Like the tides, the wave of good feelings that swept over Wall Street and Main Street with the Federal Reserve's big interest rate cut could ebb just as quickly.
Homeowners opening up statements for their adjustable-rate mortgages come next month will experience a jolt when the rates jump, but not as severe a jolt as it could have been.
And, Wall Street's mood swings -- reflecting bouts of panic and then some relief -- are expected to linger.
That is because the Fed's action, while perhaps providing some help, will not cure problems in the ailing housing market, which are still expected to drag well into next year.
It will take time for builders to work off a glut of unsold homes. That means the housing slump will continue to hold back the economy and probably lead to more job cuts in construction, manufacturing and other industries.
The Fed's action also won't stop home foreclosures and late mortgage payments from rising in the months ahead.
In a bold move, Fed Chairman Ben Bernanke and his colleagues on Tuesday sliced a key interest rate by half a percentage point to 4.75 percent. It was the first rate cut in more than four years.
Their aim is to prevent the economy from being thrown into a recession by a housing meltdown and a credit crunch. Lower rates should induce people and businesses to boost spending and investing, which would help energize economic activity.
Wall Street investors were cheered by the move, sending the Dow Jones industrial average zooming 335.97 points. It was the Dow's biggest one-day point jump in nearly five years.
Over the short term, the rate cut can provide an important psychological boost. It could make investors, businesses and others less inclined to clamp down or make drastic changes in their behavior that would hurt the economy.
"This does not heal the financial markets, but it can help in the process of healing. But we're not there yet," said Ken Mayland, economist at ClearView Economics.
The improved mind set, though, could turn out to be fleeting.
"I think the honeymoon is going to be pretty short for the euphoria of this Fed cut," said Greg McBride, senior financial analyst for Bankrate.com. "A half-point cut can only do so much. It doesn't transform the housing market into sunshine and daffodils."
The housing market is suffering through its worst slump in 16 years. Home sales are expected to keep on sagging. Home prices, which saw double-digit gains in many areas during the boom, have cooled off significantly. Affordability is still an issue for would-be home buyers, experts say.
Pain will continue to be felt by borrowers, lenders and investors of "subprime" mortgages -- higher-risk loans made to people with spotty credit or with low incomes.
Analysts estimate that 2 million adjustable-rate mortgages will jump from very low initial teaser rates to higher rates this year and next. Steep prepayment penalties have made it difficult for some to get out of their mortgages. Some overstretched homeowners can't afford to refinance or even sell their homes.
The Fed's action does provide a bit of relief. For owners facing a reset on Oct. 1, their new rate will rise to 6.75 percent, versus 7.50 if it had reset a few months earlier, McBride said.
"The payment is still going up by hundreds of dollars a month. So people are not going to feel warm and fuzzy," he said.
For consumers, whose confidence has been rattled by the housing and credit problems, much turns on whether employment conditions continue to deteriorate.
The economy lost 4,000 jobs last month, the first decline in four years. The unemployment rate, now at 4.6 percent, is expected to climb close to 5 percent by the end of the year. A softening job market eventually will probably mean slower wage growth.
Howard Chernick, economic professor at Hunter College, doesn't think the Fed's rate cut will make people rush to the malls.
"Consumer spending is influenced by employment and wages," Chernick said. "Aside from the euphoria some might now feel, I don't think there is going to be a big effect."
It will take months for the Fed's rate cut to ripple through the economy, with the hope that it will bolster activity.
Analysts expect the economy to slow to a rate of about 2 percent in the current quarter. That would be just half the pace of the previous three months.
AIR SUPPORT: The Ministry of National Defense thanked the US for the delivery, adding that it was an indicator of the White House’s commitment to the Taiwan Relations Act Deputy Minister of National Defense Po Horng-huei (柏鴻輝) and Representative to the US Alexander Yui on Friday attended a delivery ceremony for the first of Taiwan’s long-awaited 66 F-16C/D Block 70 jets at a Lockheed Martin Corp factory in Greenville, South Carolina. “We are so proud to be the global home of the F-16 and to support Taiwan’s air defense capabilities,” US Representative William Timmons wrote on X, alongside a photograph of Taiwanese and US officials at the event. The F-16C/D Block 70 jets Taiwan ordered have the same capabilities as aircraft that had been upgraded to F-16Vs. The batch of Lockheed Martin
GRIDLOCK: The National Fire Agency’s Special Search and Rescue team is on standby to travel to the countries to help out with the rescue effort A powerful earthquake rocked Myanmar and neighboring Thailand yesterday, killing at least three people in Bangkok and burying dozens when a high-rise building under construction collapsed. Footage shared on social media from Myanmar’s second-largest city showed widespread destruction, raising fears that many were trapped under the rubble or killed. The magnitude 7.7 earthquake, with an epicenter near Mandalay in Myanmar, struck at midday and was followed by a strong magnitude 6.4 aftershock. The extent of death, injury and destruction — especially in Myanmar, which is embroiled in a civil war and where information is tightly controlled at the best of times —
China's military today said it began joint army, navy and rocket force exercises around Taiwan to "serve as a stern warning and powerful deterrent against Taiwanese independence," calling President William Lai (賴清德) a "parasite." The exercises come after Lai called Beijing a "foreign hostile force" last month. More than 10 Chinese military ships approached close to Taiwan's 24 nautical mile (44.4km) contiguous zone this morning and Taiwan sent its own warships to respond, two senior Taiwanese officials said. Taiwan has not yet detected any live fire by the Chinese military so far, one of the officials said. The drills took place after US Secretary
THUGGISH BEHAVIOR: Encouraging people to report independence supporters is another intimidation tactic that threatens cross-strait peace, the state department said China setting up an online system for reporting “Taiwanese independence” advocates is an “irresponsible and reprehensible” act, a US government spokesperson said on Friday. “China’s call for private individuals to report on alleged ‘persecution or suppression’ by supposed ‘Taiwan independence henchmen and accomplices’ is irresponsible and reprehensible,” an unnamed US Department of State spokesperson told the Central News Agency in an e-mail. The move is part of Beijing’s “intimidation campaign” against Taiwan and its supporters, and is “threatening free speech around the world, destabilizing the Indo-Pacific region, and deliberately eroding the cross-strait status quo,” the spokesperson said. The Chinese Communist Party’s “threats
RSS