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The Week In Review (September 17, 2007) : What To Watch For

The volatile path of mortgage rates last week followed the changing expectations for Tuesday's Federal Open Market Committee meeting. 

The FOMC sets the Fed Funds Rate, a benchmark interest rate upon which Prime Rate is based.

According to Federal Funds Rate futures, there is a 94 percent chance that the Fed will lower the FFR by at least 25 basis points Tuesday.  The same analysis shows a 50% chance for a 50 basis points cut.

One basis point is equal to 0.01%.

The wayward path of mortgage bonds last week reflects varying opinions about tomorrow's Federal Reserve press release and subsequent action.  As the expectations for a Fed Funds Rate cut increases, mortgage rates appear to fall.  When expectations of a cut damper, mortgage rates appear to rise. 

The speculation will end tomorrow at 2:15 P.M., however, after which mortgage rates will rebalance.  Higher or lower?  We don't know.

Therefore, today may be a good day to lock an interest rate in order to avoid the risk that the FOMC surprises market participants.

Also hitting the wires this week:  Producer Price Index, Consumer Price Index, and Housing Starts.  Each is a predictor of inflation, but will take a back seat to the big show Tuesday afternoon.  It's all eyes on the Fed for next 36 hours.