Fed Sees Limited Housing Fallout
Risks to Broader EconomyFrom Market's DownturnRemain a Top Concern
By SUDEEP REDDY
September 7, 2007
Several Federal Reserve officials said the housing market's downturn and recent market volatility have created risks to the broader economy, but that so far the fallout has remained relatively contained.
The Fed policy makers, speaking at unrelated events yesterday, endorsed views they have received from businesses across the country indicating limited impact from the recent credit crunch.
TALKING POINTS
• The Good News: Fed officials said fallout from housing- and credit-market problems so far appears to have had limited impact on the broader economy.
• The Bad News: That could change if mortgage woes continue and hurt the housing market further, they noted.
• The Bottom Line: The latest comments suggest central bankers remain cautious about making aggressive rate cuts.
Tightening credit conditions and growing trouble for the housing sector have added to worries about the overall economy. Some analysts expect the rising number of mortgage-payment delinquencies and falling home prices to eat into household wealth and constrain consumer spending, which accounts for more than two-thirds of the nation's economic activity.
Fed officials yesterday acknowledged that concern. "If current conditions persist in mortgage markets, the demand for homes could weaken further, with possible implications for the broader economy," Fed governor Randall Kroszner told a San Francisco audience.
The Federal Open Market Committee is set to meet Sept. 18 to discuss interest rates. Markets expect the central bank to lower the benchmark rate from the current 5.25%, but the extent of the expected cut isn't clear. The latest comments suggest officials remain cautious about making aggressive rate cuts.