Mortgage & Loan: Interest Rate Stays, Home Sales Fall

Once again, Ben Bernanke starts wishing that Dean Glenn Hubbard was here now...

The word has just come out--the Federal Reserve has agreed to once again keep interest rates at 5.25%. The statement and the vote read almost exactly like the last one, right down to Lacker dissenting and the warnings about potential interest rates.

This was really all the Fed could do at this point. With two weeks before a Congressional election, Bernanke couldn't rock the boat too extensively in either direction. Tim Duy provided an analysis of what he expected to see from this meeting, and pretty much nailed it:

I expect the message they want to send is “With inflation rate uncomfortably high, rates will be held steady for the foreseeable future, barring a clear, sharp deceleration in economic activity. For now, our foot continues to hover over the break, not the gas.”

The way I see it, this is the best policy. As long as they don't veer too heavily in either direction, they can't do a lot of damage.

Meanwhile, a sure sign of how much damage has already been done came out today in the latest slump in existing home sales. Money quote:

However, analysts said that the weakness in housing could last for several more months with a real upturn in sales not occurring until next spring.

Sales were down in all sections of the country except the South, which posted a small 0.4 percent increase. Sales fell the most in the Northeast, a drop of 3.7 percent, followed by the West, where sales were down 3.1 percent, and the Midwest, where sales fell by 2.8 percent.

I may be totally off my rocker, but it seems that the collapse of the housing bubble may end up being what keeps us from the tipping point of recession as much as it may lead us there. As long as the bubble keeps deflating, the Fed will count on that (and lower gas prices) to offset the horror of--gasp--wage gains!!!! :) If there was ever a case of a cure being as bad as a disease, this is definitely it.

Posted at October 25, 2006 04:18 PM

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Once again, Ben Bernanke starts wishing that Dean Glenn Hubbard was here now... The word has just come out--the Federal Reserve has agreed to once again keep interest rates at 5.25%. The statement and the vote read almost exactly like the last one, right down to Lacker dissenting and the warnings about potential interest rates. This was really all the Fed could do at this point. With two weeks before a Congressional election, Bernanke couldn't rock the boat too extensively in either direction. Tim Duy provided an analysis of what he expected to see from this meeting, and pretty much nailed it: I expect the message they want to send is “With inflation rate uncomfortably high, rates will be held steady for the foreseeable future, barring a clear, sharp deceleration in economic activity. For now, our foot continues to hover over the break, not the gas.” The way I see it, this is the best policy. As long as they don't veer too heavily in either direction, they can't do a lot of damage. Meanwhile, a sure sign of how much damage has already been done came out today in the latest slump in existing home sales. Money quote: However, analysts said that the weakness in housing could last for several more months with a real upturn in sales not occurring until next spring. Sales were down in all sections of the country except the South, which posted a small 0.4 percent increase. Sales fell the most in the Northeast, a drop of 3.7 percent, followed by the West, where sales were down 3.1 percent, and the Midwest, where sales fell by 2.8 percent. I may be totally off my rocker, but it seems that the collapse of the housing bubble may end up being what keeps us from the tipping point of recession as much as it may lead us there. As long as the bubble keeps deflating, the Fed will count on that (and lower gas prices) to offset the horror of--gasp--wage gains!!!! :) If there was ever a case of a cure being as bad as a disease, this is definitely it.