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Market Watch-What the Fed Reserve is up to

March 17, 2008
The Federal Reserve captured headlines again today, as it tried to stave off another potential credit-market seizure. In an unprecedented Sunday meeting of the Federal Reserve they took the following action: they pledged to lend, in return for no saleable mortgage-backed securities, $200 billion of Treasury notes to banks and investment firms that trade directly with the central bank.
The scuttlebutt suggests the Fed acted to save investment banking behemoth Bear Stearns, which had been unable to secure credit against its massive portfolio of mortgage backed securities. These securities matter to Main Street as much as to Wall Street; they provide the source funding for the mortgage market, which is why Fed Chairman Ben Bernanke and his colleagues are trying mightily to halt a cycle in which the losses on mortgage investments cause banks to cut their lending, possibly sending the economy into a recession. 
Unfortunately, the turbulent housing market isn’t cooperating. Home foreclosure filings in February edged down from January, but were a whopping 60% higher than a year earlier, according to real estate data firm RealtyTrac. Unfortunately, the mortgage-backed securities market can’t improve until the housing market improves. And as for the recession, some believe the fight is over – and the Fed lost. Separate surveys by Bloomberg and the Wall Street Journal show the majority opinion believes we are in a recession. The opinion isn’t without merit: The Commerce Department reported that retail sales fell 0.6% in February.
The decline reflects a sharp slowdown in consumer spending, which accounts for more than 70% of U.S. economic activity, as Americans grapple with high fuel and food costs and declines in home values and other asset prices. The good news is that inflation appears to have abated, which seems improbable given soaring oil prices. Nonetheless, it has. The consumer price index showed no increase in consumer prices for February. The benign CPI reading gives the Fed wiggle room to again cut interest rates – a likely event after Tuesday’s Federal Open Market Committee meeting (where the Fed sets the federal funds rate). 
Finally, I’m curious where the Presidential candidates stand on all of this.  It seems there’s too much rhetoric on the war in Iraq and truly not enough about the U.S. economy, the housing struggle and the price of gasoline. I guess time will tell when these items become part of the national debate. 
Guess I’ll just have to walk more.  Glad I live in the central city.
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