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

Last week proved once again: The Fed does not control mortgage rates.

On Tuesday, after the Federal Open Market Committee lowered the Fed Funds Rate by 0.250%, mortgage rates began an ascent that carried all the way through Friday's close.

As a result, mortgage rates are dramatically higher today than just one week ago.

Other factors contributing to last week's run-up in mortgage rates:

1. The costs of running a business grew much faster than expected
2. The cost of living grew much faster than expected
3. Holiday sales were much stronger than expected

All three of these items point to inflation, the enemy of mortgage bonds.  Inflation tends to push mortgage rates up.

This week, there isn't much new data of importance until Friday's Personal Consumption Expenditures release.  PCE is the Federal Reserve's preferred measure of how much more (or less) everyday living is for Americans. 

As the week progresses, expect increasing volatility in mortgage rates. 

Market players will be in short supply because of holiday parties, half-days, and vacations.  Fewer buyers and sellers in a marketplace mean finding the "right price" is more challenging.

(Image courtesy: The Wall Street Journal Online)