Fed to remain on hold as US new home sales plunge

The Fed has again said it intends to keep interest rates low. From Bloomberg on Wednesday:

Federal Reserve officials retained a pledge to keep the benchmark interest rate at a record low for an “extended period” and signaled that Europe’s debt crisis may harm American growth.

“Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad,” the Fed’s Open Market Committee said in a statement today in Washington. Central bankers cited slowing inflation and said the recovery is “proceeding,” altering April language that the economy has “continued to strengthen,” while reaffirming they foresee a “moderate” pace of growth.

Economic data on Wednesday would have given Fed officials reason to be cautious about the recovery.

Reuters reports that US new home sales plunged in May.

Sales of new homes dropped a record 32.7 percent in May to the lowest level in at least four decades as the boost from a popular tax credit faded, adding to worries over a slowing economic recovery.

Single-family home sales tumbled to a 300,000 unit annual rate, the lowest level since the series started in 1963, the Commerce Department said on Wednesday.

Paul Kasriel remains hopeful for the housing market though.

Is there any reason to believe that after a couple of months, home sales will pick up again? Yes. Why? Because with mortgage rates at rock-bottom levels and with house prices very low in relation to household incomes, housing is about as an attractive a purchase as it has been in the past 40 years...

The absolute number of new housing units for sale stood at 213 thousand in May... the lowest inventory of new homes since November 1970... This should spur a modest increase in housing starts in the months ahead.

Meanwhile, Bloomberg reports that eurozone manufacturing and services expansion slowed in June.

Growth in Europe’s services and manufacturing industries slowed in June, adding to signs the region’s recovery is cooling as the sovereign debt crisis clouds the growth outlook.

A composite index based on a survey of euro-area purchasing managers in both industries fell to 56 from 56.4 in May, London- based Markit Economics said today. Economists had projected a drop to 55.8, the median of 13 estimates in a Bloomberg survey showed. A reading above 50 indicates expansion...

An index of services, which account for about 60 percent of the euro region’s gross domestic product, fell to 55.4 in June from 56.2 in the prior month, Markit said. A gauge of euro-area manufacturing declined to 55.6 from 55.8 in May.