Fed's Kohn Speaks: We Should Listen
A: Federal Reserve Vice Chairman Donald Kohn is speaking today, meaning we should listen to this veteran of the federal reserve system. Here are some of the things Mr. Kohn said this morning, which is moving markets higher on word the fed will act at their next meeting! At a time when the fed seems more confused than ever, these statements seem pretty dead on.
Here are excerpts of what Fed Vice Chairman Kohn said:
Finally, an acknowledgment about the quickly deteriorating credit markets and the wider spreads and higher rates that are resulting from the repricing of risk. Now you know why I talk about LIBOR spreads & other macro news here on a Manhattan real estate website. While it may not directly affect our marketplace, the trickle down will. Keep in mind that the current problems we are now facing in the credit markets originally stemmed from subprime defaults that occurred across the country (not in Manhattan), and ultimately hit the security derivatives on wall street which then seized up the secondary mortgage markets causing such havoc in the credit markets. Its all connected and the end result is tighter lending standards, higher rates, & uncertainty.
Fed VC Kohn made it clear that the credit crunch will result in higher borrowing costs for consumers & businesses (I just wrote about this), that further tightening in credit is probable, that LIBOR spreads are a clear sign of the distress in credit markets, and that the credit crunch may cause restraint on the flow of credit. In short, the credit cycle is only in the beginning phase.
