The Federal Reserve on Wednesday cut a key interest rate for the second time in just over a week, reducing the federal funds rate by a half point. It signaled that further rate cuts were possible. The Fed action pushed the funds rate to 3 percent. It followed a three-fourths of a percentage point cut on Jan. 22, a day after financial markets around the world had plummeted on fears that the U.S. economy was heading into a recession. That decrease had been the biggest one-day move in more than two decades.
The half-point cut Wednesday followed news that the economy had slowed significantly in the final three months of last year with the gross domestic product expanding at a barely discernible pace of 0.6 percent, less than half what had been expected. The report came amid increased concern from several quarters about a possible recession.
In a brief statement explaining their decision, Federal Reserve Chairman Ben Bernanke and his colleagues said that "financial markets remain under considerable stress."
The Fed move was approved on a 9 to 1 vote. Richard Fisher, president of the Fed's Dallas regional bank, dissented, preferring no change in rates.
The rate cut marked the fifth time that the Fed has cut the funds rate since it started with a half-point cut on Sept. 18 in response to the severe credit crisis which hit global markets in August.
Financial markets, which had been hoping for a bolder half-point move, rallied on the announcement. The Dow Jones industrial average, which had been in negative territory shortly before the Fed action, climbed back into the positive range in the minutes following the statement, with the Dow Jones industrial average up by more than 70 points in the first half-hour of trading.
Economists said the Fed decided to move a half-point rather than a quarter-point because it did not want an adverse reaction on Wall Street....more
Tuesday
Fed Cuts Interest Rate
WASHINGTON (AP) -- The Federal Reserve, confronted with a global stock sell-off fanned by increased fears of a recession, slashed a key interest rate by three-quarters of a percentage point on Tuesday and indicated further rate cuts were likely.The surprise reduction in the federal funds rate from 4.25 down to 3.5 percent marked the biggest funds rate cut on records going back to 1990.
Federal Reserve Chairman Ben Bernanke and his colleagues took the action after an emergency video conference on Monday night, a day when global markets had been pounded by rising concerns that weakness in the world's largest economy was spreading worldwide.
Despite the Fed's bold move, Wall Street plunged at the opening. The Dow Jones industrial average was down 311.99 points in the first hour of trading.
In a brief statement explaining its move, the Fed said that "appreciable downside risks to growth remain" and officials pledged to "act in a timely manner" to deal with the risks facing the economy. The action was approved on an 8-1 vote.
Analysts said the fact that the Fed did not wait until its meeting next week to cut rates underscored the seriousness of the situation.
"The world's stock markets are in meltdown so the Fed came in with an inter-meeting move to try to stop the panic," Christopher Rupkey, senior economist at Bank of Tokyo-Mitsubishi.
The Bush administration, which had announced on Friday that President Bush supported a $150 billion economic stimulus package, said Tuesday that it was not ruling out doing more than the $150 billion proposal if necessary....more
Federal Reserve Chairman Ben Bernanke and his colleagues took the action after an emergency video conference on Monday night, a day when global markets had been pounded by rising concerns that weakness in the world's largest economy was spreading worldwide.
Despite the Fed's bold move, Wall Street plunged at the opening. The Dow Jones industrial average was down 311.99 points in the first hour of trading.
In a brief statement explaining its move, the Fed said that "appreciable downside risks to growth remain" and officials pledged to "act in a timely manner" to deal with the risks facing the economy. The action was approved on an 8-1 vote.
Analysts said the fact that the Fed did not wait until its meeting next week to cut rates underscored the seriousness of the situation.
"The world's stock markets are in meltdown so the Fed came in with an inter-meeting move to try to stop the panic," Christopher Rupkey, senior economist at Bank of Tokyo-Mitsubishi.
The Bush administration, which had announced on Friday that President Bush supported a $150 billion economic stimulus package, said Tuesday that it was not ruling out doing more than the $150 billion proposal if necessary....more
Sunday
Bush to Revive Push For Housing Remedy
Shoring up public sentiment on the economy -- especially the battered housing sector -- could be vital to staving off a recession as Mr. Bush enters his last year in office. Pollsters say many people who aren't directly affected by rising defaults on subprime-mortgage loans are feeling the effects anyway, as they see the values of their homes drift downward. Even if Mr. Bush fails to get much more action out of lawmakers, White House pressure could help Republicans' political fortunes by reinforcing negative public perceptions of inaction in the Democratic-led Congress.
