The Federal Reserve and its key players, including Federal Chairman Ben Bernanke, have almost taken on rock star status. With the new media and cable television networks like CNBC, every move that Sir Chairman makes or every word he utters is now headlines. Use to be the Fed Chairman could deliver 50 speeches around the nation and nary make a headline. Now, CNBC has a senior reporter covering every speech and trying to parse the Fed Chairman's every word. It's a great job if you enjoy Fed nuance.
The role of the Federal Reserve and the U.S. Department of the Treasury, led by former Goldman banker Hank Paulson, will be front and center these coming months. 2008 is an election year and the news on the housing front is not improving. Not too mention the millions of mortgages that are resetting to higher monthly payments throughout the course of 2008. The Federal Reserve will likely drop the key interest rate here in December and again in the first quarter. With the key Fed Funds rate at 4.5%, the bellwether 10-year U.S. Treasury Note yielding 3.95% is already signaling a minimum cut of 25 basis points, but more than likely 50 basis points. The housing market would welcome a 50-basis point drop; it would make a nice Christmas present.
The Federal Reserve and the Department of the Treasury are working on a work-out plan for beleaguered mortgage holders. President Bush has stated that the plan should not include a government bail-out plan, but an industry plan. The President's position is too put the banking industry on notice that "you created this problem, now you help solve it."
The Fed will do its part by lowering the key rate and the U.S. Treasury will work with a consortium of banks to freeze mortgage rates from resetting to higher levels. Whatever shape or form the relief plan takes, it will be welcomed by consumers. The consumer still makes up 66% of the U.S. economy and confidence is imperative. If the consumer can take some mortgage relief, the "extra dollars" may be spent in other sectors of the economy that need bolstering, such as the auto industry.
Federal Reserve Chairman Bernanke has stated in his cryptic Fed-speak that he is watching consumer action -- or lack of action -- very carefully. The last thing the Chairman wants is a recession occurring in the first two years of his tenure.
Georges Yared is the CIO of Yared Investment Research and the author of Stop Losing Money Today.
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Reader Comments (Page 1 of 1)
12-02-2007 @ 6:19PM
Lark said...
For years, the govt has placed tremendous political pressure on bank lending by virtue of its CRA plans enforcement. It is another example of govt trying to erase personal responsibility for those who acquired real estate.
12-02-2007 @ 6:46PM
MITCH said...
keep up the good work bernake. you will see the dollar and the country fall too its knees.but at least the idiots that claimed they didnt know what they were borrowing will still lose there home even if you gave them interest free loans.they just plainly bought over there heads.lets get real and save the real hard working people not the idiots and the banks that made landslide profits for many years.
12-02-2007 @ 11:06PM
Jim said...
I cant believe the things written about people losing their homes.A lot of these people were misled and a lot of people were just out and out lied too.If we can help iraq,afganastan and these other countries I think it is about time we help our own people.The mortgage lenders have tightened the loans up so bad that if you have near perfect credit you proably couldnt refinance-I dont no anybody with perfect credit.The credit reporting agencys make sure of that.What it all means is that if you are middle to low middleclass you wont be able to buy a house period because there again I dont know anybody who can put 10 to 20000 dollars down on a house.All the jobs that paid that kind of money is either overseas or the illegal immigrants are doing them.These people saying that we shouldnt help our neighbors and friends are proably the same people who caused the problem.The Government should freeze all Arms and covert them to a fixed.This should have already been done way back in August.Everyday they wait is people losing thier homes for NO REASON BUT GREED!Also the government needs to set guide lines for future Arms like NO NEGATIVE AMORTIZATIONS.The government needs to enforce the laws already on the books-LIKE THE TRUTH IN LENDING LAW and the FAIR CREDIT REPORTING ACT.If they converted the Arms over to fixed then they solve the problem.The invester doesnt get to make as much but that is still better than NOTHING.Just locking the teaser rates for several years for a few isnt a fix.Look how long the lenders have had to fix the problem and havent even tried.Only 1 percent of loans.What these investors dont understand is if all these people lose their homes then they dont get anything and this will only spread to other investments. If THESE PEOPLE LOSE THEIR HOMES THEN WE ARE ALL LOSERS and YOU CAN TAKE THAT TO THE BANK! It will take a congressional order thou to accomplish this.If I was an investor I would before it because then I would know Im not going to lose all my money and that I will still make some off my investment
12-03-2007 @ 6:54AM
Jo said...
People need to look both ways before crossing the street and let's face it, many people didn't because they never took out a loan before.
I have two wonderful ladies in my office, both in their early 40's and live in their parent's home. In both cases the parents got sick and died but not before racking up plenty of medical bills. Neither one of them was smart enough to put their parents money in a trust to shelter their homes or money. They had no choice but to borrow from the equity in the house to pay for the nursing home bills. In both cases, whoever gave them the loan, appraised their house for way more than what it was worth. Both are located on the edge of the inner city so they will never be able to get their moneys worth out of the deal. It is the family home and both girls are emotionally attached to it so they won't even try to sell or walk away from the deal. The whole thing makes me angry. The appraiser should loose his license.
12-03-2007 @ 7:39AM
gamedog said...
Get rid of the federal reserve and the irs and this country will rise from the ashes again . The federal reserve is own by private banks own by foreing familys ,taking
are money and slaving us. Give me the power to control a nations currency , and i dont care who makes their laws.
12-03-2007 @ 8:11AM
bob said...
Bush didn't create this mess, he knows who did, and he will make them correct it themselves. Liberals have fought him throughout his presidency, and he wins every time. he will win again, and all they can say is he's a moron. As he outthinks them at every turn,L mao.