Fed Surprised By Housing - Again

According to PIMCO's Fed watcher Paul McCulley, just released minutes of the May 9 gathering of the Fed's policy makers -- the Federal Open Market Committee -- shows the Fed's "still wrapped 'round the axle of low unemployment (while scratching heads as to the "puzzle" of weakness in growth, but limited slowdown in job creation), even while conceding that the housing market could stink up the joint more noxiously and for longer than previously expected." He concludes that the Fed wants, "the unemployment rate to go up. ... That simple and that profound." Higher unemployment could ease the Fed's traditional worry: rising inflation. "The incoming data on new home sales and inventories suggested that the ongoing adjustment in the housing market would probably persist for longer than previously anticipated."
Here's snippets of how housing was discussed at that Fed meeting ... (Full minutes are HERE)
"Residential construction activity remained soft as builders attempted to work off elevated inventories of unsold new homes. Single-family housing starts moved up in March, almost certainly boosted by unusually warm and dry weather; single-family permit issuance also increased. Although existing home sales declined in March, the level of sales was only slightly below the steady pace that had prevailed in the second half of 2006. By contrast, new home sales fell sharply in the first two months of the year and had recovered only a bit in March. All told, recent readings on home sales suggested that housing demand had weakened further. House-price appreciation continued to slow, and some measures were again showing declines in home values."

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