The administration and the Federal Reserve have taken several steps to attempt to address credit-market problems caused by rising mortgage defaults, including an administration-brokered industry effort to help people avoid foreclosure.
Mr. Gillespie and other aides didn't offer new specifics for how Congress could address the housing problems. There are at least two significant pieces of legislation that Congress left unfinished last year. One would bring relief to more low-income borrowers, allowing them to refinance adjustable-rate mortgages through the Federal Housing Administration. A second initiative could help ease a credit crunch for many middle- and upper-middle-income borrowers, in part by allowing government-sponsored mortgage companies such as Fannie Mae to securitize more large loans. Currently, those companies can't take on loans with values of more than $417,000. The administration supports a temporary increase in that limit but only in connection with comprehensive reform of the agencies' oversight, including a strong regulator with authority to limit the size of the mortgage portfolios they hold.
A third possible element in a housing initiative would give states authority to issue more tax-exempt bonds to help troubled homeowners refinance their homes.
Last month, the White House announced a voluntary initiative that encourages mortgage-servicing companies to freeze interest rates for people with adjustable-rate mortgages who are running into problems as their rates rise. As many as 1.2 million homeowners with subprime loans, or those to borrowers with poor credit, theoretically could get either rate freezes or expedited refinancing.
But some observers expect the actual impact of that program to be more limited. Meanwhile, estimates of the overall number of homeowners who might go into default has risen to three million. That is creating a need for further help from state and local governments.
"Changing the tax code can also help state and local government do their part to help homeowners," Mr. Bush said in December. "This temporary measure would make it easier for state housing authorities to help troubled borrowers -- and Congress should approve it quickly."
"If Treasury is looking for something to put pressure on Congress, [enabling states to issue more tax-exempt bonds] is something they can point to," said Steve O'Connor, senior vice president of the Mortgage Bankers Association.
Mr. Gillespie suggested that Mr. Bush also will make a push for energy-policy changes, despite last month's signing of an energy bill. A possible focus this time is opening controversial new supply sources such as the Arctic National Wildlife Refuge and the outer continental shelf. Mr. Gillespie also mentioned pending trade agreements, renewal of Mr. Bush's intelligence-gathering authority, and renewal of the No Child Left Behind education initiative as top legislative priorities for 2008. The White House and Treasury also have been weighing various plans for boosting the overall economy, not just the housing sector, possibly through additional tax cuts...more
The administration and the Federal Reserve have taken several steps to attempt to address credit-market problems caused by rising mortgage defaults, including an administration-brokered industry effort to help people avoid foreclosure.
Mr. Gillespie and other aides didn't offer new specifics for how Congress could address the housing problems. There are at least two significant pieces of legislation that Congress left unfinished last year. One would bring relief to more low-income borrowers, allowing them to refinance adjustable-rate mortgages through the Federal Housing Administration. A second initiative could help ease a credit crunch for many middle- and upper-middle-income borrowers, in part by allowing government-sponsored mortgage companies such as Fannie Mae to securitize more large loans. Currently, those companies can't take on loans with values of more than $417,000. The administration supports a temporary increase in that limit but only in connection with comprehensive reform of the agencies' oversight, including a strong regulator with authority to limit the size of the mortgage portfolios they hold.
A third possible element in a housing initiative would give states authority to issue more tax-exempt bonds to help troubled homeowners refinance their homes.
Last month, the White House announced a voluntary initiative that encourages mortgage-servicing companies to freeze interest rates for people with adjustable-rate mortgages who are running into problems as their rates rise. As many as 1.2 million homeowners with subprime loans, or those to borrowers with poor credit, theoretically could get either rate freezes or expedited refinancing.
But some observers expect the actual impact of that program to be more limited. Meanwhile, estimates of the overall number of homeowners who might go into default has risen to three million. That is creating a need for further help from state and local governments.
"Changing the tax code can also help state and local government do their part to help homeowners," Mr. Bush said in December. "This temporary measure would make it easier for state housing authorities to help troubled borrowers -- and Congress should approve it quickly."
"If Treasury is looking for something to put pressure on Congress, [enabling states to issue more tax-exempt bonds] is something they can point to," said Steve O'Connor, senior vice president of the Mortgage Bankers Association.
