Comments on: Is Another Quarter Point Rate Cut Good for Raleigh Home Buyers and Sellers? http://raleighrealestatetalk.com/2007/11/01/is-another-quarter-point-rate-cut-good-for-raleigh-home-buyers-and-sellers/ Buying and selling homes in Raleigh, Cary, Wake Forest Tue, 06 Jan 2009 23:32:41 +0000 http://wordpress.org/ By: Tom Deadmore http://raleighrealestatetalk.com/2007/11/01/is-another-quarter-point-rate-cut-good-for-raleigh-home-buyers-and-sellers/#comment-115 Tom Deadmore Thu, 01 Nov 2007 20:26:47 +0000 http://www.raleighrealestatetalk.com/2007/11/01/is-another-quarter-point-rate-cut-good-for-raleigh-home-buyers-and-sellers/#comment-115 I'd like to add a little to this posting. The Fed cut rates by a quarter point, taking the Fed Funds Rate target down to 4.50%. As we have seen in the past, the reaction by the inflation hating Bond market wasn’t very favorable. Why? When money flows into the stock market (as it did after this announcement) bonds and mortgage backed securities suffer by money flowing out of that particular investment vehicle. Rates can rise as a result. Keep in mind that bonds HATE inflation. The Fed stated "Readings on core inflation have improved modestly this year, but recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully". The Fed’s concern about rising energy and commodity prices and their potential for fueling inflation weighed on the Bond market. Additionally, the Fed left the markets with the impression that there will be no further rate cuts for the remainder of this year. Speaking of inflation, the Fed has to feel good about this morning’s read on consumer inflation, as it remains in check for the time being. The Feds favored inflation gauge, the Core Personal Consumption Expenditure Index (PCE) for October rose 0.2%, which was in line with expectations. This left the year-over-year Core PCE unchanged at 1.8%, which remains within the Fed’s target zone of 1 -2%. This is good news to the inflation fighting Fed, especially after they had already cut a half point in September. Personal Income and Spending for September were both reported essentially in line with expectations. The Personal Savings Rate was reported at 0.9%, which is a slight improvement from the prior month's reading. Overall, the report shows consumer spending remains strong, core consumer inflation is holding steady and people are saving a little more of their after tax dollars. I’d like to add a little to this posting.
The Fed cut rates by a quarter point, taking the Fed Funds Rate target down to 4.50%. As we have seen in the past, the reaction by the inflation hating Bond market wasn’t very favorable. Why? When money flows into the stock market (as it did after this announcement) bonds and mortgage backed securities suffer by money flowing out of that particular investment vehicle. Rates can rise as a result. Keep in mind that bonds HATE inflation.

The Fed stated “Readings on core inflation have improved modestly this year, but recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully”. The Fed’s concern about rising energy and commodity prices and their potential for fueling inflation weighed on the Bond market. Additionally, the Fed left the markets with the impression that there will be no further rate cuts for the remainder of this year.

Speaking of inflation, the Fed has to feel good about this morning’s read on consumer inflation, as it remains in check for the time being. The Feds favored inflation gauge, the Core Personal Consumption Expenditure Index (PCE) for October rose 0.2%, which was in line with expectations. This left the year-over-year Core PCE unchanged at 1.8%, which remains within the Fed’s target zone of 1 -2%. This is good news to the inflation fighting Fed, especially after they had already cut a half point in September.

Personal Income and Spending for September were both reported essentially in line with expectations. The Personal Savings Rate was reported at 0.9%, which is a slight improvement from the prior month’s reading. Overall, the report shows consumer spending remains strong, core consumer inflation is holding steady and people are saving a little more of their after tax dollars.

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