When will Fed lower the rates?
Marla Guthrie
Mar. 4, 2007

The biggest question in the mind of analysts and the investors is – if and when will the Federal Reserve lower the short-term rates?

The answer can be found from Fed Chairman’s recent testimony. The answer can also be found from the bond market reactions to the recent economic data. The answer is also evident from the gold market’s reaction.

Fed is expecting the real estate to stabilize and bounce back in Spring 2007. The real possibility of that is bleak. As a matter of fact the mortgage default rates are actually increasing. The foreclosure rates are skyrocketing. The real-estate investors that use to buy new units for flipping and making a quick profit are actually fleeing the profession.

The mortgage bankers and ‘warehouse’ mortgage loan providers (the whole sale lenders) are still complacent with the hope things will normalize in Spring 2007. The complacency itself says there is much more trouble ahead.

The real-estate trouble and China slowing is slowing the manufacturing sector very badly. ISM manufacturing index is struggling to sit above the ‘water’ – the 50-point level. The ISM service index is also in trouble as evident from this week’s data. The lower productivity, lower factory orders and sub par employment – the data is getting worse every week.

Fed most likely will be ‘forced’ by the economy to lower the rates very fast starting middle of the year. They may even start lowering rates in May 2007.

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When will Fed lower the rates?
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The answer can be found from Fed Chairman’s recent testimony. The answer can also be found from the bond market reactions to the recent economic data. The answer is also evident from the gold market’s reaction.
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