Last week in the mortgage markets was thick with hype and thin with action.
Whenever the Fed meets, there is potential for wild swings in mortgage rates. And, although the Fed doesn’t control mortgage rates, it’s views on inflation and the economy carry tremendous weight with traders, with economists, with banks, and with governments across the world.
It’s the opinions of the Fed that cause mortgage rates to move in one direction or the other.
In its press release, the Fed stated that inflation remains “somewhat elevated” and that its predominant concern is that inflation “will fail to moderate as expected”. The remarks were slightly more defensive on inflation than expected, but markets took it in stride.
For now, markets are focusing on the American Consumer’s ability to push the economy along in the face of rising gas prices, weakening sales at retail stores, and other cost of living increases. This plays directly into Tuesday’s Consumer Price Index (CPI) data.
CPI measures the expenses of everyday living for Americans and — even excluding gas and food prices — it is expected to increase. Because personal income is usually a fixed number, rising costs force people to eventually make difficult choices and the usual casualty is “free spending”.
Less spending slows down the economy so if CPI is higher than expected, there will be downward pressure on mortgage rates in response.
In addition, keep Wednesday’s Housing Starts number in the back of your mind.
Housing’s well-publicized weakness on a national level is no longer moving the mortgage markets but if this figure is unexpectedly hot, mortgage rates will bounce higher on speculation that the worst of the housing market is over. That runs contrary to the current opinion in trading pits that have watched a precipitous decline over the last 24 calendar months.
Mortgage rates will be extremely volatile at the beginning of the week and should taper to relative calmness by Friday barring any jarring, non-economic forces.
