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.
Posts
at 4.75 the economy may be near a recession- at 5%-likely. time will tell, but from my neck of the woods in Connecticut housing is slowing rapidly......another quarter point raise in rates will but a deep chill on it and the entire economy.
ReplyDeleteThe 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.
David
ReplyDeletecouple next door cannot sell their condo- some showings- no offer but one who backed out because of 'pet size restrictions' LOL
nothing since- a chill is setting in here quickly- I feel for this couple- in a divorce now- young- 20's- at least they bought over 3 years ago- but they have to be out soon- and there are no takers.
The Fed without publicly stating their intent is out to cool the housing market. They are pushing up rates so the use of hybrid loans lose favor and a return to traditional financing forces the market to slow.
ReplyDeleteHere in California, particularly the Bay Area we will see a correction based on this and the next increase in rates. The abuse and misuse of I/O, ARM's and Option ARM's has been so prevelant the market was going to tank on its own, the Fed is just pushing it along.
People have short memories, we have been having a series of small but noticable quakes here in the East Bay. The Hayward fault is waking up. I am willing to go out on a limb and predict a significant to extreme quake will more than likely happen here in the next two years. Probably in the spring or fall. When this does happen the losses caused will be very high due to the hyper-inflation of housing values here. Katrina will be considered a bargain when it comes time to rebuild the Bay Area.
Why someone is willing to spend so much money to live on top of timebomb is a curiosity to me.
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?
ReplyDeleteDear ben b.
ReplyDeleteThe grapes I have are nice and sweet.
I won't charge you to kiss my 47 year-old *ss. Now that's a bargain!
david,
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. :-)
The Fed will not go to 5.5% as people would really scream. They will see if long rates move from raising rates up to 5% or 5.25%.
ReplyDeleteWe still say 5-5.25% and 7.5% mortgages, and we posted why. Check it out if you want:
BubbleTrack.blogspot.com
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 think BB will be forced to keep going by a falling dollar. Given the government's finances buyers need to be found for new Treasuries on a regular basis, and that would be hard to do without attractive interest rates.
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!
ReplyDeleteskytrekker,
ReplyDeleteIf that couple would drop the price enough, it would sell. Heck, they bought in 3 years ago, even if they drop it considerably, they will probably still make a decent profit. They're still probably trying to get last year's price.
Stein
ReplyDeletethe RE Agent told them to 'market' the property compared to other local properties- I spoke to the man in the now finito relationship yesterday-she is gone- seems they want the max they can get- but with the unit not moving- and he sounding panicky- they may have to reduce the asking price- and soon.
Why 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.