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From McClatchy:

The Wachovia Economics Group, part of the Charlotte, N.C. - based national bank Wachovia, warned investors Wednesday that "the damage being done to the housing market is more severe than the recent numbers suggest."

In a special report, Wachovia economists said Fed Chairman Ben Bernanke and five Fed governors met earlier this month with heads of the nation's major home builders and may have gotten a peek at sales and cancellation data.

"We believe those data showed a significant deterioration in home sales, which may be evident in next week's new and existing home sales reports," the report said, predicting a drop in new and existing home sales of 10 percent or more for August. "Such a drop raises the risks that we will see more spillover into related consumer spending and housing-related services than was earlier anticipated."

Such a sour outlook might explain why the Fed surpassed most expectations that it would cut its benchmark interest rate by only a quarter point. Most analysts thought that the Fed remained worried about resurgent inflation, which has been moderating but still rose by 2.0 percent over the past year, at the upper edges of the Fed's comfort zone.

Well, we'll certainly find out next week when the August numbers come out. Stay tuned...

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