Mortgage rates were up last week on weak housing data and a growing nervousness about mortgage bond quality.
Rates would have been up more if not for a tame inflation reading Friday.
The Personal Consumption Expenditures report fell Friday to 2.0% year-over-year, putting it back within the Federal Reserve’s comfort zone of 1-2 percent.
PCE is the Fed’s preferred inflation gauge and with inflation in check, Ben Bernanke & Co. can focus on other elements of the economy such as housing and employment.
Mortgage rates figure to be volatile (again) this week.
The first major event to strike markets is today’s release of a 200-page, government-written plan outlining sweeping reforms for the financial industry.
If markets interpret the government’s plan to be bad for bond markets, expect mortgage rates to rise as demand for bonds falls. Conversely, if the reforms are expected to benefit bonds, mortgage rates should fall.
Then, Wednesday, Fed Chairman Ben Bernanke testifies to Congress about the U.S. economy.
Expect the Fed Chief to stay on message, but mortgage rates will respond to his word choice and tone — especially in remarks about large banks and their ability to survive the current market. Traders are already on edge and will take Bernanke’s testimony very seriously.
And lastly, also moving markets this week is the March jobs report, due Friday.
Remember that job growth was negative in January and February so with a third negative month in March, the calls of recession will grow louder; the expectation is the economy shed 40,000 jobs last month. Whether a negative number will be good or bad for mortgage rates, though, will depend on the bond traders’ mood come Friday morning.
Either way, though, if the actual jobs number deviates from the expected jobs number of 40,000, mortgage rates will swing wildly starting at market open Friday and continuing into the weekend.