Fears of a recession prompted the Federal Reserve to drop the key rate by 3/4% to 3.5% on Tuesday.  The Fed is hoping that by doing this that they may restore some confidence in the U.S. Economy.

The Fed is worried about the housing market and a 'softening' in the labor market, the interest rate cut is the biggest in more that 20 years.  The Fed is also cutting the discount rate to 4%, which affects lines of credit.  I guess I should stop being surprised by how much the government keeps dropping the interest rates, just when I think it can't possibly go any lower they drop it again.  They are meeting on January 30th and analysts are thinking that another rate decrease is likely.

Europe is feeling our subprime fall-out too, European banks are making it harder to borrow and production is slowing as the Euro is hitting all time records.  With the Euro being so strong against the dollar their exports are hurting.  I was listening to a news broadcast awhile ago about Airbus losing millions because they sell their planes in dollars, despite all their cut-backs they are bleeding badly.  This recession that we are trying to avoid in the U.S. isn't just our problem, if we have one the whole world will feel the pain (they already are).  Economists are betting that the European Central Bank will have to drop their interest rates to compensate.

Despite all of this Arizona is still neck and neck with Nevada on #1 in population and Arizona is #1 in job growth in the U.S. according to studies that I've come across.  We still are projected to have a great year for job growth, which means people are moving here and need homes.  Analysts are projecting that 2008/2009 is the when the housing market bottoms out and starts to recover, with full recovery in 3 - 5 years.

Sources:  Realtor Magazine Online, Dow Jones, Arizona Republic