Fed talks drive markets

Fed Speeches Drive Markets It was another incredibly volatile week as investors attempted to determine the impact of last week's Fed announcement on mortgage rates. Early in the week, mortgage rates continued to move higher, but soothing comments from Fed officials caused mortgage rates to reverse direction. After all the daily swings, mortgage rates ended the week a little lower. A number of Fed officials made speeches this week, and the common theme was that investors overreacted to last Wednesday's Fed statement. Fed officials were surprised by the magnitude of the increase in yields on Treasuries and mortgage-backed securities (MBS), and the resulting increase in mortgage rates, as demanded by investors. Their comments were effective. MBS prices improved and mortgage rates reversed some of the recent increase. Based on the results of their weekly survey, Freddie Mac reported that mortgage rates rose this week and did so by a record amount. As mentioned above, rates this week actually moved lower. The difference comes from the timing of the Freddie Mac survey. Freddie Mac collects its data early each week. The increase they reported this week is really comparing mortgage rates pre-Fed meeting to post-Fed meeting. When MBS prices and mortgage rates are as volatile as they have been recently, the Freddie Mac survey results can be misleading.

 

Also Notable: Core PCE inflation was just 1.1% higher than one year ago First quarter GDP was revised lower from 2.4% to 1.8% New Home Sales rose to the highest level since July 2008 Gold prices dropped to the lowest level in roughly three years

 

	Average 30 yr fixed rate: Last week: +0.45% This week: -0.10%
	Stocks (weekly): Dow: 15,000 +300 NASDAQ: 3,400 +75

 

Week Ahead The big story next week will be Friday's Employment report. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month, and it will carry even more weight than normal due to how it will influence Fed policy. Earlier in the week, ISM Manufacturing and Construction Spending will be released on Monday. Factory Orders will come out on Tuesday. ISM Services, ADP Employment, and the Trade Balance are scheduled for Wednesday. Mortgage markets will be closed on Thursday in observance of Independence Day.