Mr. Gillespie suggested that Mr. Bush also will make a push for energy-policy changes, despite last month's signing of an energy bill. A possible focus this time is opening controversial new supply sources such as the Arctic National Wildlife Refuge and the outer continental shelf. Mr. Gillespie also mentioned pending trade agreements, renewal of Mr. Bush's intelligence-gathering authority, and renewal of the No Child Left Behind education initiative as top legislative priorities for 2008. The White House and Treasury also have been weighing various plans for boosting the overall economy, not just the housing sector, possibly through additional tax cuts...more
Real Estate: How Far Will It Fall in 2008?
There is one big question looming for homeowners and commercial real-estate investors this year: How much worse will it get?
The past year was the most painful in decades for residential real estate, as defaults on loans to less-creditworthy borrowers created a broader credit squeeze. House prices fell, home ownership dropped, foreclosures soared, and the housing market emerged as the soft underbelly of the economy.
Commercial real estate hit its peak early in 2007, when private-equity firm Blackstone Group LP paid $23 billion for office giant Equity Office Properties Trust, and then did an about-face. As credit tightened throughout the economy, commercial-property values tilted downward for the first time in several years.
Housing prices are likely to slide further this year, as credit remains tight and interest rates on many mortgages are set to rise, or "reset," and could trigger more defaults.
The commercial real-estate market, which includes properties such as offices, apartment buildings and shopping centers, could continue to soften as slower economic expansion causes rents to rise more slowly than in the past.
Residential Blues
Relief from the housing woes is unlikely anytime soon. "It will be another very bleak year with the worst of it occurring in the first half," predicts Mark Zandi, chief economist at economic-research site Moody's Economy.com. "Inventory is only growing and needs to be worked off before the market finds some stability," he said.
Through the third quarter of 2007, slightly more than 2.5% of all houses, or more than two million, were for sale and vacant, according to the U.S. Census Bureau. Since the first records were kept in 1965, that figure had never been higher than 2%, until the fourth quarter of 2005.
Demand is likely to stay depressed, keeping prices low, as high-risk borrowers who in the past would have qualified for subprime loans find themselves locked out of the market. Borrowers with little, if any, money for a down payment and those who don't want to document their finances also are likely to find the going tough.
House prices have fallen 6.5% as of October, since peaking in June 2006, according to the S&P/Case-Shiller Home Price index, which measures home values in 20 cities. Daniel Mudd, chief executive of government-sponsored mortgage investor Fannie Mae, expects prices to decline another 4% to 5% in 2008....more
The past year was the most painful in decades for residential real estate, as defaults on loans to less-creditworthy borrowers created a broader credit squeeze. House prices fell, home ownership dropped, foreclosures soared, and the housing market emerged as the soft underbelly of the economy.
Commercial real estate hit its peak early in 2007, when private-equity firm Blackstone Group LP paid $23 billion for office giant Equity Office Properties Trust, and then did an about-face. As credit tightened throughout the economy, commercial-property values tilted downward for the first time in several years.
Housing prices are likely to slide further this year, as credit remains tight and interest rates on many mortgages are set to rise, or "reset," and could trigger more defaults.
The commercial real-estate market, which includes properties such as offices, apartment buildings and shopping centers, could continue to soften as slower economic expansion causes rents to rise more slowly than in the past.
Residential Blues
Relief from the housing woes is unlikely anytime soon. "It will be another very bleak year with the worst of it occurring in the first half," predicts Mark Zandi, chief economist at economic-research site Moody's Economy.com. "Inventory is only growing and needs to be worked off before the market finds some stability," he said.
Through the third quarter of 2007, slightly more than 2.5% of all houses, or more than two million, were for sale and vacant, according to the U.S. Census Bureau. Since the first records were kept in 1965, that figure had never been higher than 2%, until the fourth quarter of 2005.
Demand is likely to stay depressed, keeping prices low, as high-risk borrowers who in the past would have qualified for subprime loans find themselves locked out of the market. Borrowers with little, if any, money for a down payment and those who don't want to document their finances also are likely to find the going tough.
House prices have fallen 6.5% as of October, since peaking in June 2006, according to the S&P/Case-Shiller Home Price index, which measures home values in 20 cities. Daniel Mudd, chief executive of government-sponsored mortgage investor Fannie Mae, expects prices to decline another 4% to 5% in 2008....more
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