The Fed, Deconstructed.

by Alex Stenback on May 4, 2005

ProofreadAs expected, the Fed raised key interest rate targets by .25% yesterday.  They even added a little drama by leaving out a key sentence until realizing their mistake and releasing a revised statement later in the day.

As usual, Barry Ritholtz over at The Big Picture has done a masterful job parsing what this move (and the accompanying statement by the FOMC) means for the markets, particularly as it relates to the ‘Real Estate Complex.’  Head over there and read up. [links below]  But just to pique your interest, here’s one passage we found especially interesting.

"…Real Estate remains the most robust sector of the economy.

It also reveals the reason why the Fed faces a Hobson’s choice is between a rock and a hard place:  Either keep raising rates, in order to cool off what is obviously a hot sector, which, while not quite a bubble yet, is at risk for becoming, one. The Fed missed the opportunity to let some air gently out of the tech stock bubble in 1999; surely, they do not want to (once again) miss [an] opportunity to avoid a bloodletting.

Ahhh, but here’s the rub: doing so risks smothering the most vigorous source of U.S. growth — the Real Estate complex of builders, contractors, mortgage underwriters, etc."

The Big Picture on The Fed: Parsing The Fed · Astounding Incompetence at The Fed · Impact of Fed on Short Term Trading · Economists React to The Fed

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