FOMC Minutes Track Long Course to Economic Recovery

joelc — Fri, 09 Jan 2009 17:55:00 GMT

President-elect Barack Obama is going to need his track shoes on to hit the ground running when he takes office later this month. The nation’s tortuous economic course is going to test his endurance and stamina as he winds along a very long-winded marathon.

Although this is not breaking news to anyone, minutes released this week of the Federal Open Market Committee’s December meeting show just how bad things have become mixed with a bit of healthy dissention between the Committee members as to how to deal with the crisis. In the end the meeting resulted in a united statement of position with the Fed coming out announcing a “range” for the federal funds rate instead of the usual exact numerical target for the rate.

The minutes describe the many economic indicators that have taken a turn for the worse just in the period since the FOMC’s last meeting in October. There is a glimmer of hope on certain fronts, but overall, the U.S. economy is in dire straits with the real possibility of a “prolonged retraction” for many years looming overhead.

Factors relating directly to real estate continue to be of major concern. Those factors include:

•    The housing market weakened again as construction activity, new home sales, and home prices declined further
•    Financial markets saw a further pullback in risk-taking
•    Output of construction supplies declined
•    Whatever real income boost people got from recent lower energy prices was offset somewhat by the negative wealth effects of lower home equity and house prices
•    Single-family housing starts and permit issuance declined further in November

One positive factor was the slight ease of financing conditions for prime borrowers thanks to the Fed’s announcement it would purchase agency debt and mortgage-backed securities totaling as much as $600 billion.

An updated forecast prepared for the Committee by staff members revised down its outlook for economic recovery in 2009, with a projected moderate recovery in 2010. Real GDP is expected to fall further than anticipated during the first half of 2009.

All meeting participants agreed the economic downturn had intensified during the Fall of 2008. Household wealth has dropped sharply as credit conditions tightened up, unemployment increased and consumer confidence waned, causing a sharp contraction in consumer spending.

In summary, it looks like the FOMC members were somewhat taken aback by just how bad things had turned in such a short period of time. Whatever solutions they eventually promulgate will have a long, drawn-out course to post-marathon recovery.

What does all this mean for those looking to the advantages of purchasing or dealing in foreclosure property? Most likely it means there is still quite a way to go before the current foreclosure trend peaks out. Even when home prices bottom out, some forecasters expect the economy to drag along the bottom for a number of months (if not years) before prices recover any of the current lost equity.

It looks like 2009 and 2010 are going to be good years to buy real estate at bargain prices. Time to start doing your homework now and get ready to join the race.

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FOMC Minutes Track Long Course to Economic Recovery