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Fed's move called into question

Rising bond yields and a slumping dollar fuel inflation worries after the rate cut.

By Walter Hamilton, Los Angeles Times Staff Writer

NEW YORK — Yields on long-term Treasury bonds jumped, the U.S. dollar sank and the price of gold surged Thursday, intensifying questions about whether the Federal Reserve's move this week to stimulate the economy could backfire.

Though the central bank's cut in short-term interest rates on Tuesday stoked the stock market, it has spooked some other markets -- mainly by raising fears of higher inflation that could undermine the economy.

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Whatever is driving long-term Treasury yields up, it's bad news for the housing market.

"The cost of getting a mortgage has gone up, not down, since rates were cut," said Jim Keegan, a bond fund manager at American Century Investments in Kansas City, Mo. "So far the market's voting that [the Fed cut was] not the right thing to do."

The average rate nationwide for 30-year mortgages edged up to 6.34% this week from 6.31% last week, mortgage finance giant Freddie Mac said Thursday. The 30-year loan rate has mostly been falling since mid-July.

We will see what happens, but I think it it will be safe to assume that the Fed will cut again. The all important Dow did not flourish for long after the cut.

The only real way to help the housing market will be to pay off 1/2 of all homedebtor's loans. But what a mess that will be. And that will ruin homeownership those that did not get in and those about to come up.

As we well know, the Fed's job is to help out Wall Street not Main Street.