–Recent Mtg Documentation Controversy Could Delay Housing Recovery

By Ian McKendry

WASHINGTON (MNI) – The Kansas City and Dallas Federal Reserve banks
remain the only two federal reserve banks out of twelve requesting a
discount rate increase of 25 basis points to 1 percent, the latest
minutes of the board’s discount rate meeting revealed.

The minutes from the discount rate meetings on October 18 and
November 1 showed that directors of the Kansas City and Dallas Federal
Reserves requested an increase in the discount rate on October 14 and
October 21, but were rejected.

The board also turned down a similar request by both federal
reserve banks to increase the primary rate on September 20 and October
18.

“Federal Reserve Bank directors generally viewed the pace of
economic recovery as slow, with unemployment rates too high and
underlying inflation subdued,” the minutes said.

“While some directors reported slight gains in consumer spending or
manufacturing activity, other directors described economic activity as
flat and anticipated only a gradual improvement in activity in the near
term,” the minutes continued.

The minutes also said some directors noted the housing sector
remains “depressed” and thought recent mortgage documentation
irregularities could further delay a recovery in the housing sector.

“Directors noted increases in some commodity prices, but with
considerable slack seen in labor and product markets, inflation was
expected to remain quite low,” the minutes said, adding, “against this
backdrop, most directors recommended that the current accommodative
stance of monetary policy be maintained.”

The minutes said some directors supported an increase in the
primary credit rate by 25 basis points to 1 percent which would result
in a 75 basis point spread between the primary credit rate and the
federal funds rate which would it said would “not represent a change in
monetary policy,” but rather “a move toward normalization of the primary
credit rate. ”

The minutes of the November 1 meeting revealed Fed board members
considered the primary credit rate and discussed it on a preliminary
basis but, “no sentiment was expressed for changing the primary credit
rate before the Committee’s meeting, and the existing rate was
maintained.”

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$$CR$,M$U$$$,MMUFE$,MGU$$$,MFU$$$]