Fed meets today and tomorrow, with the the central bankers’ interest-rate statement expected to be released at 11:15 Pacific Time on Wednesday. Just about everybody around town — around the globe, no less — expects no rate action this time around. The guessing game now centers on when the Fed might actually begin to raise rates to fight the latest perceived problem: Inflation. Here’s what some local observers told us they thought Fed boss Ben Bernanke and his crowd may do …
Economist Mark Schniepp of California Forecast: They’ll hold steady. Economy looking more stable than two months ago. Dollar is strengthening, core inflation is reasonable. Raising rates would risk deepening the havoc in housing. When will they raise again? When oil prices are clearly in decline. When mortgage rates are a little lower. When there is less risk that raising rates will produce increases in the indexes that adjust adjustable mortgages. So , not this year.
O.C. Treasurer Chriss Street: The Fed will stand pat on Wednesday. The real economy is already in much worse shape than is being reported and this is early in the down business cycle. The case for raising rates is the obvious piece of the iceberg you can see. Inflation is trending to the 4.5% or higher level. With the discount rate set at the 2% level, that means the real net interest rates are actually “negative” by about 2.5%. Present this to an accountant and the answer is clear that rates need to rise at least 50% of the spread to slow the economy and create enough “slack” to slow the economy down. Unemployment appears to be headed to 6% or higher. This is the big iceberg that you and the Fed should be very afraid of.
UC Irvine real estate professor Kerry Vandell: The Fed will hold steady. Bernanke is between a rock and a hard place: raising rates would help strengthen the dollar and stifle inflationary expectations but would further erode the housing and credit markets and drop us into a recession. Not to mention the impact anything very different from the status quo would have on the election. I do not see rates being raised until the spring, if then … depending on the state of the economy and the beginnings of recovery in the housing market.
Investment adviser Chip Hanlon at Delta Global: I would expect no move, but a change to the Fed’s language making it sound more hawkish toward inflation. And I believe that’s the current plan: speak loudly and carry no stick. At least “Helicopter Ben” has managed to discern that we have a wee bit of an inflation problem, which is a big step in the right direction for him, but I’ll only believe he has the stomach to boost interest rates when I see it. With the biggest investment banks still hemorrhaging and another big “credit crisis” shoe left to drop — in corporate real estate — I suspect Bernanke secretly has his fingers crossed that “jawboning” the U.S. dollar will be enough to bounce it back to respectability.
Investment adviser Eric Steingruebner of Euro Pacific Capital: I think that the Fed leaves rates unchanged at this point. They have really painted themselves into a corner. If they raise rates it will further crush the banks and what’s left of the real estate market, not to mention what it will do to already-strapped consumers overloaded with credit card debt. The Fed also can’t lower rates, because food and energy prices would further skyrocket, and the dollar would fall further and faster. If they do raise rates sometime in the near future, it would only be based on great economic news, and even then, would probably only be a quarter-point raise. They simply can’t “hike” rates at this point.
Lender Aaron Kopelson at Loan Link Financial Services: I believe the Fed will keep the Fed Funds rate at 2%. I believe they want to wait and see what incoming data reports in the six weeks leading up to the next meeting in August. They will keep a very close eye on inflation data. The Fed would very likely start to raise rates at theAugust meeting if inflation begins to runaway.
Other recent Fed-related news …
NationalBubble.com Says
June 24th, 2008 at 6:33 am
“are the bad news ever going to stop? I hope so because people can’t take it anymore.
Take a look at this”
My inclination is you would take out a billboard advertisement to get your message across were the globe to lose power.
“If there is anywhere to look for possible improvement, it would be that the pace of monthly declines has slowed down for most of the markets,” David Blitzer, chairman of the Index Committee at S&P, said in a statement.
Bubble,
You say “are the bad news ever going to stop? I hope so because people can’t take it anymore.”
Clearly you have not been listening to your bear brethern who have made it clear that any further reduction in the Fed interest rate means certain doom. So, this is obviously good news.
So, which side are you on, anyway?
Thanks SeekingAlfalfa for posting the link.
I see that according to the OFHEO report, the Pacific area (where California is located) is down 15% in just one year. The largest decrease of any area in the country.
Wow!!!
As you guys always say, we should focus on our own area (all real estate is local) and unfortunately, the numbers for the West Coast are horrible.
Thanks for providing this link. It gives us a good idea of how bad things are in California. Definitely, much worse than the rest of the country. I’ll add the OFHEO report to my blog shortly.
Houston we have another tr oll cluster. I wonder does he have a meeting at say 7:10 and say ok boys it is early and we need to get out there and show bubble what we are made of. Mull you post at 7:10,
alf you post at 7:22, and Vor you post at 7:31. Now we still have 30 other names so if we need em we will dig them up. Boys we got a whole to kill and its time to post. So get on your ips and lets paint this blog bull. Yee haw.
jake, the bulls get so nervous that they even post links that contradict their own agenda. lol
Forget lowering interest rates. Ben needs to send a check for 500K to every family in the country so we can pay down this mortgage debt, credit card debt, vehicle debt, student loan debt, etc. That would help us out.
