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Subprime fears feed rate speculation

federal reserve building

TEXT OF STORY

SCOTT JAGOW: Hopefully soon enough we'll know exactly what happened with these subprime mortgage lenders. Yesterday, the Securities and Exchange Commission acknowledged for the first time, that it's looking into several companies, not just New Century Financial. And this goes beyond the lenders, big Wall Street investment firms are also under scrutiny. There's some concern analysts may have ignored mounting problems in the subprime industry.

Today, the Federal Reserve opens its latest meeting. It'll include a decision on interest rates tomorrow. More now from John Dimsdale.


JOHN DIMSDALE: Some economists worry the hard times in the housing market are beginning to drag down the entire economy.

Mortgage foreclosures are breaking records and lenders are tightening up on credit.

Some say now's the time for the Fed to reduce interest rates to shield the economy from a decline, but economic forecaster Jack Albertine says that's not how central bankers see it.

JACK ALBERTINE: They are even more worried about possible inflation than they are about a possible recession.

Energy prices are high, says Albertine, and likely to go higher, threatening inflation. He says if the Fed reduced interest rates tomorrow, it would be a bad sign.

ALBERTINE: If they did, it would be dramatic news that they are really spooked by what's happening in the subprime lending sector.

Despite warnings from the previous Fed chairman, Alan Greenspan, about housing's ripple effect, Albertine and others think the Fed will see strong job growth as a buffer against recession.

In Washington, I'm John Dimsdale for Marketplace.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.

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