Mortgage Market News for the week ending June 24, 2011

No Change From Fed

Investors focused on the Fed meeting and Greece this week. A reduced growth forecast from the Fed and continued concerns about the situation in Greece helped mortgage rates move a little lower.

As widely expected, the Fed made no change in the fed funds rate, and Fed policy appears unlikely to change in the near-term. The Fed lowered its forecast for 2011 GDP growth to 2.8%. This is down from 3.2% at the last meeting, but it does assume faster growth during the second half of the year. Inflation is expected to remain low. The Fed gave no indication that it will provide additional monetary stimulus any time soon. In short, it will likely take a major improvement or deterioration in the economic outlook for the Fed to take significant additional action.

On Thursday, Greece reached a deal with European Union (EU) and International Monetary Fund (IMF) officials. Greece will receive additional aid from the EU and the IMF, but to get the aid it must further reduce government spending, and its ability to execute on the deal is in doubt. The question is whether the Greek government has the political will to pass new austerity measures. The answer could lead to further market volatility. If the opposition is too strong and the measures fail, the resulting uncertainty likely would lead to a global flight to safety, which would be good for mortgage rates. On the other hand, if the measures successfully pass, mortgage rates likely would move higher.

Also Notable:
• May Durable Orders increased 2% from April
• May Existing Home Sales fell 4% from April
• The Treasury will auction $99 billion in 2-yr, 5-yr, and 7-yr securities next week
• After government intervention, oil prices declined to the lowest levels in 4 months

Week Ahead Next week, the Core PCE price index, the Fed's preferred inflation indicator, will come out on Monday, along with Personal Income. Consumer Confidence is scheduled for Tuesday. Pending Home Sales, a leading indicator for the housing sector, will be released on Wednesday. The Chicago PMI manufacturing index will come out on Thursday. There will be Treasury auctions on Monday, Tuesday, and Wednesday. The Fed's quantitative easing program is scheduled to conclude on Thursday.