Fed’s High Wire Inflation Fighting Effort Risks Triggering a Recessionary Fall

Imagine a high-wire act performed without a net.  That describes the Federal Reserve’s effort to curb inflation without crashing the economy.  Success will bring applause and relief; failure, a brief downturn, at best, with a prolonged recession the worst case outcome. 

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It’s back – the bankruptcy cram down proposal, that is. Despite predictions that it was unstoppable after winning overwhelming support in the House, the measure, giving bankruptcy judges the authority to rewrite residential mortgages, flamed out in the Senate, unable to survive a blistering assault by the banking industry. Even its strongest supporters pronounced the legislation dead after only 45 Senate Democrats voted for it.

As foreclosure rates continue to rise and loan modifications fall short of projections, pressure is intensifying on the Obama Administration — to push lenders and servicers harder — and on lenders and servicers (from several directions) to do more than they have done and are doing to help struggling borrowers avoid foreclosure.

“You’ve got to admit it’s getting better.” An increasing number of economists are beginning to hum that Beatles tune, as the statistics pointing to an improving economy multiply. Economists remain divided on whether the recession has needed or is nearing an end. But a growing consensus holds that the worst of the downturn is behind us. A consensus is also forming around a less encouraging view: The recovery will be painfully slow, made more painful by the expectation that conditions should be better than they are likely to be in the near term.

How’s this for a term you haven’t heard recently in connection with the housing market: “Improvement?” It has cropped up recently in the comments of analysts, describing what is still a decidedly mixed bag of statistics that are neither as bad as they have been nor as good as industry executives and government policy-makers would like them to be.