erbank borrowing rate, the Federal Reserve can exert a more immediate impact on mortgage interest rate levels. In the spring months of 1994, the Federal Reserve acted on more than one occasion to raise interest rates in the American economy.
In the development and implementation of fiscal policy, both the President and the Congress can affect mortgage interest rate levels. Heavy deficit spending, which has occurred at historically high levels over the past 14 years, places pressures on the capital markets, which, in turn, often lead to mortgage interest rate increases. When one considers that mortgage interest rates fell in 1993, it might appear that the relationship described was not working. In fact, however, it was nominal interest rates that fell substantially. Real interest rates in the American economy remained high. High real interest rates are particularly detrimental to commercial real estate development.
Federal Reserve monetary policy actions designed to con
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