Mortgage Times

[Adam in CO]

Bernanke’s Testimony Tough on Inflation


Last week, a combination of stronger than expected economic data and inflation warnings from the Fed pushed mortgage rates to the highest levels of the month. In a highly anticipated appearance, Fed Chief Bernanke testified before Congress on Wednesday that inflation is running higher than the Fed's comfort level and that the Fed's primary policy concern is that inflation will not move lower. On the other hand, he described downside risks to economic growth, particularly if problems in the housing sector were to expand to other areas of the economy. He suggested that future policy will continue to be based on incoming data, and his tough talk about inflation diminished market expectations for any near term easing of interest rates.

The most damaging economic data for mortgage markets last week came with Friday’s release of the Fed’s preferred PCE inflation measure, which showed an unexpected rise to a 2.4% annual rate. Coming on the heels of Bernanke’s concerns about stubbornly high inflation, this was definitely bad news for mortgage markets. The same day, the Chicago PMI national manufacturing index far exceeded the forecasts, providing a second blow. In addition, Thursday’s final revision to growth in fourth quarter 2006 GDP, the broadest measure of economic activity, was also higher than expected.

Unlike many of last week’s other economic reports, February New Home Sales came in far below the consensus forecasts, falling to the lowest level in seven years, while unsold inventories rose to the highest level since 1991. Tighter lending standards may have had a larger than expected impact on New Home Sales last month. Fortunately for the housing sector, though, the troubles have not spread to Existing Home Sales, which make up about 85% of the housing market, as the February data released the week before last exceeded forecasts.

• Also Notable:
• The Commerce Dept. surprised investors Friday with its announcement of trade sanctions against Chinese paper imports
• February New Home Sales fell to the lowest level in seven years
• Many state housing agencies are exploring bond issues as a means to bail out subprime mortgage borrowers
• Oil prices rose to $66 per barrel, up from below $60 per barrel earlier in the month

Average 30 yr fixed rate: Last week:+0.00%This week:+0.09%Stocks (weekly): Dow:12,338-159NASDAQ:2,418-32

Week Ahead


The always important monthly Employment report will be released on Friday of next week. As usual, this data on the number of new jobs created and the Unemployment Rate will be the most highly anticipated economic data of the month, since the health of the labor market is perhaps the single biggest factor in the performance of the economy. Early estimates are for about 120,000 new jobs in March.

In addition, the ISM national manufacturing index will be released on Monday, and the ISM Services index will come out on Wednesday. Tuesday, the Pending Home Sales index, a leading indicator for the housing market, will appear on the schedule. Fed speakers, Chinese trade sanctions, Mideast tensions, and oil prices will also influence mortgage markets next week.