Mortgage bond prices remained volatile in up and down trading last week. We started the week in positive territory only to have the gains erased as stronger than expected housing starts data shocked the market Tuesday and overshadowed the tame inflation data. Producer and consumer price data showed inflation remained in check however oil prices remained volatile. US debt concerns continued as the Treasury announced record auctions ahead. For the week interest rates remained near unchanged. While the Fed meeting is usually the most important event it will likely be overshadowed by the record $104b Treasury debt auctions this week. Durable goods order, income, outlays, and consumer sentiment data may also cause mortgage interest rate volatility.
Fed Meeting
The Fed's chief policy tool is the manipulation of short-term interest rates. As of late, short-term rates have been so low that the Fed is limited with their options. The Obama administration is pushing for expanded Fed powers to supervise large banks, hedge funds, and consumer financial products. Both political parties express concerns about increasing the Fed's role citing previous failures. However, most agree something needs to be done and many argue the Fed is best equipped to tackle the current problems. All eyes will be focused on the Fed meeting Wednesday. A cautious approach to float/lock decisions is prudent heading into the meeting. Market volatility is likely.