Don't Look for Rate Cut Until 2008 -- At the Earliest

Richard DeKaser, chief economist at National City, told CNBC’s “Morning Call” that he doesn’t expect the Federal Reserve to cut interest rates until 2008 at the earliest.

He said a rate cut would ensure against a continued downward spiral in the housing market, but inflation hasn't yet been put in check.

“I think (the prospect of a rate cut) is still equally balanced with the prospect of a rate hike,” DeKaser said Tuesday. “Inflation has been north of the Fed’s comfort zone for three-plus years. I do think it will come down, but not sufficiently, in my view, to provide a lot of room for Fed rate cuts. I could argue it both ways and that’s my reason for standing pat.”

Steve East, chief economist for Friedman Billings Ramsey, said it’s too early to say that the housing market has hit bottom.

He said the troubled subprime mortgage market probably means more people will continue to rent, putting upward pressure on prices. Rent, he said, is a key element in the CPI index, and this is likely to lead to continued concerns about inflation.

U.S. home construction rose 9% in February to an annual pace of 1.525 million units, compared with a 1.399 million unit pace in January. It was the sharpest month-over-month increase since a 13.1% rise in January 2006.

But permits, a gauge of future construction activity, fell 2.5% to 1.532 million units. The analysts said builders want to sell existing inventory before building new houses. This will eventually lead to higher prices in the industry.