The Fed’s rate slashing campaign has appeared to right the floundering financial system but nonetheless the housing slump continues to worsen. The Fed Chairman Ben Bernanke spoke before the Columbia School of Business on Monday and remarked on mortgage delinquencies and foreclosures.

“Most Americans are paying their mortgages on time and are not at risk of foreclosure. But high rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets, and the broader economy. Therefore, doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It’s in everybody’s interest.”

He also calls for an increased role for the Federal Housing Administration as well as Fannie Mae and Freddie Mac in assisting the housing market. These agencies may have to step up their efforts to provide liquidity to mortgage markets as the commercial banking system appears unwilling at the moment.

Home prices have continued to fall as private financial institutions have tightened lending standards significantly, which is having an adverse effect on housing demand. Bernanke is expecting the high rate of foreclosures to continue at least to the end of the year.

One also has to keep in mind that there could be a considerable lag from the time credit markets are fully restored to when it will have a noticeable effect on the housing market. The opposite was the case, as it took a year after home prices began to fall before financial system was rocked by sub prime write downs.

The Fed’s latest rate cut will probably be the last one it will make for some time, with two members of the open market committee dissenting in last week’s vote. I believe that they would prefer to keep interest rates at their current level for as long as possible but recently the president of the Kansas City district has called the problem of inflation “serious” and that the Fed may be prompted to raise rates.

Earlier today, the Labor Department released employment data which showed that the economy lost 20,000 jobs in the month of April, much less than the 75,000 which economists had forecasted. The Secretary of Labor issued this statement after the report was released.

“In today’s better than expected jobs report, both payroll employment and the unemployment rate were essentially unchanged from last month. While we continued to see declines in construction and manufacturing, the service-providing sector of the economy showed an encouraging increase of 90,000 jobs. The economic stimulus checks, some of which have already been mailed out, should help working families cope with the very real short term challenges of the current economy.”

The news comes as a pleasant surprise on the heels of the Fed’s rate cut on Wednesday. The impression that the Fed will keep rates at their current level for the near future has also helped in stabilizing the dollar’s free fall in currency markets, while also putting a damper on rising oil prices.

Today, the Fed also announced measures to inject more liquidity into credit markets by increasing the loan amounts for it’s Term Auction Facility to $150 billion, an increase of $50 billion from the previous month. This is in coordination with European and Swiss central banks which also announced liquidity moves, albeit at a much smaller scale.

It remains to be seen what impact the economic stimulus package will have on consumer spending and economic growth in the upcoming months but for now a relatively positive news week has left many analysts with the feeling that the economic downturn might be milder that what many people once feared.

The Euro has begun to lose a small amount of value against the dollar after its record high of $1.6019 earlier this week.  The euro traded at $1.5685 late yesterday.

The dollar gained a small bit of value against Japanese currency.  The dollar is worth 104.63 yen.  This is up from the value of 104.22 yen earlier this week.

The British pound is now trading at 1.9763 dollars.  Swiss francs are trading at 1.0349 dollars.

The Euro has remained strong against the dollar for several years, with its strength increasing during the US rate cuts made by the Federal Reserve.  Since September of last year, the US Federal Open Market Committee has reduced the discount rate and the federal funds rate repeatedly.  This has opened the door for inflation problems and weakened the strength of the dollar.

The European Central Bank has primarily focused on keeping inflation under control as much as possible, and has chosen to keep their interest rates the same.  The primary focus of the US Federal Reserve Board has been to stimulate economic growth and increase liquidity in the markets to combat recession and a major credit crunch.

Experts speculate that the Federal Reserve will make at least one more modest rate cut in light of the inflation problem in the US.  With inflation creating pressure on the FOMC, rate cuts will continue to be a difficult decision.

Meanwhile, according to the University of Michigan, consumer sentiment has decreased to its lowest point in nearly three decades.  Gas and grocery prices are steadily increasing nationwide.  The unemployment rate has risen beyond 5%, nearing 8 million people without jobs.

The economic stimulus package will be sent out early next week, and eligible consumers should see the checks for an amount between $300-$600 per person.  Hopefully, the plan will work to give the economy a small boost over the course of the year.