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Daily Real Estate News  |  September 21, 2006  |   Observers Voice Views on Fed's Rate Decision
The Federal Reserve Board voted on Wednesday to keep benchmark short-term interest rates at 5.25 percent. In its statement, the Fed said growth is moderating, “partly reflecting a cooling of the housing market.”

Economic observers had various views about the decision’s effect on the housing market. Here's a sampling:
  • Stuart Schweitzer, global markets strategist for JPMorgan Asset and Wealth Management: “It is very difficult to determine how the housing slowdown will really unfold. I think what the Fed can do for housing is to bring inflation down, because if inflation is down, interest rates can come down.”
  • Paul Kasriel, an economist at Chicago’s Northern Trust Co.: “The Fed appears to be somewhat alarmed with the magnitude and speed of the housing slowdown, and uncertain about its multiplier effects on the rest of the economy,” he says. The central bank “has no real choice but to stay on hold and pretty much keep its options open.” Kasriel expects an interest rate cut in December.
  • Ethan S. Harris, chief U.S. economist at Lehman Brothers Holdings Inc.: “Housing is going to cool off, but not crush the economy.” He thinks the Fed will raise its benchmark interest rate to 5.5 percent this year and to 5.75 percent early next year.
  • Thomas Joseph Marta, fixed-income strategist at RBC Capital Markets, on housing’s effect on Wall Street: “Traders are reacting viscerally to housing. Housing is something you see when you’re driving home from the train station; it’s very obvious, very visible. … I’ve heard traders say, ‘Look, the Fed’s wrong.’”
  • Paul Ashworth, senior U.S. economist at Capital Economics of London: If housing construction’s share of economic output falls to the same level it hit in the early 1990s, after the last housing boom, “you'll get a substantial drag on growth.” He expects growth to slow to 1.5 percent next year, from a projected 3.3 percent this year, and the Fed to cut its rate target to 3.5 percent by mid-2008.
Sources: The Wall Street Journal, Chicago Tribune, The Washington Post, The New York Times, Los Angeles Times (09/21/06)

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