FOMC Fed Day 21 March 2007

Three economists stated yesterday that the housing market has not yet bottomed and is unlikely to begin a recovery until the middle of this year. Senate Banking Committee Chairman Christopher Dodd also said yesterday that the growth of the "predatory" sub-prime lending market has victimized minority, immigrant and elderly homeowners. Sector weakness is forecast to encompass existing-home sales, new-home sales and housing starts as well as home prices, which are projected to show their first-ever full-year national decline. David Seiders, chief economist for the National Association of Home Builders, claims excess inventory is a persistent and serious problem. He points out, however, that "GDP growth, unemployment, the overall inflation situation and interest rates" have all been positive, indicating the economy is weathering the housing crisis well. Senator Dodd has taken the lending industry to task and charged the government with responsibility to tackle "irresponsible lending practices [that] are creating a crisis for millions of American homeowners." The Mortgage Bankers Association is resistant to any new underwriting standards that it claims could "stifle innovation and take good financing options out of the hands [of] homeowners." Rev. Jesse Jackson concurs with Dodd, calling predatory lending "targeted economic exploitation."

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From CBOT's Fed watch, 98% probability of no change so far.
Based upon the March 16 market close, the CBOT 30-Day Federal Funds futures contract for the April 2007 expiration is currently pricing in a 2 percent probability that the FOMC will decrease the target rate by at least 25 basis points from 5-1/4 percent to 5 percent at the FOMC meeting on March 21 (versus a 98 percent probability of no rate change).

Summary Table
March 14: 98% for No Change versus 2% for -25 bps.
March 15: 98% for No Change versus 2% for -25 bps.
March 16: 98% for No Change versus 2% for -25 bps.
March 19:
March 20:
March 21: FOMC decision on federal funds target rate.
For charts showing the action in the E-mini S&P500 on Fed Days go here: FOMC Fed Day Charts
From the Fed today:

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Recent indicators have been mixed and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters.

Recent readings on core inflation have been somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.

In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.
What the 5 minute E-mini S&P500 chart looked like on this FOMC Fed Day.