Want to borrow money for a car or a home this fall?
Oddly enough, the interest rates available months from now for big-ticket items may be determined by the prices you pay today for everyday consumer goods. When store prices are rising rapidly, policymakers start pushing interest rates higher, too.
But for the moment, at least, inflation appears mild enough to keep interest rates low for a long while.
The Labor Department said Tuesday that its consumer price index for June shows inflation running at an annual rate of just 2.1 percent — well below the historical average of 3.2 percent.
But instead of celebrating this low-inflation news, many economists are fretting about it. They look past consumer prices to see financial-asset prices. And they think too many of those, say tech stocks, are getting too expensive. They want interest rates to rise more quickly to tamp down those asset "bubbles."
This is turning into a huge, heated debate. Let's listen in.
Last week, Federal Reserve Chair Janet Yellen told Congress that maintaining low rates "likely will be appropriate for a considerable period" since inflation remains so tame. But Stanley Druckenmiller, a billionaire hedge fund manager, gave a televised speech criticizing the Fed, saying "the current policy makes no sense."
Fed critics see "bubbles" involving everything from stock prices to artworks to real estate in the Hamptons. They want the Fed to slow further price increases by making borrowed money more expensive.
Many economists say that's exactly what the Fed did back in 2000 when its interest rate hikes were followed by the sudden deflation of tech-stock prices.
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