Update: Fed Analysis and Commentary

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We’re updating our post on the Fed rate cut, as promised, with analysis:

In The New York Times, economic columnist David Leonhardt asks, ‘Will the Fed Reverse the Housing Slump?’ He answers, ‘Don’t count on it.’ Leonhardt lays out the possibility that we are in for housing price declines on the order of 20%, and warns, ‘The scariest part of a national decline like this is that it could be more like 40 percent in some parts of the country.’ He specifically mentions southwest Florida as a place at risk of a big price decline.

Pimco’s Bill Gross notes that, the last two times the Fed kicked off a rate-cutting campaign with a half-point cut, it was too late -- the economy was already on its way to a recession. He’s not predicting a recession, he’s just saying ... Gross sees another full point of rate cuts coming as the Fed tries to soften the housing downturn.

Old post below:

Good afternoon. You know the news, but here it is: ‘The Federal Reserve today slashed its key short-term interest rate a half-point to 4.75% -- the first cut of any sort in four years -- and added a half-point cut on a less-used rate, warning that tightening credit conditions could worsen the housing downturn.’

For the record, here’s what the Fed said about housing: ‘... the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally.’

Well, you can’t argue with that. Put plainly, the Fed says we are in a period of falling housing prices -- a ‘correction’ -- and it could be getting worse.

Your comments? Will half a point make a difference to home sales or prices in the next couple of months?
Photo Credit: Reuters