Commercial PropertyCan Fed Restore Confidence After The Rate Cut?
This week, the Federal Reserve cut short-term target borrowing rates by 25 basis points, the third such cut in three months. And it was hailed for not kowtowing to Wall Street. After stocks plummeted nearly 300 points Wednesday, the Fed quickly came out with an appeasement plan.
The DOW Jones Industrial Average responded the next day with a 150-point surge.
If we keep throwing money at whiners, when will it ever end?
The Fed will be criticized no matter what it does, but this time Realty Times is joining in: Make up your mind. Enough with the bailouts, already.
When it lowered short-term target rates this week, the Fed explained that it was still watching inflation. At first such conservatism was applauded, and subsequent news proved the board of governors correct.
Just a few news items post-rate cut -- higher trade deficit, higher gas prices, rising imports. Sounds like a prescription for inflation to me.
The Commerce Department reported the U.S. trade deficit rose to the highest level in three months.
The deficit for October increased to $57.8 billion
The rise in imports to $199.5 billion is a record
Oil prices up to $92 a barrel. Does anyone remember that only five years ago, oil was $20 a barrel?
Adding to the spate of bad news, U.S. home repossessions in November were up 31.8 percent, according to Foreclosures.com. And the nation"s largest mortgage lender, Countrywide, has announced it is no longer making subprime loans. That"s a huge blow to 10 to 20 percent of potential homebuyers, if other lenders follow suit.
But despite those numbers, the rate cuts should be given time to work, because other news is positive. U.S. manufacturing is up slightly, and the National Association of Realtors says that the worst of the credit crisis is over.
But the Fed plans to join with other world banks to make more money available to commercial banks through a temporary auction facility.
If the Fed wants to help, why didn"t it simply cut the discount rate -- the rate at which banks borrow from the central bank?
The reason is -- it can"t. There"s not enough money, partly because the dollar keeps being devalued, and the Fed can"t go any lower due to inflationary pressures. How this move won"t devalue the dollar further is anyone"s guess.
One thing that"s sure to come out of this move is higher mortgage interest rates, at least until the bond traders are satisfied that inflation is truly under control, and that could be a long, long time.