Comments Off on Looking Back And Looking Ahead : March 3, 2008

Looking Back And Looking Ahead : March 3, 2008


Mortgage rates edged lower last week but it was another wild ride. Market players continue to deal with competing economic forecasts.

When the economy shows signs of brightness — like it did Monday and Tuesday — mortgage rates tend to rise.

This is because markets are currently equating growth with inflation and inflation pressures mortgage rates higher.

But when the economy shows signs of darkness — like it did Wednesday, Thursday and Friday — mortgage rates tend to fall. The sudden absence of inflation reverses the upward pressure and mortgage rates adjust downward.

The major reversal last week started with Federal Reserve Chairman Ben Bernanke’s testimony to Congress.

The chairman made three important points, and repeated them throughout his two-day affair.

  1. Inflation is not dead
  2. More economic stimulus will create more inflationary pressures long-term
  3. Short-term economic weakness is more concerning that long-term inflation

Chairman Bernanke implied that the Federal Open Market Committee will stimulate the economy as needed at its next meeting, March 18.

Markets are anticipating another half-point drop in the Fed Funds Rate.

This week, there are 14 separate speeches being made by various members of the Federal Reserve.

Markets will react any deviations in these remarks as they relate to Bernanke’s testimony. Mortgage rates will move accordingly. Fewer worries of recession will prop mortgage rates up; Fewer worries of inflation will pull rates down.

Also hitting the wires this week is February’s jobs report.

This is a major market mover because employment is closely tied to spending which is closely tied to economic growth.

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