Fed medicine slowly trickles to ailing Main Street

By Emily Kaiser - Analysis

WASHINGTON (Reuters) - While the U.S. Federal Reserve pours cash on wobbly Wall Street by the billions, Main Street keeps sinking, and the central bank's medicine is only slowly trickling down.

No one is ready to declare the global financial crisis over, but there are tentative signs that the Fed's efforts, including Tuesday's three-quarters of a percentage point interest rate cut, are starting to patch up investor confidence.

Even in the battered U.S. housing sector, some economists are seeing glimmers of hope that both new construction and prices have fallen far enough to begin rebalancing supply and demand.

But at the same time, consumer confidence remains in tatters, and it may be months before it rebounds which is bad news for the consumer-dependent U.S. economy.

The Fed has lowered the benchmark overnight lending rate six times since mid-September as it scrambles to prop up the economy, yet consumers are not seeing the full benefit in their borrowing costs as banks crack down on mortgages, credit cards and auto loans.

FIRST, THE GOOD NEWS.

Data on Tuesday showed further declines in housing starts and permits, taking them to levels seen in previous recessions. That is cause for cautious optimism that they do not have much further to fall, said Bernard Baumohl, managing director at the Economic Outlook Group.

"Look, no one is uncorking champagne bottles yet. We're far from celebrating any recovery in housing. But there are some incipient signs that the worst in housing could be behind us," he wrote in a note to clients.