Real estate rates fall after Fed official drops 'bomb'

But more rate hikes expected

A peculiar confluence of weak data and goofy Fedology suddenly knocked the 10-year T-note below 4 percent, which in turn took mortgages under 5.5 percent.

The rate slide started on Tuesday with the newest drop in the purchasing managers' index, down in a straight line for a year from healthy-pink 60s to 51.4, perilously close to the economic stall marker at 50. Weekly filings for unemployment insurance have popped to 350,000; the Challenger layoff forecast has sharply deteriorated, especially in IT; and this morning's payroll gain for May was an anemic 78,000, less than half the forecast.

The lousy payroll number "should" have taken rates even lower, but by Friday rates had fallen so far that lousy wasn't enough; we needed awful.

Enter the peculiar parts. The economy does not appear to be all that weak – feeling the effect of global competition, but not in a stall. Example: U.S. auto sales slumped 8 percent in May – "U.S." as in GM, Ford, and DaimlerChrysler. Foreign-made cars, or cars made here under foreign management, did fine. Ford takes 37 hours to build a car; Toyota less than 28.

Foreign competition hurts wages and employment, but it has also slammed the lid on the inflation that $55/bbl should have brought. Should the Fed tighten more, into a low-inflation, sluggish-employment, and slowing economy?

Managing the economy is serious business, but last week's Fed follies were full-on black comedy. Wednesday morning, wearing a big grin on CNBC, the rookie president of the Dallas Fed, Richard Fisher: "We've gone through eight innings here, 25 basis points an inning. The next meeting in June is the ninth inning."

Read the entire Lou Barnes Inman News article at Citywide Services