Posted on 09/10/2007 9:15:21 AM PDT by Moonman62
SAN FRANCISCO (Reuters) - San Francisco Federal Reserve Bank President Janet Yellen said on Monday that the current turmoil in financial markets has added "appreciably" to downside risks for the U.S. economy.
"Financial market turmoil seems likely to intensify the downturn in housing," and pose a risk to broader economy, especially consumer spending, Yellen said in a speech at the National Association of Business Economics annual meeting.
Still, Yellen said the goals of price stability and full employment must be the "unswerving focus" of policy-makers. "Monetary policy should not be used to shield investors from losses."
Yellen is not a voting member of the central bank's Federal Open Market Committee in 2007.
She said that declining home prices could hurt consumer spending, and that risks to economic growth would be "significant" if housing prices fall in the context of rising unemployment.
"The key point is that ... a drop in house prices is likely to restrain consumer spending to some extent," Yellen said.
The Fed's actions to shore up the credit markets so far have been "helpful" but not a panacea, Yellen said.
Ultimately, the bank must consider the role of lags in making any policy adjustment, she said. "It is critical to take a forward-looking approach."
Financial markets look for the FOMC to lower its target fed funds rate this month to 4.75 percent from 5.25 percent, where the rate has been since June 2006.
Yellen did not directly address the rate outlook, but referenced an updated FOMC statement made on Aug 17 that discussed increased risks to growth.
"This assessment apparently is similar to that of market participants," Yellen said, noting the decline in the implied fed funds rate shown in interest rate futures markets.
Yellen it was still possible that ultimately, the fallout from the credit market crisis could turn out to be small and that the market could be returning to more normal risk pricing.
"Keeping a cool head" is advisable, she said, while allowing that "the transition from one regime to another can be quite painful."
Yellen said that improvement in inflation pressures has been evident recently, and that core inflation was likely to edge down "slightly" in the next few years.
LOL. The Fed has yet to achieve either one.
"Monetary policy should not be used to shield investors from losses."
Of course, using monetary policy to cause investors to lose money is a whole different story.
Re: turmoil adds to risk for economy
Amazing how these guys can merely state the obvious and people will fall over themselves calling what they said brilliant!
Whatever Yellen. My home ain’t sellen, but I’m still Gellin.
Yep, I need to get me one of those FOMC jobs. You can be wrong year after year, cause trillions of dollars in lost economic opportunity, and still get treated like a rock star.
It seems to have now migrated to the South. I listed a Town home I purchased 2 years ago and never lived in. It was not an investment property but where we intended to live after selling our home in MA. We have since changed our minds and decided to stay closer to family. The Town home has been listed for almost 3 weeks and has not even been shown despite it being priced below comparable units sold recently (since June). It's puzzling because the home is in an area of NC with ultra low taxes and the home has tons of upgrades. Fortunately we have no mortgage on the place and don't need the money for the new place but this is a bit unsettling.
The Dow is down 50 points right now. Getting close to 13,000 at 13,050 or so. I’m just an amateur, but those 1,000 marks on the Dow seem somewhat significant pyschologically to me. I will be interested to see what happens if the Dow closes below 13,000, if that sparks another round of sell-offs, or if it is a non-event.
In S Florida the market is dead. There are no buyers even if the asking price is below market. There’s no market. People are renting their places out instead of selling, or they’ll rent them out while they’re listed.
They are, but if you want to see where the action is look at bond yields. They are going down again today.
The Dow has just eased through a key support point(13,134). That, in and of itself, is not conclusive, but it is an event worth noting.
For example, if the Federal Open Market Committee next week does NOT lower the fed funds rates, I expect the markets will go much, much lower.
The bond traders have already placed their bets. Just look at bond rates: 5 YR T-Note is now a 3.97% yld, 10 YR T-Note is a 4.31% yld, and the 30 YR T-Bond a yld of only 4.63%.
This is going to be interesting.
It's funny how the panics always occur after the Fed has jacked up interest rates, usually inverting the yield curve.
Seems to be a glut of townhomes in NC these days. They sold really well in ‘03-’05 and just built too many too fast. The larger ones where I live with basements sell really quick, as do the end unit ones. The smaller ones in the middle have sat for a really long time however (6-9 months). Great choices available for a FTHB now though if you want a townhome.
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