The Fed was right: things are getting worse
Recent indications made by the Federal Open Market Committee (FOMC) have indicated economic slow down. Federal Reserve Board chairman Ben S. Bernanke in a recent testimony on the economic outlook gave vague ideas about where the economy is headed, leaning towards a message of economic uncertainty. Governor Randall S. Kroszner offered a more insightful speech on risk management and the economic outlook, but it wasn’t all positive.
Based on the minutes from the October FOMC meeting and the aforementioned words of members on the Federal Reserve Board of Governors, things are expected to get worse before they get better. All of the major concerns, the rising price of oil, the falling value of the dollar, and the plummeting mortgage market have all gotten worse already. Don’t things always get worse before they get better?
The price of oil is up nearly at $100 per barrel. There is such a high demand, and while global resources aren’t lacking, but a shortage of workers and foreign relations on the most oil rich lands (ie. Iran) that are less than friendly don’t help the matter. Prediction are not only that the price of oil may continue to rise, but that in a few short years, supply will no longer be sufficient for our 100 million barrel a day demand. This means we won’t only be dealing with inflation troubles, but an energy shortage.
Cuts in interest rates have played a role in the falling value of the dollar. The Euro has once again hit a record high of $1.496. The climb of the Euro is expected to continue and possibly hit over $1.50. The Canadian currency has already hit over $1.01 and hasn’t fallen much. Additional rate cuts won’t do anything to help this problem.
Data on housing value indicated a 1.7 percent dip in the third quarter. The housing recession, expected to hit next year, will show decreases in property value totaling $1.2 trillion. California’s housing market has suffered the most, and will be expected to lose a total of over $600 billion in property value.
The coming year’s economy does not look too pretty from this angle. Governor Kroszner did warn in his speech that we will have a “rough patch during next year.â€Â He also said that certain areas of the economy should normalize after a time.
Perhaps things won’t get as awful as it looks like they may get. If our economy does hit rock bottom next year, the good thing is that we can only go up from there.
