Tuesday, May 27, 2008

Today in a Snapshot

Rates Increase Last Week: Mortgage investors focused on the Fed, inflation, and oil prices. The week started off on a positive note, and mortgage rates fell on Monday and Tuesday. Even higher than expected levels of core inflation in Tuesday's Producer Price Index had little impact. The atmosphere changed quickly on Wednesday, though, after the release of the FOMC minutes from the April 30 Fed meeting. In the minutes, the Fed lowered its forecast for economic growth in 2008, while raising the expected level of inflation. Also notable, Fed officials ruled out further rate cuts unless the outlook for the economy turns significantly worse. The Fed's heightened inflation projections were bad news for mortgage markets, and rates ended the week a little higher.
This Week: After yesterday's Memorial Day holiday, it will be a busy week. New Home Sales and Consumer Confidence will come out on Tuesday. Durable Orders, an important indicator of economic activity, will be released on Wednesday. Thursday will see the first revisions to first quarter Gross Domestic Product (GDP), the broadest measure of economic activity. A 5-year Treasury auction will also take place that day. The week will end with a big day on Friday. Core PCE, the Fed's preferred inflation indicator, will be released, along with Personal Income, Chicago PMI, and Consumer Sentiment.
Analysis: This week could result in market swings that are favorable or negative in nature. Considering the heightened possibility for mortgage interest rate volatility, a cautious approach to interest rate exposure is prudent.
-Provided by James A Williamson and Robbie Croier of Fairfield Mortgage

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