Lowering interest rates can’t help us because we can’t borrow any more money!!!!
I have not seen alot of corelation between long term mortgage rates and short term interest rates.
Short term rates go up, dollar goes up.
Dollar goes up, oil goes down.
My call, short term interest rates up. Maybe even 0.5%.
It should be obvious to everyone that the fed will continue to print money to avoid recession. If you are not invested in foreign markets you are out of luck.
Will the tr oll nonsense ever end?
Bubbie we can only pray they cut yours off
Mr. Bubble,
While the tr*oll has clearly taken a bubble bath, that is kind of like beating up on some annoying nerd. It feels good but it does not accomplish much.
The tr*oll aside I think we need to be willing to take the time to look at the underlying trend that is causing this mess. And that is how information flows in our society. Our society does not run on whether information is present in the minds of a tiny group of individuals but rather how it is distributed over the larger society. So if a tiny group of individuals understood there was a bubble in 2004 it did not our culture until the masses got wiser in 2007. It clearly does not matter whether our tr*oll gets wiser. His only purpose is disrupt discussion here and he is fairly effective at that.
Again capital markets are suppose to fund industry and capital markets run on information. Now the general public does not have the background, time, or temperment to process information on the value of assets. Yet the general public is now involved in pricing commodities, stocks and houses as investments. This makes for an environment in which the public can be manipuated to mis allocate their resources which makes a few people rich and the country as a whole poorer.
Oil is a clear example. It sure looks like a massive manipulation of the auction process in the oil market. And what is this doing to our economy. Well it is bankrupting Ford and Gm. It is not just sending them a signal to be more efficient. It is pushing them into bankruptcy.
Now you might say ok then capital might flow to Ford and GM so they can make better cars. But no capital flows to Google so it can make a better search engine. Now if you are a computer scientist you can make an estimate as to how many people it takes to make a search engine. Believe me you cannot get 10 people to work on a cutting edge project efficiently. So Google or Microsoft do not need capital to write good programs. And these mega data centers chewing up power in the west are just more nonsense. Google is a bad idea set up to make big money because the public does not understand computer science nor finance. And they dont care either.
But say some engineers in India do make a better google and I could tell you just how to do so. (Hint take a look at Bill Gates book a road ahead). Then Google stock could plummet overnight and this could cause an economic disruption.
Technology is changing so fast that we really our experiencing “future shockg”. That is simply put people cannnot adapt to the rapid pace of change and they adapt coping mechanisms which are not truly adaptive.
And hence this blog. This blog could be more than a Springer board to argument. But it would require that people stopped talking to the trol= and start thinking for themselves. what a concept.
Bubble’s crockodile tears are a little much, even for this Cassandra.
Jake, you talk to the tro ll more than anyone else does.
Money Pit,
Not so actually. If I am correct the tr*ll makes up more than 90% of bullish post. 50 percent of the posts here are reponses to the tr*ll.
So assuming those figures 45% of the post are tr*ll related. I get annoyed by this and point it out, but my posting except in the last few articles is pretty small compared to that. Anyways the full record is here and could be scanned for accurate stats. I am too lazy to get the programs to do so.
jake you are a bona fide idiot. Your relentless tr oll hunt has made you lose credibility with even your own here.
Bubbie why don’t you invent a misery index so you can really get your jollies
We could have the misery awards…you know, like the Oscars?
Bill could host and Bubbs could produce–with full on 60 second infomercials for his website. Most newspapers could sponsor since they basically just print trash anyway. Jake could be the red carpet reporter asking every bull he sees if they are Mully, CBalls, Alfa, etc. Of course he would have to be Ryan Seacrest short to pull it off.
My guess is it would pull the same ratings as Sesame Street.
New homes where Eat it…Irvine? no. Talega? probably. Aliso? Maybe.
Tustin? no thanks…
Ladera? definitely
Micro markets bro
Regardless, if the new homes are lower than the existing homes even if they are not sharing the same neighborhood or area, they are competiting for market share.
Don’t forget all the boomers who need to sell and move away because they have the “home equity retirement plan.” How many people do you know with a mil in retirement funds? Even a mil gets you only 45K a year at current interest rates. And don’t even talk about the stock market, gone nowhere since the top of the bubble eight years ago. 12% annual returns, sure. The great mass of boomers are gonna try to sell to gen-y types making $10 an hour.
Joe and Jane boomer are now 54 and looking at the door. It’s gonna be ugly.
Don’t agree Eat it…too many areas here have no new construction.
Used, new, what does it matter? Prices are falling across the board. While the rate of decline may very at first, at the end of the day, this correction will not discriminate. Just wait till those fools who are stubbornly “waiting out the market” realize that there may in fact be something to those forcasts of 50% price declines. What happens when they realize that it might behoove them financially to take that 20-25% hit now before it gets any worse?
I hear your point Yogi….my point is if you want to live in Laguna Niguel, or Mission Viejo, your only new option is Ladera Ranch or Aliso…it pretty much takes you out of the “new mix” in the town you have decided upon. Now, you have mello roos to deal with as well…different birds altogether.