Restraint a Good ‘R’ Word for Fed’s Vocabulary

When he first took over the job as Fed Chairman from Alan Greenspan, Ben Bernanke was not so quick to do anything to upset the applecart. His “wait and see” approach to fiscal and monetary policy drove market analysts and reporters crazy trying to second guess what he was going to do — if anything — after his predecessor ratcheted up rates 17 times.

And it took an equally long time before he would dare to use the big “R” word recession in a complete sentence. Now those same economists, analysts and reporters are busy announcing the end of the recession…but Bernanke and his merry band at the Federal Open Market Committee are not jumping on that bandwagon. Not quite yet anyway.

What Bernanke and the committee members are doing is continuing to exercise another “R” word that Bernanke is becoming famous for, and that is restraint.

In its latest official statement released last week, the FOMC said that information it has received suggests that economic activity is leveling out. That’s not quite the same thing as proclaiming flat out that the worst is over and all our economic concerns are behind us.

The Committee exercised restraint once again, leaving the federal funds rate at a target range of zero to 0.25 percent. It is a level that the FOMC expects to keep rates for “an extended period” — whatever that may be.

“Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit,” the FOMC said, adding that it expects inflation to remain “subdued for some time.”

It all sounds promising, but what all this means for the nation’s housing market is still uncertain. In the meantime, the nation reported a record high level of foreclosure activity in July, according to RealtyTrac.

With unemployment still at elevated levels, and consumer confidence in the doldrums, the nation’s foreclosure inventory will most likely accelerate for at least the foreseeable future. And that is a positive for potential homebuyers who are now coming off the fence, and for real estate investors looking to expand the volume of properties in their portfolio.