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Fed Still Mum On Fate Of Rate

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By JEANNINE AVERSA, The Associated Press

Published: September 6, 2007

WASHINGTON - A painful credit crunch is taking its worst toll on the ailing housing market, and its effect on the rest of the economy so far seems limited, the Federal Reserve reported Wednesday.

Both Wall Street and Main Street anxiously have awaited the Fed's survey of business conditions for clues about what the central bank will do regarding interest rates Sept. 18, its next regularly scheduled meeting.

Economists increasingly think the Fed at that meeting will lower a key interest rate, now at 5.25 percent, by at least one-quarter percentage point to protect the economy from the credit crisis. The Fed has not lowered this rate in four years.

'Outside of real estate, reports that the turmoil in financial markets had affected economic activity during the survey period were limited,' the Fed's report said.

On Wall Street, stocks tumbled as the Fed's report disappointed investors who were looking for a guarantee that rates will go down this month. The Dow Jones industrial average closed down 143.39 points.

The report failed to 'make a clear case for the Fed to ease,' said T.J. Marta, fixed income strategist at RBC Capital Markets.
Fed Chairman Ben Bernanke, in a speech Friday, pledged that the central bank would 'act as needed' to limit any fallout on the economy from the credit crunch. He made clear, though, that the Fed would be driven by what is best for the economy and would not bail out investors and lenders.

In Wednesday's survey, the Fed said most banks reported that the recent developments in financial markets had led to more restrictive lending standards for people wanting to obtain home mortgages.

That 'was having a noticeable effect on housing activity,' the Fed said. 'The reduction in credit availability added to uncertainty about when the housing market might turn around.'

The Fed said several banks noted that commercial real estate markets had experienced 'somewhat tighter credit conditions.' But some banks said 'credit availability and credit quality remained good for most consumer and business borrowers.'

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