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WSJ.com: Economics Blog

Economic insight and analysis from The Wall Street Journal.

Were Some Fed Officials Reluctant to Cut?October 29

The Federal Reserve, while cutting its benchmark interest-rate target half a percentage point today, also lowered its discount rate by half a point based on requests from four regional Fed banks. Where were the other eight? Despite today’s unanimous vote to move the federal funds rate to 1%, some Fed officials may have come along only reluctantly.

Directors of the dozen regional Fed banks, which make direct loans to commercial banks in their districts, vote periodically on where they’d like the discount rate to be set. The requests can offer clues to the thinking of each bank president ahead of the Federal Open Market Committee meeting to set the federal funds rate. The Fed’s governors in Washington meet to consider the regional boards’ requests, and the central bank usually raises and lowers the discount rate in lockstep with the federal funds rate. (The discount rate, now at 1.25%, is a quarter percentage point above the federal funds rate.)

Three of the four regional Fed banks that submitted requests to cut by half a point — Boston, New York and San Francisco — are home to Fed presidents who have been especially worried about growth risks over the past year. Eric Rosengren, president of the Boston Fed, has been the only dissenter since the financial crisis started to seek a deeper cut th

Fed Statement on Interest RatesOctober 29

The following is the Federal Reserves statement following the October rate-setting meeting.

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 1 percent.

The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.

In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability.

Recent policy actions, including todays rate reduction, coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth. Nevertheless, downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC m

Many Homeowners Think They’re Immune to Price DeclinesOctober 29

Almost half of U.S. homeowners think their homes are insulated from the broader national decline in prices, according to a survey by real-estate Web site Zillow.com.

Homeowners don’t see price declines affecting their own houses. (Getty Images)

Despite a financial crisis, market volatility and continued indications of declining home prices, 17% of homeowners told Zillow they think their own homes value stayed the same over the past year, while 32% said their home has appreciated in value. Zillow estimates that nearly three-quarters of homes have lost value in the past 12 months.

However, the numbers in the third-quarter indicate that more homeowners are seeing the effects the bursting of the housing bubble has on them. In Zillow’s second-quarter survey, 62% of respondents thought that their home value had increased or stayed the same over the past year.

The survey was conducted Oct. 7-9, while stock markets tumbled in one of the worst selloffs in history, making the results all the more surprising.

The human irrationality in terms of pricing and valuing what is ours has always been a barrier to good decision making, and the housing market i

Regulator, Lawmaker Trade Barbs Over PNCOctober 28

A Republican lawmaker and top bank regulator exchanged barbed statements this week, illustrating how high the stakes have become in the governments response to the financial crisis.

Dugan

On Monday, Rep. Steven LaTourette (R., Ohio) accused Comptroller of the Currency John Dugan of orchestrating PNC Financial Services Group Inc.’s acquisition of National City Corp. to benefit PNC, a former client of Mr. Dugan’s when he was a top Washington lawyer at Covington & Burling.

I think it’s entirely fair to pose the question about whether PNC got favorable treatment because of their relationship with the nations top banking regulator, Rep. LaTourette said in a press release Monday. Some may argue that National City was already gravely ill, but make no mistake, [Treasury Secretary Henry] Paulson and Dugan put the nail in the coffin.

Mr. LaTourette, a senior member of the House Financial Services Committee, asked Mr. Paulson to investigate the matter. The OCC is the top regulator for national banks and is a division of Treasury.

Mr. Dugan, a Republican veteran of Washington who spent years on Capitol Hill, fired back on Tuesday.

How Much Will the Fed Cut?October 28

The Federal Reserve is likely to cut its interest-rate target at a two-day meeting Tuesday and Wednesday. But central bank officials, while leaving the door wide open to further reductions from the current 1.5% federal funds rate, have done little to signal the size of their move.

Enormous declines in commodity prices — crude oil is less than half the price it was in July — should eliminate inflation as a leading concern for much of the next year. Instead, Fed policymakers will be bringing to the meeting some of their most pessimistic growth forecasts ever. (The forecasts will be released with the Federal Open Market Committee’s minutes on Nov. 19.)

The FOMC faces numerous questions: How much will lower rates really help an economy hit by deep credit strains? Will setting rates at or near 1% — the 2003-2004 level that contributed to the current housing and financial crisis — create a new problem and draw more criticism on the Fed for its loose monetary policy earlier this decade? Would pushing rates lower make it even harder for officials to tighten policy based on forecasts, as they eventually expect to do, even if the economy remains weak?

Among the Fed’s options:

No change: Some Fed officials wanted to stop easing rates long ago. They’re no longer dissenting, especially since the inflation scare has passed. But they might argue that rates are already