Mel's Blog

As we’ve written many times in our morning Update, the Fed’s number one mission is to fight inflation.  Many so-called experts look to grab headlines by calling for the Fed to lower rates in a effort to bolster housing, stocks, employment, sub-prime...you fill in the blank.  But they were proved incorrect again, as Chairman Ben Bernanke underscored that "core inflation remains uncomfortably high" and also suggested that despite recent signs of slower economic growth, the Fed isn’t inclined to lower interest rates anytime soon.   

The media is already trying to downplay Bernanke's testimony, spin the story, and suggest that the Fed may cut rates to help the sub-prime mortgage sector.  This isn't going to happen and it is your job as a mortgage planner and financial expert to get the real word out...the Fed will not cut rates, even at the expense of an economic recession, as long as core inflation remains above their target zone of 2% on the Core Personal Consumption Expenditure Index (PCE).  And you won't have to wait very long to get the latest read on PCE, as it is due out tomorrow at 8:30am ET.  More on PCE tomorrow. 

Bond prices are modestly lower so far today on some positive economic news and are attempting to grope for support at the 100-day Moving Average.  Initial Jobless Claims were reported at 308,000, which was lower than expectations of 320,000 and the lowest reading in more than two months.  This breaks the recent negative string of worsening jobless claims. 

The final reading on 4^th Quarter GDP showed the economy grew by an annual rate of 2.5%, which was hotter than expectations of 2.2%. Both reports suggest the economy and labor market continue to lumber along at a reasonable pace.

Today at 1:00pm ET, the bond market will be delivered some extra supply of paper by way of $13 Billion in new 5 Year Treasury Notes.  This event could spark a market reaction if the foreign buying and overall auction results don't meet expectations.  

With the Bond trying to hold its ground at the 100-day Moving Average, we want to be patient and give this floor an opportunity to hold.  As long as prices stay above or near this support level, we will cautiously float, but if prices drift beneath this floor we will shift towards locking.