“If you don’t like the weather, wait a minute”…That’s a saying heard often in places where the weather can turn on a dime, making it very difficult to forecast. And while the weather patterns can change direction quickly, the recent movement of stocks and bonds rivals the rides at an amusement park.

“Turbulent” and “volatile” best describe the action in the markets. Stocks and bonds have had wild swings of late as the possibility of a recession loom. The Federal Reserve is concerned about a recession but doesn’t want to cut rates too deeply because it may stoke the flames of inflation.

In a speech last Thursday, Fed Chairman Ben Bernanke signaled the Fed will step in with interest rate cuts as necessary in an effort to prevent a full-blown recession from taking place. It sure looks like the Fed will break off a 50 basis point (1/2%) interest rate cut in its battle to fight a potential recession when the Fed next meets to determine monetary policy on January 30th.

Fed officials have assured fixed-income investors that they will keep a watchful eye on inflation, but some analysts worry it may prove much more difficult to keep inflation pressure at bay while simultaneously supporting economic growth than policymakers currently anticipate.

But remember that because Fed rate cuts may add to inflation pressures, home loan rates may actually increase after a cut by the Fed. We have seen this type of chilly response to Fed cuts many times before. Just back in September, the Fed cut by 50 basis points, but home loan rates worsened by 0.25% in just 3 days!

A steamy week of economic news is about to begin. Considering the already ultra-high level of volatility in the financial markets, the heavyweight news items to be unleashed could cause more sharp moves for both stocks and bonds. Retail Sales and Consumer Inflation will both carry a punch that could push rates significantly higher or drop them down to levels not seen since mid-2005.

The 2007 holiday shopping season may have been soft, which is good for bonds and home loan rates. But higher energy costs may pump up inflation and that’s bad for bonds. We will find out the results and market reaction over the next few days.

Remember that lower bond prices equal higher home loan rates and vice versa. Mortgage investors will confront their worst fear on Wednesday when the government releases the December consumer inflation data. A hotter than expected read for core consumer inflation will almost certainly prove toxic for the mortgage market effectively bringing the rally to lower rates and higher prices to a sudden halt.  Heads up.

This means it is more important than ever to give me a call ASAP if you are considering a refinance so I can lock your loan. 302-368-7132 Ext.12

If you would like to apply for a Mortgage Loan, you can APPLY ONLINE HERE, you can call John Thomas at 302-703-0727.

John R. Thomas – NMLS 38783

Certified Mortgage Planner – Primary Residential Mortgage, Inc.

302-703-0727 DE Office / 610-906-3109 PA Office / 410-412-3319 MD Office

248 E Chestnut Hill Rd, Newark, DE 19713