No rate cut! That’s the bet on Fed

Last Updated: June 24, 2008By

Here is an article from Jon Lasner (O.C. Register) on Real Estate about the forecast of rate cuts in the coming year.

Economist Mark Schniepp of California Forecast: They’ll hold steady. Economy looking more stable than two months ago. Dollar is strengthening, core inflation is reasonable. Raising rates would risk deepening the havoc in housing. When will they raise again? When oil prices are clearly in decline. When mortgage rates are a little lower. When there is less risk that raising rates will produce increases in the indexes that adjust adjustable mortgages. So , not this year.

O.C. Treasurer Chriss Street: The Fed will stand pat on Wednesday. The real economy is already in much worse shape than is being reported and this is early in the down business cycle. The case for raising rates is the obvious piece of the iceberg you can see. Inflation is trending to the 4.5% or higher level. With the discount rate set at the 2% level, that means the real net interest rates are actually “negative” by about 2.5%. Present this to an accountant and the answer is clear that rates need to rise at least 50% of the spread to slow the economy and create enough “slack” to slow the economy down. Unemployment appears to be headed to 6% or higher. This is the big iceberg that you and the Fed should be very afraid of.

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