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Call to Action; No Further Rate Cuts

Ken Rosen, the real estate guru (Chairman for the Fisher Center for Real Estate and Urban Economics at the University of California at Berkeley, and a leading REIT fund manager), today takes a pointed position on possible further rate cuts by the Federal Reserve. I thought I'd share his commentary:

By Jonathan D. Miller | Updated on January 29, 2008

Ken Rosen, the real estate guru (Chairman for the Fisher Center for Real Estate and Urban Economics at the University of California at Berkeley, and a leading REIT fund manager), today takes a pointed position on possible further rate cuts by the Federal Reserve. I thought I’d share his commentary:

“The Federal Reserve Board is deliberating over the state of the economy, and on Wednesday afternoon will announce its decision on changing the federal funds rate. It is widely believed by financial markets that the FED will cut the federal funds rate by an additional 50 basis points. This expected large cut would come just one week after the extraordinarily large 75 basis point emergency cut. The cut of a week ago was widely believed to have replaced the “Greenspan put” with the “Bernanke put”-that is, the FED rides to the rescue when there is a sharp correction in financial markets. The logic of the FED is that these stock market corrections impact the real economy through consumer confidence and wealth effects, and so it contends that it was not trying to bail out financial markets, but just trying to keep the economy on an even keel.The logic for an additional 25 or 50 basis point cut on Wednesday is not apparent. Before the cut last week, the market was expecting a 50 basis point cut on January 30th. The market got that and more last week or the FED to make an additional cut on January 30th would be a huge mistake. Economic data coming in for the last two weeks shows a large drop in first-time unemployment claims, a surge in durable goods orders and steady consumer confidence. Yes, the housing data continues to show a weakening housing market…. but that data represents the continuing unwinding of the speculative bubble in housing that will take several more years to play out.”   

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