Fed Wary of Further Tightening

While the slowdown in the housing market has been "orderly," members of the Federal Reserve Board's interest-rate-setting committee are concerned that further tightening could spark a "sharper downturn" in the housing sector.The declines in new-home sales and starts, along with higher inventories, order cancellations, and reports from homebuilders, suggest that this "weakness" will likely be extended, according to the minutes of the Federal Open Market Committee's June 28-29 meeting. Fed Chairman Ben Bernanke and his colleagues believe the slowdown in home sales and construction activity is "broadly in line" with the tightening in monetary policy over the past two years. In addition, they seem to take comfort in the fact that housing prices continue to rise and at a much slower pace than in recent years. "Participants observed that the evidence to date indicated that the slowdown was orderly, but were mindful of the possibility of a sharper downturn in the sector," according to the FOMC minutes released July 20.