Update: Fed: Housing correction "intensification"

Good afternoon. We've been stuck in meetings, we apologize. As you know, the Fed cut rates today by a quarter of a point. You can read the Fed's statement here. The headline quote:  "Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance. However, the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction."

We read this two ways: the credit crunch eased somewhat, but the Fed sees more economic trouble coming from the weak -- weakening? -- housing market. Is the housing market weakening? Technically, the Fed didn't say that -- it sees that as a likely possibility.

Update: Commenter Cal writes, "You don't think they are saying housing is weakening? Intesify a correction? How could it mean anything but?"

Fair point, let us explain our hair-splitting here, because we believe the Fed is in the hair-splitting business: The Fed said is likely the economy will slow "reflecting the intensification of the housing correction." There are two ways to read this: one is that the housing correction has already intensified -- gotten worse, and it's likely that will hurt the economy; the other is that the housing correction will get worse in the future, and it's likely that hurt the economy going forward. As we said, it's splitting hairs, but it allows the Fed to have it both ways.

Our take: We think the housing correction has intensified in recent weeks, and will intensify further.

Your thoughts? Comments? Email story tips to lalandblog@yahoo.com
Photo Credit: Reuters

Comments

[Cal]

"reflecting the intensification of the housing correction"

You dont think they are saying housing is weakening? Intesify a correction? How could it mean anything but.

They are trying to contain the damage but know they cant do a darn thing about housing itself, it has to run its own course.

[MyLessThanPrimeBeef]

Usually, after gorging on a big meal, you need to take a nap, not injecting yourself with steroids so you can go out and run a marathon.

[Jax]

Just peachy & wonderful news! NOT!!!! Now, the Fed is going to punish the responsible people some more for saving their money and not being part of the housing fiasco for the last few years. Did you also notice that the Canadian dollar is now worth more than the US Dollar (up from .65 cents to the USD just a few years ago)? And that the Euro is at a record high (around $1.44 to the USD and was only worth around .80 cents to the USD a few years ago)? Folks if you have any savings or securities in US dollars, they're worth less and less due to the inept U.S. Govt. Of course, spending over $100 billion a year for the Iraq war isn't helping the situation.

[Toby]

Did you also notice that the Canadian dollar is now worth more than the US Dollar (up from .65 cents to the USD just a few years ago)? And that the Euro is at a record high (around $1.44 to the USD and was only worth around .80 cents to the USD a few years ago)?

Posted by: Jax

Actually, a weakened dollar in a global community is a good thing. The less our dollar is worth in the cheaper our products are. The cheaper our products cost, the more competitive they are.

Now only if we made anything...

PS If anything, we're screwing China, since all of their savings are in dollars.

[Bill]

Holding a steady course as the wind shifts is the job of the Federal Reserve, not bailing out all the scamsters on Wall Street. They made bad bets in their CASINO and now want the Fed to forgive their losses. Why should all of us honest citizens who work for a living, pay our bills and complicated taxes share in the pain which rightfully belongs to the jerks who created the crisis in the first place. It seems like a huge Ponzi (pyramid) scheme to me. Try reading http://en.wikipedia.org/wiki/Ponzi_scheme for more details.

[corry]

I think what Fed doesn't see is that everybody who's actually making something of value is getting disheartened by the week because of bailing out of the irresponsible and the speculators. You can't have economy, Mr. Bernanke, without the faith of people who actually make it.

[jack]

Oil will get more expensive since we import the stuff. Traveling outside the US becomes prohibitively expensive as well as staying in cities popular with foreign tourists (e.g. SF and NY).

The U.S. finances its national debt through foreign holders of our currency, can we really expect China and Japan to gobble up our national debt forever without repercussion?

