Greenspan's Medicine May Finally Be Working

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Can you smell the burning rubber? Savor it — it's the scent of the speeding U.S. economy squealing to a much-needed slowdown. As if to bolster the prevailing psychology of caution, the Commerce Department reported Tuesday that housing starts on multi-unit buildings, a key indicator, were down to a six-year low in March, a decidedly large drop from December's record high. Simply put, the plunge in starts means that fewer builders are breaking ground on apartment and condominium complexes.

"This is another sign that the economy seems to be slowing a bit from its red-hot run," says TIME senior financial writer Bernard Baumohl. Housing starts, explains Baumohl, are among the most interest-sensitive components of the economy, and tend to be a particularly prescient overall financial indicator. "When interest rates go up, as they have been," says Baumohl, "the first sectors to register a slowdown are car and housing purchases." In other words, Fed chairman Alan Greenspan's penchant for quarter-point hikes may have finally eased the American public's seemingly insatiable taste for big-ticket items like new real estate. And this, despite its overtones of recession, says Baumohl, can be seen as very good news: The Federal Reserve may be able to lay off its series of interest rate hikes sooner than previously expected. The stock markets certainly think so — the NASDAQ on Tuesday posted its best-ever one-day gain, while the Dow registered a respectable 185-point rise.