Do you know what’s going on in our economy? Neither does the Fed!

Two big deals in recent days: A Federal Reserve Open Market Committee (FOMC) meeting and the most aggressive housing bill to pass through the legislative process in quite some time. Add on a com­modity valuation plunge, high inflation readings, an artificially inflated Gross Domestic Product and bake at 350 degrees for 45 minutes and you’ve got yourself an economic pie fit for a king.

A king named America.

Here’s the breakdown. The FOMC met this Tuesday and left interest rates alone. They cited inflation as their chief concern, but reiterated that slow economic growth was also at the forefront of their minds; a balance fit for complete inactivity. Ultimately, given the softening labor market, international slowdown and declining commodity prices (most notably falling oil), they claimed that we could ex­pect inflation to moderate over the tail end of this year.

I’m not quite as sure as Fed Chairman Ben Bernanke. The economic stimulus checks have essentially run their course, artificially raising the Gross Domestic Product to 1.9% annualized and consequently jacking up inflation short-term. I’ll buy that slow growth and a worldwide recession would put a lid on inflation expectations. However, the Personal Consumptions Expenditures index (the Fed’s favor­ite indicator of inflation) came in Monday at a whopping 4.1% annualized growth, which is way out­side of the Fed’s comfort zone. I’m not implying we’re going to see 80’s style inflation, but a little bit goes a long way towards eroding wealth worldwide. So, super-low rates (and at a Federal level, 2% is super low) may be a bit too stimulating and could allow already present inflation to take root.

In other news, last week our piteous president and Congress passed the Housing and Economic Recov­ery Act of 2008. Sounds nice and official, doesn’t it? For once, I gotta give a round of applause to the powers that be for listening to the Mortgage Banker’s Association as a huge influence on this bill. Politicians actually listening to experts in the field and implementing legislation accordingly. Hell has finally frozen over.

This bill is going to be a lot like a game of baseball: most of us will only care about the highlights. So here they are:

  • Increasing conforming and governmental loan limits
  • The Federal Housing Administration is getting modernized
  • Fannie and Freddie are getting bailed out and are having new regulatory authorities established to watch over them
  • New regulations and a unified licensing system will be mandated for mortgage brokers and bankers
  • A fund is being created to facilitate affordable housing and stop foreclosures
  • More benefits are being given to our active military (because God only knows they deserve it)
  • Until April of 2009, our government is giving out free money (at least temporarily) for 1st time home ­buyers to stimulate home purchasing via tax credits

All of that plus a few other fringe benefits to the ailing housing market gets a big, fat thumbs up from me. If you’d like the nitty-gritty specifics of the bill, either call me or check out the PDF document I attached. It is certainly not an instant fix for all of our housing problems, but it is a step in the right direction. It’s going to cost taxpayers, but the cost of NOT implementing this plan would be far worse.

Maybe a little sting in taxes would help to keep us from repeating the mistakes of the recent past.

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