Economic Slowdown To Hit Housing

Federal Reserve Board governor Laurence Meyer told private economists this morning that he believes the domestic economy, including housing starts, will slow in 1999 "in response to weaker foreign growth, the recent decline in equity values, and the widening of risk spreads" in the bond market.The Fed governor noted that mortgage rates have benefited from the decline in U.S. Treasury rates and refinancing activity could cushion a slowdown by giving consumers more discretionary income. "That could help, " Gov. Meyer told the National Association of Business Economists. But he told reporters afterward that some refinancing opportunities "have been exhausted. That is part of the problem." The NABE's economic forecast survey (taken in early September) found that housing construction may have peaked and there will be a slight decline in 1999 production. The NABE survey also shows that economists believe the Fed will cut interest rates to maintain a 2.2% growth rate in 1999. Gov. Meyer told the NABE meeting that the Fed has moved toward easing monetary policy, but the Fed will not cut interest rates aggressively until it sees concrete evidence of a slowdown in the U.S. economy. Meanwhile a survey of top economists by Macroeconomics Advisers, St. Louis, taken on Friday (Oct. 2) found respondents expect the Fed will cut interest rates by 100 basis points over the next 12 months.