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The market is caught between rising oil prices and falling home values, what direction does the fed move?


The market will be closely watching the Fed's next move, but not everyone thinks they should be cutting rates.

Those who are hoping the Fed continues to cut the Fed Funds rate received some welcome news this week from both the CPI & PPI reports. There is growing belief that the Fed now has the green light to cut the Fed Funds rate an additional fifty basis points at the end of the month. Earlier this month the jobs report came in well below expectations and for the second straight month the economy has lost jobs. With housing prices still dropping and foreclosures rising it would seem that lowering the Fed Funds rate would be a no brainier. This could not be further from the truth. The rising price of oil is having and will have a dramatic impact on our economy moving forward. The cost of food, transportation and travel are all beginning to skyrocket. The value of the U.S dollar versus the Euro fell to its all time low in the past week and has lost over 10% of it's value in the past six months. The U.S. economy is very much a global economy and the falling dollar is having severe consequences on many industries. Similar to the push for alternative energy solutions, the market would be better served by finding alternative ways to stimulate the lending market other than simply cutting the Fed Funds rate. This temporary move is going to create long term challenges for the market and is not the best solution to helping resolve the housing crisis. Their should be a larger emphasis on providing incentives for lenders to encourage more flexible underwriting on mortgages to help bring buyers into the market for the over supply of homes.

4-18-2008 ? LoanNetwork.com





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