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INFLATION AND INTEREST RATES. Gold hit $500 per oz. last week, the first time it's reached that mark since 1987, a sign that inflation may be heating up. To avoid that, the Federal Reserve has been boosting rates for two years, making all borrowed money more expensive. That troubles Jodi Legge, 41, of Hudson, Wis., who expects that her home-equity debt is going to cost more every month. So she and her husband Ed are sticking to the holiday budget they agreed on. Still, "we haven't cut back," Jodi says, although she's redirecting money to more practical places.
HOUSING. Everyone is worried about a bubble that could burst as interest rates rise, forcing millions with floating-rate mortgages to come up with more cash each month or sell. Yet when it comes to shopping right now, such troubles are a distant concern. Lucy Garrett, 55, an analyst for the Denver Public Schools Retirement System, has been in her house for 28 years and upon selling her deceased aunt's home this year realized how much equity she has built. So if she inadvertently busts her careful Christmas Club budget, she says, "I know it would be O.K. because I have money in other places."
Next Christmas, though, may be a different story for many as the impact of higher costs for food, fuel, medicine and mortgages comes home to roost. And by then, says Mark Zandi, an economist at Economy.com home prices may be stagnant or edging lower. That's when the "home ATM will shut down," and with it, possibly, the spending urge. Energy costs are draining our budgets ... $56.46 - Price per barrel of oil West Texas intermediate crude
...mortgages and other rates are on the rise ... 6.33% - Fixed-rate mortgages Average 30-year
... the housing market is beginning to cool ... 7.09 million – Existing-home sales (in millions) Seasonally adjusted
... and credit card debt is at an all-time high... $801.5 billion – Consumer credit debt (in billions) Revolving, seasonally adjusted
Sources: Department of Energy; Freddiemac.com Realtor.org Federal Reserve Board
TIME POLL
How would you rate economic conditions in this country today? 4% Excellent 29% Good 42% Only fair 24% Poor
On your holiday shopping this year, are you spending ... ... more money than last year? 15% ... less money than last year? 38% ... same amount as last year? 46%
This holiday season, are you spending more money on ... ... practical items? 73% ... luxury items? 16% Don't know: 11%