Inflation Pressures Are Easing but Rate Cut Forecast Remains Uncertain

The New Year is beginning where the old one ended -- with uncertainty about when – or whether – the Federal Reserve will begin cutting interest rates.

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The home mortgage interest deduction is in the political cross-hairs once again, as lawmakers seek cost-cutting measures that can win bipartisan support in a divided Congress and make a significant dent ($2.4 trillion is the target) in the federal budget deficit lawmakers are trying to tame.

Housing, the engine that has propelled the economy out of past recessions, has become a dead weight in this one, keeping the recovery stuck somewhere between neutral and first gear and threatening to hurl it into reverse.

The housing crisis, which was supposed to sort itself out over time, has lingered and deepened instead, spewing a continuing stream of foreclosures into already burgeoning inventories, depressing home prices and, in the view of many economists, impeding the economic recovery. That consensus view has led the Obama Administration and Congress to refocus attention on efforts to keep struggling homeowners in their homes and streamline the foreclosure process, hoping, at a minimum, keep an already grim situation from getting worse.

Polite requests, urgent pleas, public shame and threats haven’t worked, so the Obama Administration has pulled out heavy — or at least heavier —artillery in its efforts to boost the success rate of the beleaguered Home Affordable Modification Program (HAMP).