AI Boom May Squeeze Mortgage Rates, Says Fed's Kashkari
Source: startribune.com
American consumers hoping for lower mortgage rates may be disappointed. Despite anticipated Federal Reserve rate cuts, other factors are at play.
Investment Shift
Minneapolis Fed President Neel Kashkari suggests a key reason. The massive influx of capital into artificial intelligence is diverting funds. This means less investment is available for housing.
Kashkari highlighted this at the Minnesota Star Tribune’s North Star Summit. He shared a panel with OpenAI’s chief economist, Ronnie Chatterji.
Limited Impact
Even with Fed rate cuts, mortgage rates might not drop significantly. Kashkari believes the returns on AI data centers are currently more attractive than housing.
Rate Cut Impact
The Fed controls the federal funds rate. This influences, but doesn't directly set, consumer rates. Mortgage rates saw a dip before a previous Fed rate cut, but the impact was minimal.
Dual Mandate
The Fed aims for price stability and low unemployment. It uses interest rates as a tool. High inflation typically prompts rate increases.
Political Pressure
Former President Trump previously pressured the Fed for rate cuts. He falsely claimed inflation was down. Kashkari emphasizes the Fed's independence. He says decisions must be based on data, not politics.
Economic Growth
Driving the economy too fast can lead to price increases. The Federal Open Market Committee prioritizes data-driven decisions.