The Fed held the Fed Funds Rate at 5.250% last week and included verbiage in its Press Release that the FFR may have to come down before it goes up again. This gave investors reason to cheer and the stock market rallied to its best week in four years.
Mortgage rates did not fare as well, however, weighed down by competing fears about inflation and sub-prime lending.
This week could be a wild one for mortgage rate shoppers — there are six major data points, culminating in Friday’s Personal Consumption Expenditures (PCE). If PCE measures higher than expected, mortgage rates will spike Friday.
PCE matters because it is a lot like the “Cost of Living” index. The main difference is that it specifically subtracts out sales made to business and governments. Therefore, PCE paints a more accurate picture of consumer spending because it isolates cost pressures on individuals.
One more reason why PCE can move markets so quickly: the Fed tells us that PCE is their preferred inflation measurement. So, because the Fed watches it, we should watch it, too.