[Michael Snyder]

And here I thought we were done with "Greenspeak." Talking in circles is the bailiwick of politicians but even the Clintons have to take a back seat to the Fed. With its' myopic view of the stock market as the principle bell-weather of the US economy; they've once again boned the consumer to help their buddys on Wall St.
Jax is on the right track but his numbers are a bit off. At the time of the last Fed meeting and rate cut a Canadian dollar was worth about $0.93 US. Today a US dollar is worth $0.94 Canadian. We've fallen a similar amount against pretty much every currency traded freely on the world market. ( I do take some small comfort in China's dilemma. That $400 billion + US they're holding on to is shrinking fast. )
What this means is while banks and lenders can increase their profit margin on all of their existing "fixed contracts" ( Yes, your lender just got a pay raise) the consumer is now paying 10% more for many goods than they were 90 days ago. You've got to understand there are more American made products in a Toyota Tundra than in many Fords. "Made in USA" really means "assembled in the USA" for most items and they are getting hard to find.
The net result to the consumer is a pay cut. Everything we buy either comes from somewhere else, or it's formulated/ fertilized/ transported using petroleum. Since oil's traded internationally, a devalued dollar simply increases Chevron's/ Shell's / Arco's profits on domestic product.
Am I the only one out here with a sore backside? At least my ex-wife kissed me now and again!
So here we sit, ( gingerly ) watching our pay cheques shrink on the way to the bank. It seems there's no point in saving because the dollars are devaluing faster than they can accumulate interest and the Fed rubs salt into the wound come tax time.
We're in a "credit crunch" with record consumer debt, practically no consumer savings, a real estate market on the skids and B of A says, "Come on down & refinance your home with us!" Those ten trillion dollars in equity represent the only common sense left in America and I didn't hear mention of originating a loan for purchase of a new home.
American consumer debt is at an all time high with way too many households living from pay cheque to pay cheque making those minimum payments. We're on the razor's edge here with a lot of hard working families just one pay cheque from the streets, with no health care and no back-up.
As I've said before, "a fair price is one both the buyer and seller agree on." But without qualified buyers (that means ordinary working folks) we've got nothing.

[l.a. guy]

"Now, the Fed is going to punish the responsible people some more for saving their money and not being part of the housing fiasco for the last few years."

I understand the hostility (and feel the same way), but the economy and housing market don't exist in a vacuum. If credit markets collapse and bounces us into a recession that's going to 'punish' a lot more people for a potentially longer period of time.

I agree that the Government should not be bailing anyone out, but that's not the same thing as trying to stimulate the economy to ensure employment and commerce (tax revenues) by lowering interest rates.

The question is will cheaper money accomplish that goal? Some experts seem to believe there is plenty of liquidity already, so making capital cheaper when there is plenty of it is not going to fix the problem. Some would argue it's going to scare off foreign investment due to the shrinking dollar (or already has in China's case). Who knows, maybe the Fed is trying to reignite the carry trade?

Meanwhile housing prices continue the steady decline, so I don't think you need to worry about anything the Fed is doing mitigating too much of the price downturn.

[jb]

The dollars that many of are saving are going to be worthless AND the housing market will crash. Bernanke is a whore and Wall Street is the pimp - spineless creep. It is time for a regime change.

[investorguy]

Let's not forget that the Fed is always behind the curve, not in front of it. They're trying to turn an aircraft carrier in the middle of the Ohio River.

[anon1137]

Today's action by the Fed bails out debtors and gamblers, including money center banks, at the expense of savers and those responsible enough to live within their means. Is it any wonder why the savings rate in this country is negative?

The US dollar will soon be as worthless as used tp, propped only by bombs and the US Air Force.

[Giacomo]

The Fed's style of writing IS the message. My take: they are being intentionally ambiguous because they are unsure of the correct course of action - or the "correct" message to send - and are settling for trying to have as little effect as possible.

[BottomFisher]

Fast forward.....2011....Fed chief Mozilo cuts rates to minus 2%, but housing remains in a deep slump, even as every American receives a free monthly check from the government not to save. Go figure.

[Michael Snyder]

Investor guy, you forgot to mention who sailed that carrier into the Ohio... Actually a great analogy since you'd have to navigate the Mississippi to get there..
To quote, "Mr. Dimaggio; we're going the wrong way!" "I know; but we're making great time!"

[MyLessThanPrimeBeef]

Just today, a day after another rate cut, more cash injection than this past August...

'The Federal Reserve pumped $41 billion into the U.S. financial system Thursday, the largest cash infusion since September 2001, to help companies get through a credit crunch''

http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/
2007/11/01/national/w082935D62.DTL