Financial Methods: GDP Lays An Egg

The Fed's campaign against real estate showed up in both existing home sales and the Q4 GDP report. After 18 months of consistent interest rate increases, we have at least one more to go, possibly more.

Graphic courtesy of St. Louis Fed.

Last year was a record year for existing home sales, but the December report showed that price growth is slowing and the supply of homes for sale continues to rise.

As I pointed out 3 weeks ago, the Fed's higher interest rates is beginning to have an impact on the economy as well as the housing market. Real GDP in the fourth quarter grew at a 1.1% annual rate. Excluding mortgage equity withdrawal, growth was likely below 0%.

Graphic courtesy of St. Louis Fed.

So with last year's rate increases just now beginning to take effect (and many more increases already in the pipeline ), why does the Fed continue to raise rates?

Sources:

1. Federal Reserve Bank of St. Louis. National Economic Trends.
January 2006.
http://research.stlouisfed.org/publications/net/20060101/net_20060127.pdf

2. Federal Reserve Bank of St. Louis. Monetary Trends.
February 2006.
http://research.stlouisfed.org/publications/mt/20060201/mt_20060127.pdf