and houses will continue for at least the next few months. Speaking of bargains, don't look now but the tax credit for first time homebuyers is set to expire in a few months. Bargains do not last forever and we cannot expect rates to stay this low in the long-term. The government is borrowing hundreds of billions to finance the deficit and when consumers start borrowing in an economic recovery, the good news regarding rates could end quite dramatically. We just hope that the economy is on firm footing if and when that happens so that we can enjoy the prosperity
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Keller Williams Real Estate |
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