Um, yep, we’re pretty much screwed.
Reuters: Recent developments in the U.S. economy are “deeply worrisome” at a time damage from the credit crunch has outpaced the Federal Reserve’s huge interest rate cuts, San Francisco Fed President Janet Yellen said on Thursday.
“For the fourth quarter, it appears likely that the economy is contracting significantly,” Yellen said in remarks prepared for a University of California housing symposium in Berkeley, California.
“The mortgage meltdown is far from over (and) the economy and financial markets are still reeling from it.”
Most private-sector borrowing rates are higher now than at the start of the financial crisis in August 2007, despite “some of the most momentous steps in decades” from the Fed, she noted.
“Rates in my view would be substantially higher absent the reduction in our base lending rate,” said Yellen, who is not a voting member of the Federal Open Market Committee in 2008 but will vote in 2009.
Yellen said “the bottom is not yet in sight” for falling house prices or housing starts.
The Fed’s steps to support credit markets are “extremely constructive” and will thaw credit flows over time, she said, citing “very tentative signs of an easing of stress in money markets.”
But with a long way to go before the credit crunch is totally alleviated, other types of policies, including programs that give direct assistance to homeowners, are worth pursuing, Yellen said.
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