The old one-two

Another bad day for stocks today, which some analysts attributed to the one-two punch of the release of the Standard & Poor's/Case-Shiller U.S. National Home Price Index and minutes of the Federal Reserve Board Open Market Committee's Aug. 7 meeting. The Home Price Index fell 3.2 percent year-over-year, and the minutes showed the committee's "predominant policy concern" remained the risk that inflation would fail to moderate, even as it acknowledged:

-- "...the housing sector was apt to remain a drag on growth for some time and represented a significant downside risk to the economic outlook."

-- "...developments in mortgage markets... suggested that the adjustment in the housing sector could well prove to be both deeper and more prolonged than had seemed likely earlier this year."

-- "...markets for securities backed by subprime and other non-traditional mortgages had become illiquid, and originations of new subprime mortgages had dropped sharply."

Of course, the committee's decision to leave the short-term federal funds rate at 5.25 percent came before mortgage lending giant Countrywide acknowledged that it, too, was feeling the pinch of illiquidity. Although the Fed moved to cut the discount rate, some see that as a largely symbolic move since banks weren't really asking for such action (see Lou Barnes' hilarious commentary on "the discount window circus").

The committee meets next Sept. 18, and it's not exaggerating to say a lot has changed since then. A National Association of Realtors economist said last week the group is factoring into its projections two 25-basis point reductions in the federal funds rate this year, but not until October and December.

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