Nobel prize winning economist Robert Shiller says the Fed has a very tricky job when it begins to signal a rise in interest rates. Shiller, who teaches at Yale, told WNPR’s Where We Live that there’s no historical precedent for the lengthy period of low interest rates that we’re living through.
He said it’s very hard to forecast how the economy will react to this critical turning point. "There’s a worry among many observers that there will be a major correction in the bond market, meaning long term interest rates will go up," said Shiller. He cautioned that he doesn't want to be alarmist, but that's a growing fear that he's observing. "And if that happens, mortgage rates will go up, it makes it harder to buy a house, home prices might go down and the stock market might go down," he went on.
Shiller also cautioned the federal government against policies that continue to advocate home ownership as the best vehicle for Americans to build wealth. He said relying on rising home prices is a dangerous mindset.
"It’s not an unambiguously good thing that they’re going up. Don’t we want affordable housing? Why is it good that home prices go up?" Shiller said. "I don’t think it is good, and I don’t think it should be an object of national policy."
Shiller recently issued the third edition of his classic on investment bubbles, Irrational Exuberance, first published at the height of the dot-com boom.
