Houston's Rate Sheet

Rate Watch

For the first time in 17 consecutive meetings, the Federal Reserve held short-term interest rates unchanged. In response, mortgage rates fell for the third straight week. Freddie Mac’s survey reported average 30-year fixed rate mortgage rates at 6.55 percent, down from the previous week’s 6.63 percent. The 15-year fixed rate mortgage followed. The popular product 15-year for refinances averaged 6.20 percent, down from the previous week's average of 6.27 percent. The one-year Treasury-indexed ARMs remained unchanged at 5.69 percent.

The result of the Fed’s FOMC meeting was not unexpected. Nine out of the ten voting Fed officials favored taking no action, while the lone dissenter preferred to raise rates again. The accompanying statement changed little from previous meetings. The Fed acknowledges that inflation has risen over the past several months, but the feeling is that the economy is slowing and that will in turn curb inflation. The Fed left the door open for future rate hikes. They will allow near term economic data to direct their future decisions.

We should have some strong predictions about future Fed meetings after this week. The all important inflation reports will be released this week. Tuesday, the inflation data will begin with the release of the Producer Price Index (PPI), followed by the Consumer Price Index (CPI) on Wednesday. PPI focuses on the increase in prices of “intermediate” goods used by companies to produce finished products, while CPI looks at those finished goods which are sold to consumers. Inflation is the scourge of the bond market and almost without exception high inflation leads to high mortgage rates. These two reports are the most widely watched measurements of inflation and they are of particular interest to the Federal Reserve.

In addition to the inflation reports, Industrial Production, a broad measure of business related economic activity, and the Housing Starts data are scheduled for release on Wednesday. Consumer Sentiment will round out a busy economic calendar on Friday.

posted by Vincent Biondillo @ 3:51 PM