Hello,
I have a question from article “Greenspan’s Bogus Defense” by Robert P. Murphy (http://mises.org/daily/3394).
Firstly, could you explain me first chart in more details why mortgage rates from 2002 didn’t fall (disconnect from FED funds rate) and didn’t rise from 2004?
Moreover, what is the main idea of second chart, what explains difference between the federal-funds and mortgage rates? Could you explain me this in more details?
Thank you in advance
The first chart shows when Greenspan cut the fed rate in 2002, mortgage rates didn’t fall. This is because those in the mortgage market knew the rate wouldn’t be kept so low, so they didnt drop their own rates that far. In 2004, he pushed up the rate for a short time, but it he didn’t stay at it for long enough, as you can see by the plateau and then decline in the fed rate.
The second chart is showing that by comparing the difference between the fed rate and mortgage from the past 30 or so years, the difference in 02 and 04 were really nothing special. The difference in the fed rate and mortgage rate is just what the first chart was showing.
Hope that helps/
Thank you very much for explanations…