The Federal Reserve began its two-day meeting to decide on the next move for US interest rates, amid some of the worst consumer confidence and house-price data on record.
But, while the deteriorating economy might tempt members of the Federal Open Market Committee to propose a rate cut, the soaring oil and food prices that are weighing on consumers are threatening to send inflation beyond the Fed's comfort levels. Financial markets expect rates to remain on hold for now, before rising later in the year.
The policy dilemma was underscored yesterday as the monthly Case-Shiller index, the most widely followed measure of the housing market, showed the price of homes was now lower in every part of the country and the average price was down 15.3 per cent on a year ago. The index measured prices in 20 major metropolitan areas in April.
"There might be some regional pockets of improvement, but on an annual basis the overall numbers continue to decline," says David Blitzer, chairman of the index committee at Standard & Poor's, which published the Case-Shiller figures. "All 20 metropolitan areas are now showing declines. If there is anywhere to look for possible improvement, it would be that the pace of monthly declines has slowed down for most of the markets."
A second house-price survey, a narrower measure by the regulator Ofheo, which looks at purchases financed by mainstream mortgages, fell 4.6 per cent in April versus the same month in 2007.
John Lonski, chief economist at Moody's Investors Service, said: "I don't see any silver linings in the data. The jump in energy prices has added to economic uncertainty and I can't see home sales stabilising any time soon. The only people buying a home now are people who have no choice but to do so."
US consumer sentiment slid to a 16-year low in June. The Conference Board's monthly index fell to 50.4, the lowest since 47.3 in February 1992.
Economists believe the FOMC will keep rates on hold at 2 per cent today, putting the focus on the language contained in its accompanying statement. In recent months, the Fed has expressed concern about rising inflation but says it expects it will moderate later in the year and its bigger concern is the weak economy.
Mr Lonski said that, caught between the two pressures, the Fed is going to be unable to move to stimulate the economy further. A rate cut might even be counter-productive, raising long-term rates.Reuse content