The FED Leaves Interest Rates Alone

FT.com - The core consumer price index was flat, defying expectations of a sharp rise following an increase of 0.1 per cent in October. The easing price pressures will be welcomed by the Federal Reserve, which is concerned about the risk to the US economy from higher inflation next year. The clear sign of cooling inflation takes the pressure off the Fed to consider intervening in credit markets. The easing is likely to shift the emphasis of debate within the Fed slightly more towards the risks of a slowdown in growth. The Fed expects moderate economic growth in the coming months as consumer demand continues to support the economy despite a slowdown in the housing and auto sectors. The three-month trend for inflation was also benign, as the annualized core CPI - which excludes volatile food and energy prices -fell below 2 per cent for the first time in a year to a rate of 1.6 per cent.
The three-month trend for headline inflation was the most muted in five years and suggests price pressures are cooling following an overall easing in energy prices in recent months.

Many economists beleive that this is the type of information which will guide the Fed to cut rates by .25% in Spring of 2007. Keep an eye out for the next Fed meeting to see if the laguage starts to change. This is the indicator that investors will be looking at to determine their next moves.

2007 Mortgage Insurance May Become Tax Deductible

Mortgage Insurance Tax Deduction (National Association of Texas Mortgage Bankers) -

Finally Congress does something this year to help property owners. Starting in 2007, the mortgage insurance that one pays on their mortgage loan will be a line item tax deduction. Clarification regarding the new law is below.

The 109th Congress closed its session late last week by passing a tax reform bill, which included a new provision that will provide a significant benefit to your consumers in 2007. H.R. 6111 introduces a new, one-year, itemized tax deduction for mortgage insurance premiums. This new legislation will allow taxpayers who itemize their deductions to take an additional deduction for mortgage insurance premiums paid after December 31, 2006.

Section 163(h)(3) of the Internal Revenue Code allows taxpayers to take a deduction for interest paid on acquisition or home equity indebtedness on the taxpayer’s qualified residence. H.R. 6111 amends Section 163(h)(3) to include language that allows taxpayers to treat mortgage insurance premiums as interest during the 2007 tax year. This treatment only applies to mortgage insurance contracts issued between January 1, 2007 and December 31, 2007, and is only available to taxpayers with an adjusted gross income of less than $110,000.

H.R. 6111 passed the House 367-45 and the Senate 79-9, and now awaits the President’s signature. The text of this bill is currently not available. Once the full text is released, NAMB will feature it in a future edition of News from NAMB.

If you have any questions, please contact: GovernmentAffairs@namb.org.