There's a New Sheriff in Town...

OOFA...You have to hand it to our new Federal Reserve Chairman Ben Bernanke. He made his debut in front of a very partisan Congress today and walked away fairly intact. He did his best 'bob and weave' in trying not to give either political party talking points they could use. After years of Alan Greenspan's testimony in which Congress needed a Quija Board to interpret exactly what he actualy said, Bernanke tried his best to answer questions directly. For the first time in seventeen years, it didn't take a Batman decoder ring to tell us what the Chairman's remarks really meant.

That being said, Mr. B. was cornered into commenting regarding the Housing markets. The new Fed chairman mentioned the slowing housing market as one risk to the expansion, although he said a, "moderate softening'' seemed more likely than a "sharp contraction.''

"Some cooling of the housing market is to be expected and would not be inconsistent with continued solid growth of overall economic activity,'' Bernanke said. He also stated, "prices and construction could decelerate more rapidly than currently seems likely.''

The new Chaiman indicated that more interest rate hikes may be needed to tame inflation,"the risk exists that, with aggregate demand exhibiting considerable momentum, output could overshoot its sustainable path, leading ultimately -- in the absence of countervailing monetary policy action -- to further upward pressure on inflation.''

Fed futures are pricing in a 100% chance that rates will move higher in March and conensus is a 5% rate by June. As rates move higher, this decreases the amount potential buyers can afford. Equally important, there are an estimated 2.5 trillion of mortgages that are due to reset in 2006 and 2007 at higher rates. link

The Chairman's testimony came on the heels of a release by the Mortgage Bankers Association link

"The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending February 10. The Market Composite Index — a measure of mortgage loan application volume was 574.1 – a decrease of 7.3 percent on a seasonally adjusted basis from 619.3 one week earlier. On an unadjusted basis, the Index decreased 4.4 percent compared with the previous week and was down 21.7 percent compared with the same week one year earlier. "

"The seasonally-adjusted Purchase Index decreased by 7.9 percent to 391.7 from 425.1 the previous week, whereas the Refinance Index decreased by 6.5 percent to 1636.7 from 1751.0 one week earlier. Other seasonally adjusted index activity includes the Conventional Index, which decreased 7.0 percent to 847.8 from 911.2 the previous week, and the Government Index, which decreased 11.2 percent to 117.8 from 132.7 the previous week."

Mr. Bernanke has a daunting task in front of him with the housing bubble, record deficit, and inflationary pressures in the forefront.