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Equity Now In The News - 2005

The Wall Street Journal Online - WSJ.COM
May 3, 2005

Fed Rate Hike And Caution Not Seen Hurting Real Estate

NEW YORK -- The Federal Reserve Board's decision to raise rates for the eighth time since mid-2004 likely won't have a material impact on the real estate and home-building sectors - at least not yet.

Although this is the eighth consecutive rate hike and short-term rates have now tripled to 3%, they have yet to have a material impact on longer-term rates. The Fed seemed to cushion the potential blow of the latest rate increase by telling the Street that it plans to continue to raise rates at a "measured" pace as part of an "accommodative" monetary policy.

The statement reflected the conflict facing the Fed as it tries to balance concerns about high energy prices fueling inflation and the latest figures that showed the U.S. economy slowed in the first quarter.

Michael Moskowitz, president of Equity Now, a lending company, said the Fed's comments appeared to recognize that spending growth has slowed. "I think the energy prices have been a damper on the economy, and the economy is going to grow slower," said Moskowitz. "Yes, adjustable-rate (mortgages) have gone up, but fixed-rate (ones) have stayed the same or went down."

He speculated that if the Fed had boosted rates 50 basis points instead of 25, the reaction on the long end may have been swifter and bigger. Also, if short-term rates continue to climb another 75 to 100 basis points, and businesses make less and pay employees less, the economy will slow down, and "this will put a damper on the housing industry."

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