ERMU Misc. 11-09-2005 - Laserfiche WebLink

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THE The next three months will bring three more interest rate hikes ECONOMY by the Federal Reserve after a big rise in inflation in Sept. Inflation now is on course to end the year at 4%. The federal funds rate will be 4.5% at the end of Jan. , pushing banks' prime rates to 7.5%. The Fed will probably add another hike or two in the spring, ' helping to slow inflation to about 3% next year. The fed funds rate ' will peak at 4.75% or 5%, while prime rates will top out at 7.75% or 8%. A cool wind is blowing through the still-warm housing market. ' Signs of an imminent downdraft: The inventory of unsold new homes is 4.7 months' supply, the highest since mid-2000, before the market caught fire and began a multiyear streak of record-setting sales volumes. Houses are taking longer to sell, particularly those at the high end. ' That's setting the stage for slower average price growth next year of about 4%, vs. 8.5% this year, as higher mortgage rates deter buyers. 30-year fixed-rate mortgages will average about 6.75% by the end of 2006. ' Consumer spending growth will ease as a result, to about 3% from 3.5% this year, as fewer homeowners tap their equity for cash. The number of personal bankruptcies will remain high next year, despite the recent rush to beat an Oct. 17 change in the bankruptcy law. Data for third-quarter 2005 will show Chapter 7 filings at about. 400,000, a record. In the next few quarters, filings will hover around 300,000. ' The reasons include rising short-term interest rates, which boost payments on home equity loans, credit cards and other debt. And tougher credit card repayment rules will also play a role, particularly with low-incomers, who account for the bulk of bankruptcies. Driven by regulators, credit card firms are upping the minimum percentage of cardholders' balances that must be paid monthly to around 4% from 2%. 1110 Rememberour subscription y p on includes The Keplinger Letter online