We have had a few days to digest the Fed’s .5 point short-term rate cut and truly not much has changed from last weeks sentiments. The Fed cut will affect consumer spending through credit card interest rates, bank rates, home equtiy rates, and auto loan rates. And since consumer spending accounts for 2/3 of the domestic economy, all are hopeful that the consumer will continue to spend and stave off a recession. However, the housing drag is picking up pace and even Mr. Greenspan mentioned that he expects the loss of home equity and slow home sales have not yet reached bottom and will continue through 2008.
Overall, the verdict on the Fed rate cut will develop as inflation either continues or subsides and whether or not it stimulates the economy and continues economic growth. Both are the central banks job and the reason for its existence.
This week’s economic reports on existing home sales, consumer confidence, durable good for August, and Personal consumption expenditures and core PCE are all expected to be lower. This would be the beginning indications that the Fed rate cut is not having the desired effect on the economy as a whole nor on sales and appreciation of real estate. We are expecting more rate cuts this year and possibly continuing into 2008, as long as inflation remains in check, to prevent the recession so many economists are predicting. Thank you for the opportunity to serve you and your clients.