Fed Raises Rate Again, Reinforcing a House Shortage

This article was first published on NerdWallet.com.

The Federal Reserve raised a short-term interest rate a quarter of a percentage point on Wednesday to restrain inflation. As a result, the central bank is indirectly putting a floor under home prices. That's a paradoxical thing for the Fed to do when it's trying to get inflation under control.

The central bank's Federal Open Market Committee raised the federal funds rate to a range of 5.25% to 5.5%. Before the central bank met this week, mortgage rates had already gone up in anticipation of this Fed rate increase and possibly one other in the fall.

"Investors anticipate this change, and have largely already priced this raise into current mortgage rates, so we don't expect it to directly raise mortgage interest rates any further," said Orphe Divounguy, senior economist for Zillow, in an email.

Was this Fed increase necessary?

The Fed has raised short-term interest rates 5.25 percentage points since March 2022 to slam the brakes on inflation. The central bank has made progress: The core consumer price index fell from 6.6% last September to 4.8% in June. That's still higher than the Fed's goal, so it raised the federal funds rate again in this meeting.

But what if this increase...