Prospects for Recession Still Unclear

[Jan 15, 2008.]

The President of the Federal Reserve Bank of St. Louis says that it's still unclear whether the nation is headed for recession.

In an address to financial planners recently, William Poole made note of the errors which he believes gave rise to troubles in the emaciated housing market.

"Will housing sector problems push the economy into recession? It is too early to tell right now, but what we can do is to examine the current situation closely and try to learn from it," Poole said in his speech.

Poole laid part of the blame on homeowners who did not do sufficient "homework" when applying for adjustable rate mortgages. Those mortgages have now been adjusted to significantly higher rates. Poole also accused some borrowers of giving 'misleading or false information' about their capability of repaying their mortgages.

Still, Poole indicated that financial professionals are most responsible for the subprime crisis.

The housing crisis is the worst recorded in some 16 years. It began in the subprime market, but has since spread to other areas of the housing sector. The subprime crisis has bankrupted some companies and led others to tighten standards on home loans.

At the same time, home sales have been falling dramatically. Home prices have also taken a nosedive, causing tough times for homeowners. Homeowners are also having a tougher time securing refinance loans, causing some to max out their credit cards in response.

The Federal Reserve Board has pledged to do all it can to prevent the housing crisis from turning into an all-out recession. The Fed has already cut interest rates, and additional rate cuts could be on the way. Some analysts, however, predict that the housing slowdown will not abate until at least the middle of the year. Some forecasters predict the housing crisis could last into 2010.

Julie Ann Amos
January 15th 2008

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