Saturday, June 21, 2008

Fed's Anti-Inflation Talk Weakens Housing Market

From Reuters, via CNBC:
The U.S. Federal Reserve's recent tough talk on inflation served notice to financial markets that the central bank was serious about tamping down price pressures, but it has hit the economy in one of its tenderest spots — housing.

Markets took immediate heed of surprisingly strong comments delivered by Fed Chairman Ben Bernanke and Vice Chairman Donald Kohn on inflation earlier this month and began to judge chances of a rate hike at the Fed's August meeting a near certainty.

But a side effect of this new respect for the central bank's commitment to price stability came in the form of elevated longer-term interest rates, which reflects a steeper than previously expected march up in the overnight borrowing costs that the Fed controls.

These higher long-term rates on Treasury securities have quickly translated to higher rates for fixed-rate mortgages, a drop in mortgage applications and a slide in home loan refinancing that could push the prospect of a strengthening in anemic economic conditions further into the future.

"The Fed's tougher line on inflation has had some benefits in terms of the firmer dollar, and has taken some of the steam out of commodity prices," said Mark Zandi, chief economist for Moody's "But it also has created some problems, the most obvious being...another hit to the already fragile housing market."


  1. The Fed's tough talk is just that, talk.

    All talk and no action is what the Fed has done and most likely all it will do.
    Has the Fed actually raised interest rates? No, it has only come out and said inflation is its main concern, but until the Fed actually raises interest rates to get inflation under control it is all lip service from Bernake and company.

  2. Great news! Let the housing market continue its crash.

  3. Mortgage rates have gone up. Housing has gotten less, not more, affordable.