By: Fielding Mellish

Fielding Mellish — Tue, 20 Nov 2007 23:37:12 +0000

I still think the reason the Fed has promised to pay more attention to “headline” inflation rather than “core” inflation is because, in contrast to the past few years, they expect headline inflation to start to look more benign than it has lately. In other words, they wanted to ignore food & energy when those items were rising, but they’ll want to include food & energy as those items drop from their overshot highs. The Fed wants to cut short-term rates in order to bail out banks & investment banks. They may even hope to reduce the number of Option-ARM-related defaults over the next few years by forcing the indexes lower (although that will have little effect). They will forsake dollar stability in order to try to protect the financial industries. The biggest problem, though, is that many many people are upside-down on their houses. Home values are still way too high by historical standards (based on household income & equivalent-housing rental costs). This is becoming increasingly apparent even to first-time buyers. Cheaper short-term money will not woo buyers back to overpay for housing any more than a margin loan would woo stockbuyers to bid Countrywide stock back up to $20 after they’ve seen it fall to

Comments on: Fed Forecasting Slowdown in 2008

By: Fielding Mellish