What the Fed said

You know the news: The Fed cut by a quarter-point, disappointing investors and Jim Cramer, who is moping that the Fed is "mediocre." For those who like to parse these things, here's what the Federal Reserve's Open Market Committee -- the interest rate guys -- have been saying about housing this year:

Jan. 31 statement: "... some tentative signs of stabilization have appeared in the housing market."

March 21 statement:  "...  the adjustment in the housing sector is ongoing."

May 9 statement: "...  the adjustment in the housing sector is ongoing." (Aside: Does anyone know what that was supposed to mean? An adjustment is when you hitch up your pants, or start buying Lactaid instead of milk.)

June 28 statement: "Economic growth appears to have been moderate during the first half of this year, despite the ongoing adjustment in the housing sector."

August 7 statement: "... the housing correction is ongoing."

Sept. 18 statement: "... the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally."

Oct. 31 statement: "...the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction."

Dec. 11 statement: "... economic growth is slowing, reflecting the intensification of the housing correction."

Thoughts? Insights? Email story tips to peter.viles@latimes.com.

Comments

[MyLessThanPrimeBeef]

Substituting water intake for housing sector, this could have been the play by play of the sinking of the Titanic by an insipid, mediocre and subprime Fed.

I guess it's unconsitutional to yell 'fire!' in a crowded theater.

Imagine what would happen if everyone wants to sell his/her/their/its house all at the same time...like NOW!!!!!

[formerlahomeowner]

January 2008: "Economic growth will decelerate into negative territory. Housing will stabilize despite price growth deceleration and stabilization of foreclosures at record levels. This is your Fed Chairman O-Ben Wan Bernanke. The force be with you."

[brettdl]

Perhaps the Fed feels the way a lot of us do: Let the correction happen. We'll soften the blow somewhat, but that's it.

In fact, I'd rather the Fed NOT cut rates at all. All that does is devalue the cash we have in our pockets right now via inflation and exchange rates.

[Laker]

"subprime Fed" I like that name.
Indeed there is no much that can be done other then try and help the banks by increasing their margins (profits). The problem is that it is propping up the inflation by devaluing our dollar. We let foreigners buy our land and property for penny on the dollar but as the same time median American family can afford shi$%^.
Also all this mess because of sub-prime loans...wait for the ALT A, and mainly option ARMs to reset in 2008-10...
stabilization of housing will be when affordable housing comes back. We are no where near.
On the other hand, our sub prime fed that does not want the average joe to save, might want inflation as a fix to the expensive over inflated housing...

[westsiderenter]

All that does is devalue the cash we have in our pockets right now via inflation and exchange rates.

AGREED. Every time the fed cuts rates our salaries, 401K's and savings disappear. Weimar republic, here we come...

[Rich]

The problem with the Fed seems to be that their process of evaluation consists of using sets of trailing indicators, many of which require so much backward revision as to be useless, but the Fed governors feel that using the the only data sets they have to justify decisions is the responsible and objective methodology. There doesn't seem to be a sense of a need for working out better indicators, as though that's somehow somebody else's job. Most of the Fed governors hail from academia and know what statistical methods can be brought to bear to gather useful data if someone wants to fund or manage such a project...but apparently nobody wants to roll up their sleeves between meetings to get on with the job...

[Michael Snyder]

I must admit to being a bit surprised by the Stock Market's response to the Fed's move today. This 294 point "correction" reflects Wall Street's susceptibility to rumors. Profit taking is to be expected after last weeks 600 point run up; but it seems as if investor’s are disappointed in the moderation displayed by the Fed although it is arguably a better move for the economy as a whole.
As to the Fed’s now infamous ambiguity; if you can’t dazzle them with brilliance….

[MyLessThanPrimeBeef]

Forget about backward revision, the wisest men of this land once said, when you see pornography, you know it. There is no need to describe it or for trailing indicators.

And that's exactly what we have in the housing market - totally X-rated. It's too gross and indecent to let our children see it. I wouldn't, would you?

If the Fed would just trust the Force, be one with it, it would see what many here saw at least a couple of years ago.

[brettdl]

Michael,

I was curious to see if it crashed on a quarter point. I suspect it would have been flat or slightly down if the fed cut rates by a half point.

To me that means the recent market run up reveals a lot of short selling (it's especially noticeable in the futures markets). That and a lot of foolishly optimistic bargain hunters.

What I really want to see now is how many financial firms try to come clean on 4th quarter earnings before the end of the year. The smart move would be to do it early while everyone is in the Christmasy mood.

My guess, though, is we'll see a market bloodbath in January when everyone is in a foul mood over winter, school, Christmas bills and fourth quarter earnings (or losses.)

[tthgcontractor]

I believe the stock market is about like the housing market. Overpriced and ready for a major correction. The Fed could only cut 1/4 percent because they need the rest for future cuts in the coming months. The post Reagan voodoo economic policies of the past decades are coming home to roost and is going to take many years to straighten out. Hopefully the "Jay Walkers" won't vote the Republicans in again or we're finished.

[Keith]

It's strange, the vast majority of most mortgages are fine, yet everyone has their hair on fire that the economy is going to tank because of the housing sector.

Also, houses only really add to the economic engine when they are built and sold, after that resales are of limited benefit. New home construction is what really "powers up" the economy. New home starts are going to be idle for the foreseeable future, so what is it that everyone is looking for? Let the fed lower the rate to whatever, it's not going to do much.

[Michael Snyder]

The market opened with a 200 point rebound this morning based in the Fed's agreement with European banks.and has been on a steady slide ever since.
It's important to realize the "sub prime" title is a smoke screen for the real issue. With a total of $46 billion in bad credit write downs industry wide and counting, there is no way to keep pointing the finger at homeowners as the cause of this mess.
A series of three interest rate reductions by the Fed have done nothing to stem the tide of financial collapse, yet Wall St. keeps bouncing on every rumor and loosing every gain.
The problem here is the way these loans were packaged, sold and then leveraged by investors seeking shelter in oil and other commodities. With their dream of $100 dollar per barrel oil in tatters, these highly leveraged investors must come up with margin calls on the oil the bought at $98 last month that sold for $89 yesterday. That means they need to get a loan; hence the sudden largess on the part of international bankers who need to back their own bad bets.
The net result of all this maneuvering at the consumer level is a net zero. Consumer credit,(largely backed by housing values) the real engine of our economy, is tighter than ever. Underwriters are sending appraisers to the same property multiple times before they'll release loan docs, and the retail numbers are looking grim this Christmas. In the time it's taken me to write this, the DJIA has fallen another 20 points, (about 1.5 a minute). It'll be interesting to watch and see what Fund managers do to prop up their books for those fourth quarter bonuses, but whatever it is, the real proof of our situation will be clear come mid January.