Will They or Won't They

The news media in general is saturated with speculation about whether the Fed will raise interest rates at their next meeting on September 18th. I might as well join in and have some fun!

A few weeks ago I'd have been among the minority, saying there would be no Fed rate cut on September 18th and probably not this year. But that's before the mortgage mess got even worse, the jobs report was abysmal and the stock market looked ready to jump off a bridge!

The truth is the Fed doesn't want to cut rates. They remain more worried about inflation than about the housing market or the current employment situation. Their strong preference would be to leave the Fed Funds rate alone and rely on help elsewhere to help with specific economic trouble spots.

But I believe that things have gotten so ugly that there's just too much pressure. I believe the Fed will bow to that pressure and cut interest rates a quarter point. There's still some question in my mind whether they'll do it on September 18th or try to hold out until the next meeting. But unless there's some significant good news very soon I suspect that the cut is probably coming sooner rather than later.

The really interesting question is what will that do for all of us. Well, it will probably get some buyers who were sitting on the fence out the door and looking at homes. I believe we're already seeing some of that as there's evidence of increased traffic over the last couple of weeks. And, some of those people out looking will buy. I believe that 30-60 days from now you're going to see a little bit of a bump in sales.

I'm not yet convinced that this will completely turn things around and that recovery is just around the corner. There is still a tremendous back log of inventory out there and somebody has to clear it. Buyers may be out shopping but if sellers don't start dropping prices I think the buyers will continue to sit and wait. It may be a game of chicken but buyers really do have an advantage in this version!

OK, your turn to have some fun. What does your crystal ball show?