If housing's down, why are interest rates up?

The latest interest rate move by the Federal Reserve — a whole lot of nothing — has some readers, including Alvin in North Carolina, wondering why central bankers aren't doing more to help the ailing housing market by cutting rates. Hint: They're still worried about inflation. OK, asks Jeff in Sacramento, what exactly is inflation and what causes it?
If the housing market is in a slump, and it surely is, why is the Fed increasing the interest rates, which would make it even harder to qualify or get a loan mortgage?
In fact, the Federal Reserve’s latest move was to leave short-term interest rates just where they’ve been for the past 12 months. The Fed-controlled rate for banks borrowing money from each other remains at 5.25 percent. But that won’t help you if you’re trying to get a mortgage to buy a house. Over the past two months long-term mortgage rates — which are set by investors bidding on the price of money in the credit markets — have shot up half a percentage point.
For all the hoopla about the Fed’s interest rate deliberations, the central bank has only limited control over day-to-day changes in rates that home buyers pay. The official “federal funds” rate applies to very short-term loans — typically money that banks move around overnight to make sure they have enough reserves on hand.
The federal funds rate effectively becomes the wholesale price for money. When banks lend that money to you through your credit card or some other lending vehicle, they charge much more than they paid for it. That’s where bank profits come from.