Fed Chief Cautious, But Not Alarmist On Mortgage, Housing Market Woes
Federal Reserve Chairman Ben Bernanke does expect the escalating problems in the Florida mortgage business to spread to the rest of the economy, but noted that the Fed has given itself “flexibility” to adjust interest rates should the outlook change going forward.
Inflation is still the predominant concern, and the economy doesn’t appear to be in danger of slowing too much, but regulators remain watchful.
Analysts say the Fed appears on track to keep its key short-term interest rate - which greatly impact mortgage rates - relatively steady, but many investors appeared to read Bernanke’s comments as a sign that a rate drop is unlikely to happen soon.
Testifying before the Senate Joint Economic Committee, Bernanke offered a window into the Fed’s thinking, saying that doubts about the economy have prompted the U.S. central bank to leave itself wiggle room.
“We are looking for a bit more flexibility, given the uncertainties that we are facing and the risks that are occurring on both sides of our outlook,” he said. “Those uncertainties have increased somewhat in recent weeks.”
He was careful to hedge his remarks with a firm reiteration of the Fed’s inclination to raise federal funds interest rates, not lower them, given a high rate of inflation.
The hearing also allowed the Fed to wade deeper into the discussion of the rising number of bad credit Florida mortgage defaults among risky borrowers - those who receive loans aimed at people with suspect credit.
Bernanke’s answer, in short, was probably not.
In recent months, numerous bad credit mortgage providers have reported big financial problems. As defaults rise, many Florida mortgage company struggles have been reported in the papers, with more than a few forced to go out of business.
Many economists have expressed concerns that mortgage market problems may exacerbate a slump in the housing market and, in turn, stall the economy. But Bernanke said that is unlikely to happen.
“The impact on the broader economy and financial markets of the problems in the subprime mortgage market seems likely to be contained,” he said.
Bernanke also said that he believed “it’s worth looking at” the possibility of Congress giving the Fed authority to enforce regulations on both lenders and mortgage brokers who are not part of banking institutions.
SOURCE: International Herald Tribune
