Mortgage Market in Review from Monte Hill week of 2/19/2007
Market Comment
Mortgage bond prices rose pushing rates lower last week. Fed Chairman Bernanke’s testimony to Congress indicated inflationary pressures were decreasing and economic growth was improving with an easing of the housing slump. The remarks were well received by the bond market. For the week, interest rates on government and conventional loans fell by about 1/4 of a discount point.
The consumer price index data Wednesday will be the most important event this week. Leading economic indicators and the Fed minutes will also be carefully monitored. The market will be closed Monday for Presidents’ Day. The shortened trading week may lead to volatility.
Looking Ahead |
Economic Indicator | Release Date and Time | Consensus Estimate | Analysis |
Presidents' Day Holiday | Monday, Feb. 19 | | Important. Interest rates may be volatile as trading resumes Tuesday following the extended holiday weekend. |
Consumer Price Index | Wednesday, Feb. 21, 8:30 am, et | Up 0.1%, Core up 0.2% | Important. A measure of inflation at the consumer level. Weakness may lead to lower rates. |
Leading Economic Indicators | Wednesday, Feb. 21, 10:00 am, et | Up 0.2% | Important. An indication of future economic activity. Weakness may lead to lower rates. |
Fed Minutes | Wednesday, Feb. 21, 2:00 pm, et | None | Important. Details of the last Fed meeting will be thoroughly analyzed. |
Weekly Jobless Claims | Thursday, Feb. 22, 8:30 am, et | 325k | Moderately Important. With little data this week more weight may be placed on the release. |
Fed Testimony
The Fed Chairman delivers the Federal Reserve’s semiannual report on monetary policy, familiarly called the Humphrey-Hawkins report, to both the House and Senate Banking Committees in February and July. The report is one of the most important speeches given by the Fed Chairman. The remarks made to each committee tend to be identical in nature and address basic economic principles. The areas addressed tend to be the overall state of the US economy, recent developments, economic fundamentals, foreign developments, economic outlook, ranges for growth, and concluding remarks. The Humphrey-Hawkins testimony derived from a mandate of the Full Employment and Balanced Growth Act of 1978. The Act indicates that the Federal Reserve must state goals to create price stability and full employment for the US economy. Senator Hubert Humphrey and Representative Augustus Hawkins originally sponsored the legislation. The legislation officially expired in 2000; however, the Fed Chairman continues the practice.
Mortgage interest rates responded favorably to Bernanke’s remarks before Congress last week in which he indicated, “So far, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing of core inflation.” This makes it possible for mortgage interest rates to remain favorable for the time being. However, the danger remains that rates can head higher. Bernanke warned, “in the statement accompanying last month's policy decision, the FOMC again indicated that its predominant policy concern is the risk that inflation will fail to ease as expected and that it is prepared to take action to address inflation risks if developments warrant.”
This provides an excellent example of the fact that even the Fed is uncertain what the future holds for the economy, inflation, and interest rates. Therefore a cautious approach to lock decisions is prudent to take advantage of the recent improvements in rates and to guard against the possibility of any unforeseen negative movements.
Monte J. Hill
586-308-6420
MacombHomeLending.com