For the first week in a long while, mortgage rates ended the week better than how they started. As we talked about last week, when there are no major data releases, the markets tend to move on momentum and psychology. That's precisely what pushed mortgage rates lower over the past five days.
This week, though, it's back to reality.
Beginning in March, mortgage markets started to change their bets about the Federal Reserve's next steps with the Fed Funds Rate. Previously, investors believed that the Fed would lower the FFR in the first half of 2007, signaling a tamer inflation outlook in the economy.
Data didn't support that view, though.
Then, at the Fed's May meeting, the tide really turned as the nation's monetary policymakers noted how housing was cooling off, but that the economy was roaring ahead despite that.
And that's right around when the bond market started to take it on the chin.
Well, the Federal Open Market Committee meets again this week for a two-day meeting, adjourning Thursday. The markets will be closely watching every word from Ben Bernanke & Co. to see if the new bets they've made on the economy and inflation will be backed up by the Central Bank.
The Fed drops their press release at 2:15 P.M. ET Thursday.
Until Thursday, watch for small movements in mortgage bonds in response to Monday and Tuesday's housing data, and Thursday jobless claims statistics.
