There’s always something to howl about.

FedSpeak July 1, 2008

The following are excerpts of a speech made by David Lockhart, President of the Federal Reserve of Atlanta. My interpretations are in italics and bold.

Speech – July 1, 2008: “What’s ahead
I know you are most interested in the path from here—the path to recovery in the financial markets and, by my inclusion, the broader economy. My base case forecast for the economy involves a stronger-than-expected first half of 2008 with growth of 1 to 2 percent but not much pickup in the second half. That means that things are going to slow down from here to at least Christmas.

The drag of high energy costs, continuing financial market stress, and a still-declining housing sector may continue for a while with gradual improvement of growth in 2009. That means that we hope that by the end of 2009, we’ll see the economy start to show a little improvement. Not much, but a little.

There is much uncertainty surrounding this outlook. We really don’t know and we’re guessing almost as much as you are.

More adverse alternative scenarios are entirely possible. We’re probably being overly optimistic.

Self-reinforcing progressive deterioration Lower house prices will reduce the number of people who can refi out of bad loans which will bring increased defaults which will bring increased numbers of REO which will bring lower house prices (now repeat this again) could continue in the housing market, in turn affecting the financial markets the banks will take it in the shorts if that happens.. And neither the financial markets nor the overall domestic economy is protected from surprise events around the world.

Like many, I believe stabilization of the housing sector is required for recovery to proceed Really? Who would have thought? (Okay, sorry for the sarcasm). There are early and tentative signs that a bottom may be forming in some housing markets. Having said that, a sober approach to calling the future must allow for an additional period of house price decline, a slow housing sector recovery, and, as a result, a quite choppy progression to better markets and economy.” It’s going to be a rocky road. We better be prepared, educated and prepare our clients.