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It was a quiet week for mortgage rates. Most of the
economic data came in close to expectations and the Fed Minutes
contained no major surprises. As a result, mortgage rates ended the
week just slightly higher.
The primary message that investors received from the highly
anticipated Minutes from the January 30 Fed meeting was that Fed
officials remain divided on the outlook for the Fed's MBS and
Treasury purchase program. The Fed's current position is that the
program will continue until substantial improvement in the labor
market takes place, specifically until the Unemployment Rate declines
to 6.5%, as long as inflation remains below 2.5%. According to the
Minutes, concern about the costs and the risks of the program appears
to be growing, causing some officials to suggest that the program may
end before the labor market goals are reached. The Minutes left
investors more uncertain about future Fed policy.
The inflation reports released this week showed that current levels
of core inflation remain far below the 2.5% rate that would begin to
concern Fed officials. January Core CPI, which excludes food and
energy, was 1.9% higher than one year ago. January Core PPI was even
lower. Fed officials generally prefer to look at core inflation
levels, which exclude the most volatile components like gas prices
and give a clearer picture of long-term trends. One concern about the
Fed's current easy monetary policy is that it could lead to higher
future inflation. If core inflation were to climb sharply, it would
pressure the Fed to scale back its stimulus, which would not be good
for mortgage rates. For now, though, there are few signs of higher
core inflation to worry investors.
The final week of February will be packed with economic events. The
biggest news may be Fed Chief Bernanke's testimony before Congress on
Tuesday and Wednesday. New Home Sales will be released on Tuesday.
Durable Orders and Pending Home Sales will come out on Wednesday.
Revisions to fourth quarter GDP and Chicago PMI are scheduled for
Thursday. ISM Manufacturing, Core PCE inflation, and Personal Income
will be released on Friday. Consumer Confidence, Consumer Sentiment,
and Construction Spending will round out the schedule. There will be
Treasury auctions on Monday, Tuesday, and Wednesday. Investors also
will be watching Italian elections over the weekend.
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