Tuesday Market Commentary: Fed Cuts Rates 75bps

by Alex Stenback on January 22, 2008

The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth.  While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households.  Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.

Fed Policy Statement on Surprise 75BP Rate Cut [Federal Reserve]

Remember, the Fed does not control mortgage rates.  Though the initial reaction in the mortgage bond markets has been positive, and rates look to be improving, it is very early to draw any firm conclusions from such an unusual (both in size and timing) rate cut.  There is a credible view that a cut like this may add to inflationary pressures, thereby forcing mortgage rates upward.

More on this as it unfolds.

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{ 1 comment… read it below or add one }

Nate January 22, 2008 at 3:38 pm

Well it seems clear which side of the fence the Fed is on now, with this aggressive move coming in an emergency meeting.

It may be able to calm parts of the stock market, but I don’t see how they can fix housing? Rates are already very low, the bigger issue is that banks are unlikely to repeat the mistake of making credit readily available right now. Without easy credit for everyone, can we get enough buyers to handle the existing inventory? I think investors will come back in at some point, but prices will have to fall so that rental income ratio’s are back in line for us to get there.

The Star Tribune had an article on our market yesterday, trying to be upbeat but cracks are showing.

1) The first half of 2007 was much better than the second half.
2) Foreclosures doubled in 2007, and so far look like they could double again in 2008.
3) Have to assume the reporting on a Minnesota/national recession, will have a negative impact.
4) It’s prtty bad when the most postive comments are that we aren’t as bad as California or Florida.

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