The housing slump did not stop apparently; at least it got along with our expectations, as the building permits which are a futuristic gauge for the housing market declined, signaling that we still need to see more cuts and decisive actions from the fed to handle the essential and fundamental problem in the market which led us to all of those crisis, the housing slump.
At the same time, inflation actually exceeded expectations, and with more rate cuts in the upcoming future due to slowing growth and a deteriorating housing sector inflation levels will fly higher and higher, and if that happen so basically we are heading to what is way more worse than recession, we are heading towards stagflationÃ¢â‚¬Â¦so what to do??!!
That was actually hinted for in yesterday's FOMC minutes where they downgraded growth expectations and upgraded inflation forecasts, and here comes the main problem, even when they say that slowing growth will anchor inflation by time, but that doesnÃ¢â‚¬â„¢t seem to be the case, and the only solution they got is to cut rates and stimulate growth, and then make a quick reversal and start hiking again to ensure stability in prices.
Is it that easy?? I donÃ¢â‚¬â„¢t think so, because the problem is not going to be solved unless we've seen the bottom for the housing slump, and if that didnÃ¢â‚¬â„¢t materialize and the fed's started to reverse rate up again, there will be hell to pay, and a problem is going to came back deeper and stronger.
From what we see now, the fed has to control three variables in the economy, growth inflation, and the housing market, if one of those goes down, the whole economy gets ruined.
Today, we have some data from the manufacturing sector represented by Philly fed index which is expected to show a weakness still in manufacturing, which will make the economy look worse and worse, completing the half broken picture of the world's largest economy.