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In a prepared speech yesterday, Fed Chairman Ben Bernanke said that inflation was "uncomfortably high" and remains a major concern for the Fed.
Over the past few weeks, the Fed has consistently said that it expects economic growth over the next year to fall in the 1-2% range, down about 1% from the current conditions. The Fed has reiterated time and time over that housing will lead the cooldown as the (anti-)Wealth Effect curbs consumer spending.
However, Bernanke specifically remarked that the slowing housing market has not yet slowed down other industries, as had been anticipated. Remember back to the Fed's last press release in which they wrote that a "cooling of the housing market" slowed economic growth.
If housing is not spilling over to the rest of the economy, the Fed may not get the slowdown they planned for. And, if the Fed no longer believes that housing will create a 1% drop in growth, we need to all be prepared and adjust our expectations of inflation.
Bernanke fired the first warning shot and he did it in plain English. Strangely, the market's reaction was muted. Mortgage rates held steady.
SourceFed Chief Optimistic of Soft LandingNell HendersonWashington Post, November 29, 2006http://www.washingtonpost.com/wp-dyn/content/article/2006/11/28/AR2006112800635.html
Parsing the FedWall Street Journal Online, October 25, 2006http://online.wsj.com/public/resources/documents/info-fedparse0610.html
Dan Green (NMLS #227607) is an active loan officer with Waterstone Mortgage. Email Dan ator call 513-443-2020.
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