Are Housing Market Troubles Too Much for a Fed Rate Cut?

Many in the mortgage industry, and even some in the stock market, are putting a lot of faith in tomorrow’s expected Fed rate cut. The hope is that, as happened in 1998, the stock market and the U.S. economy with it, will bounce back from the edge of despair. However, the Wall Street Journal points out that this may not be the case:

“The bounce-back in the financial markets is probably going to be smaller than it was in 1998,” when the Dow Jones industrials surged 20% from its close on Oct. 1 through the end of the year, says Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. “We should expect further problems in the financial markets from the housing troubles.”

A Fed rate cut may not be enough to overcome housing market troubles that have led the mortgage industry down. And, while the cut will make getting a mortgage loan more palatable for some, tighter standards may mean that fewer will qualify for the lower interest rates.

And it doesn’t look like the stock market is doing as well as one would hope with such news, either. The Dow is down this morning. But, on the bright side, that means bargain hunters may still be in luck.