Inflation Pressures Are Easing but Rate Cut Forecast Remains Uncertain

The New Year is beginning where the old one ended -- with uncertainty about when – or whether – the Federal Reserve will begin cutting interest rates.

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The Obama Administration has decided that it needs a larger stick to prod mortgage lenders and servicers to help homeowners who are struggling with unaffordable mortgages avoid foreclosure. That stick is in the form of a series of measures announced by the Treasury Department, designed to increase the pace and volume of loan modifications under the Administration’s Home Affordable Mortgage Program (HAMP).

Reverse mortgage lenders, battling intensifying criticism from consumer advocates and some legislators, are now facing a financial squeeze as well. To close a widening budget gap in the Home Equity Conversion Program (HECM), the Federal Housing Administration (FHA) has slashed by 10 percent the maximum amount borrowers can receive in FHA-insured reverse mortgages.

The economic recovery seems to be following the zigzag pattern many analysts have predicted: Strong gains in some sectors followed by setbacks in others — two steps forward, a step or two back, a few steps sideways. Looking more like a Rorschach test than a road map, the picture is far from clear.

Delayed but not derailed, the homebuyer tax credit won a Congressional last week, as the House and Senate agreed to expand and extend the popular program into next year. Absent Congressional action, the credit would have expired November 30.