The slowing of the growth of real GDP in the fourth quarter of 2005 seems largely to have reflected temporary or special factors. Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace. As yet, the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labor costs in check, and inflation expectations remain contained. Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures.
The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives.
So what happens during the remaining months of the year?
The Federal Reserve will not raise interest rates above 5.5%. The feds are probably scared that raising rates higher the 5.5% will send the economy into a recession.
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The recession is coming even if rates don't hit 5.5%. I was just talking about what the Fed is thinking about. They are also obviously concerned about inflation and the US dollar.
ReplyDeleteIt is a very thin tightrope. Economic pain is inevitable.
it is a very thin tightrope. Economic pain is inevitable.
ReplyDeleteSomething I read over at the Mess Greenspan Made blog: "it is like dragging a brick down a road...the brick has a tendency to get stuck and then fly into your teeth" or some such.
Interestingly enough. I just checked my ISP log and someone from the Federal Reserve Board just checked this blog shortly after today's Federal Reserve Board meeting. They saw this post. BTW, this person is a regular reader of this blog.
ReplyDeleteAh crap! I've been discovered! There goes my plan to burst the housing bubble so that the sour grapes on this blog can stop constantly complaining about how they won't buy any "overpriced" real estate. I do appreciate the free economics advise. It's value is equivalent to what I paid for it.
ReplyDeleteI can't find any reference to the Fed saying they won't raise interest rates over 5.5%...??? Can you link to the source?
ReplyDeletedavid,
ReplyDeleteHave you read "The Tipping Point" by Malcolm Gladwell?
I'm reminded of the general thesis of that book as we discuss the various "tipping points" in the econony that can change the way populations think about and view external events.
There appears to be a massing of various "tipping points"...(the rate hike being the most recent). My personal belief is that at some point the psychology of people will hit the "tipping point" and change rapidly and dramatically (in regards to housing) which will lead to a massive rush to the exits.
I'm just sayin'!
"I can't find any reference to the Fed saying they won't raise interest rates over 5.5%...??? Can you link to the source? "
ReplyDeleteThere is no source. It is my opinion.
Catherine,
ReplyDelete"Have you read "The Tipping Point" by Malcolm Gladwell? "
I have read parts of the book. Good point. The points made in the book are very applicable here. :-)
I know a person who just bought a house on top of that timebomb at the tune $750,000,but it's so worth it,the views,the extra room,the neighborhood,the schools,the "Oh shit" Why in the hell did we buy this house??!! Well come to mind after the QUAKE.
ReplyDeleteI would like to see some numbers on how the new rates will increase the monthly payments on a "typical" property, or how much will the cost of the properties must decrease to offset the increased monthly payments.
ReplyDeleteMy Official Rate Hike Prediction:
ReplyDeleteRaise to 5% at next meeting
Then a pause of an undetermined length, with 1 more rate hike by years end, leaving us at 5.25% at EOY
Bankruptcies SOAR - BUY MORE..MORE...MORE! Let's Start another War and SPEND our way out of these DEBTS. Remember the RE whores motto...Recession...Recession...Recession. They AREN'T making Anymore. Buy in while IT'S HOT!
ReplyDeleteWhy don't you go work it out then.
ReplyDelete"Anonymous said...
I would like to see some numbers on how the new rates will increase the monthly payments on a "typical" property, or how much will the cost of the properties must decrease to offset the increased monthly payments.
March 28, 2006 3:15 PM "
The slowing of the growth of real GDP in the fourth quarter of 2005 seems largely to have reflected temporary or special factors.
ReplyDeleteWhat "temporary" or "special" factors are you referring to?
Katrina
ReplyDeleteThe Fed never stops raising rates until they've caused a recession (read: depression).
ReplyDeleteYou people overlook what this rate hike also does to student loans that are not yet consolidated - that compounds the situation.