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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Mortgage industry executives summoned to meet with Treasury Secretary Timothy Geithner last week agreed to do what they can to pick up the lagging mortgage modification pace. But they also complained that the expectations for speedy foreclosure relief were unrealistic given the complexity of the Obama Administration’s Home Affordable Modification Program (HAMP) program, the volume of modification requests, and the need for servicers to hire and train thousands of new employees.

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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.

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If Shakespeare were writing today, he might still advise killing all the attorneys first. But if he followed a current trend, he might also suggest drawing a bead on appraisers as well. Real estate and financial industry trade groups, led by home builders and real estate brokers, are blaming flawed appraisals for depressing home values, delaying real estate closings and exacerbating the housing downturn.

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“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.