After a long hot summer of discontented money lenders, all it took was for the Fed to slice short-term rates by half a percentage point. Now all of a sudden the Dow is less than 300 points away from 14,000. Like crazy, man. What this means for home buying is another story. Countrywide was up today 3.2 percent and KB Home was up 3.7 percent - nice gains, but hardly the makings of big turnarounds for those L.A.-area companies. "Shock therapy" was how Lehman chief economist Ethan Harris put it. Now the question is whether the Fed will keep cutting or stick to its low inflation knitting. From the NYT:
The debate within the Fed was all about risk probabilities: what were the odds the twin meltdowns in housing and mortgage markets would tip the overall economy into a recession later this year? If policy makers cut rates too cautiously, they risked a recession; if they cut them too much or too early, they risked stoking inflation. Economists said what appeared to push the Fed to cut rates by a half point were the dismal job market numbers from August. “I think that was a real eye-opener for them,” said Joshua Shapiro, chief United States economist for Maria Fiorini Ramirez, an economic consulting firm in New York. “The only ammunition the consumer has left is from the labor market. If income growth is compromised here because the labor market is weakening, then you’ve got a serious problem.”