- The Washington Times - Thursday, March 31, 2011

Last week, Dennis Lockhart, president of Atlanta’s Federal Reserve Bank, declared the recent jump in consumer prices will not last. Saying the recent surge in inflation was primarily because of food and gasoline prices, he said that “this trajectory will not persist.”

In recent months, the Fed has been accused of conveniently excluding rising food and energy prices when setting monetary policy. Mr. Lockhart defended the Fed’s policy.

“Contrary to popular opinion, Federal Reserve officials do actually eat and fill up their gas tanks,” he quipped in a recent speech.

Time will tell if Mr. Lockhart is right. Though the jobless rate fell to 8.9 percent in March from 9.8 percent in November, Mr. Lockhart said a big reason for the drop was “many people leaving the work force, presumably because they were discouraged.”

The jobless rate measures those who are unemployed and actively seeking employment. It excludes those who are unemployed but not currently looking for a job. Mr. Lockhart is suggesting that the unemployment rate is higher than stated. This also could be the case with the inflation rate.

Mr. Lockhart said the Fed can only control inflation over the long term, not day to day or month to month.

Perhaps Mr. Lockhart is right. Though recent economic reports generally have been positive and suggest an economic recovery, real estate remains in the pits. Housing starts remain low, resales remain low, and price appreciation remains low or nonexistent. As far as big-ticket items go, real estate is the biggest for most Americans.

From a consumer’s viewpoint, the notion of keeping the purse strings tied bears merit. The shock at the gas pump or in the grocery store is surely noticeable, but not heart-stopping. The improved stock market provides a sense of relief. The Dow Jones industrial average has jumped from about 10,750 in early October to over 12,000 today.

There is no evidence, however, that real estate prices are moving in a positive direction. The average American carries most of his wealth in his home. Depending upon when a home was purchased, many enjoyed huge appreciation and then lost much of it unless they sold at the right time. Millions of other homeowners bought at the peak and have watched their property values plunge.

Until real estate gets a shot in the arm, I don’t think the economy is headed for a speedy recovery. Let’s hope for continued low interest rates and a path toward prudent but reasonable credit extension.

Henry Savage is president of PMC Mortgage in Alexandria, Va. Send e-mail to henrysavage@pmcmortgage.com.