Newsflash, the FED is not fighting inflation, its fighting a good economy

Today some bad economic data came out from the housing sector and the dollar continued the slide it started three years ago. This is starting to weigh on the minds of economists and as politicians as they seek to explain or pander to their respective audiences. I believe it means that we are looking at a slowing of growth in the economy and continued weakness in the housing market. There may be a potential of a recession given the overhang of credit and debt, the weakness in the housing market, and a vigilant fed that may continue to hold rates for too long, in order to kill inflation.

Here's what Chicago Fed Chairman Michael Moskow thinks.

Here are the facts on the economics news on December 1st.

Today the Commerce Department came out with the weak housing data we've been expecting and receiving for the past couple months. The housing news is not getting better and is factoring itself into the rest of the economy. In that same article from CBS MarketWatch there was a nice quote from Stephen Stanley at RBS:

"We see this as an unambiguously good thing," he wrote. "The faster builders address their bloated inventories and bring the pace of home construction down, the quicker the housing correction will play out and the economy can return to a more normal footing."

The housing sector has been out of whack for about three years or more. However, the correction that has been needed to bring down the air out of the economy, and some of the air out of inflation, did not start until the fourth quarter of this year and will need to continue to properly adjusted the housing market back to normal levels. This correction should push down inflation enough where the Fed will probably need to begin lowering rates in the first quarter and stop trying to drive us into recession.

This brings me to the point that the Fed may be going to far in their Congress mandated fight against inflation. The housing sector and consumer debt is weighing down on the economy and a significant slowdown is going to happen. The question is whether the Fed will go to far or will it begin cutting rates sooner rather than later.

One thing is for sure, we will see flat to falling housing prices in a variety of markets for several years, some wage inflation, and less demand for inflationary driving commodities such as oil and metals. Our heating bills may be lower, but we won't feel the extra pennies in our pockets as mounting credit and high payments will continue to weigh on consumer spending. Look for some tightness in the economy, and slow growth for the following year and even a potential recession in 2008.