Last week saw mortgage rates again holding steady, as investors balanced economic news and the pending end to the Federal Reserve’s campaign of buying mortgage debt. Economic news was a bit light last week, and many appeared to be waiting for this week for insight into the economy and rates.

Markets will have plenty to digest this week, with many important economic reports and a quick, but critical, one-day meeting of the Fed. With such a muted reaction after the Fed raised its discount rate at its last meeting, some analysts are expecting the discount rate to go up again. However, expectations are for the Fed to hold its Fed Funds rate steady. As has been the case for some time now, the accompanying policy announcement will likely have greater influence. Every indication that the Fed believes we are returning to “normal,” will be that much more upward pressure on rates. This week also holds both the CPI and PPI. While inflation seems to be very muted with this slow economic recovery, the minute it starts picking up, mortgage rates should also start moving up.

Graph Courtesy from NY Times in an article by Bob Tedeschi March 10, 2010.  Data provided by Jeff Carpenter, Director of Finance, GFI Mortgage Bankers, Inc.

Much of the optimism about the pace or economic recovery evaporated last week, as economic news turned mostly sour. Consumer confidence plunged, and both new, and existing, home sales slowed considerably. While mortgage rates moved upward in last week’s Freddie Mac survey, they may begin trending downward if economic news this week continues to point to a stuttering recovery.

This week brings us the usual cascade of first-of-the-month data, with very important insight into manufacturing and employment. While GDP was adjusted upward last week, most of the increase was due to inventory-related adjustments. If the ISM Manufacturing Survey comes in below 55.0, w could see mortgage rates begin the week on a decidedly downward bent as traders begin worry about a manufacturing slowdown. However, if the ISM shows any improvement, rates will flatten, or perhaps even move slightly upward. Friday’s employment report will be hugely influential as usual. If we get an unexpected month of job creation we could see rates moving back upward next week.

Graph Courtesy from NY Times in an article by Bob Tedeschi February 24, 2010.  Data provided by Jeff Carpenter, Director of Finance, GFI Mortgage Bankers, Inc.

Last week the Federal Reserve took center stage by raising its discount rate: the rate at which banks can borrow money directly from the Federal Reserve. While this move has very little immediate impact, the increase was widely viewed as a symbolic first step in beginning to remove the emergency measures put into place during this deep recession. The Fed’s meeting minutes also provided some more insight into future Fed moves. In addition to letting certain programs expire as planned, the Fed will create some new tools that will enable it to “mop up” excess cash in the market. These new tools, in conjunction with its primary method of adjusting the Fed Funds rate, will be targeted at keeping inflationary pressure under control.

This week, and coming weeks, could begin to see mortgage rates become more volatile as the market digests everything coming out of the Fed. We’ll also get new and existing home sales data this week. With housing and employment as the weakest link, any positive news could push rates upward.

Graph Courtesy from NY Times in an article by Bob Tedeschi February 17, 2010. Data provided by Jeff Carpenter, Director of Finance, GFI Mortgage Bankers, Inc.