They need to raise interest rates to tame extreme inflation, but not to the extent that they push the economy into recession. One major problem facing the US economy in this context is the level of gas prices. With a national average of $5, they are at their all-time high. That will help the Federal Reserve tame inflation as it means people have less to spend, but the question is at what price.

With interest rates rising, the interest rates on mortgages with a term of 30 years have also shot past the 2008 interest rates. This has a depressing effect on activity in the housing market, but so far the price declines have not been too bad. Homeowners have taken advantage of low interest rates in recent years by taking out new mortgages or refinancing at a low interest rate, causing house prices to go through the roof.


Interest rates are now going up and this is mainly reflected in activity. In the past year, activity in the housing market fell by 9.1 percent. High house prices and interest rates have exhausted the buying side of the market. It therefore seems only a matter of time before housing prices start to fall as a result of the Federal Reserve’s policy.

The dance between inflation and unemployment

At the time of writing, the U.S. unemployment rate is hovering at 3.6 percent. In the past 25 years, unemployment has been only four times lower than it is today. That’s good news for the Federal Reserve, as it gives them a little leeway in fighting inflation. Combined with inflation of 8.6 percent, however, that leeway is smaller than you might think.