Fed Preview: Central Housing

Indeed, the homebuilding companies themselves remain unconvinced that the bottom is really here. Just last week, the CEO of Beazer Homes(BZH) was the latest to say he hasn't seen "any meaningful evidence of a sustainable recovery in the housing market," adding the "traditional spring selling season," will provide a more accurate read on market conditions.

Many stock traders locked in their bet that the housing market hit its nadir when mortgage applications for home purchases hit a bottom in late August. Indeed, homebuilder stocks like Beazer, Toll Brothers(TOL), Lennar(LEN), Centex(CTX) and Pulte Homes(PHM) rose sharply from lows made in August and September.

Other hopeful signs include Home Depot's (HD) announcement Monday that the company plans to hire 15,000 new associates this spring -- a bullish bet on the spring house-hunting season. Its shares were down 0.1% Monday. (On the other hand, building material maker USG (USG) reported weaker-than-expected fourth-quarter results and said its 2007 results will be hurt by an expected drop in new housing construction.)

So the FOMC convenes this week amid a Treasury market that has finally come around to its data-dependent way of thinking. Bonds no longer price in several rate hikes, and traders fret about wage inflation, just like Fed chairman Ben Bernanke & Co. But policymaking may get trickier without the bond market doing the Fed's work for it by keeping interest rates and mortgage rates low.

Even Treasury rates at near 5% raise enough questions about the housing market's recovery that Fed rate hikes or even hints at rate hikes seem unlikely in the near future. In terms of monetary policy, stay tuned for more of the status quo.

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