Caroline's Weekly Market Review

Shifting investor expectations about the timing of Fed tightening worked in favor of mortgage rates last week. The economic data released last week had little impact. As a result, mortgage rates ended the week a little lower.

The Fed has used two primary approaches to stimulate the economy and to help push mortgage rates to historically low levels. Everyone has focused a lot of attention lately on the Fed's bond purchase program, which the Fed is expected to begin to scale back before too long. This program was initiated to provide additional stimulus after the Fed had cut the fed funds rate to near zero and could go no lower. Until recently, investors expected that the Fed's first hike in the fed funds rate would not take place until mid-2015. A shift forward in expectations for the first Fed rate hike has been one of the forces moving mortgage rates higher.

An article written on Thursday from a noted Fed watcher addressed the question of when the Fed will raise the fed funds rate. The article suggested that Fed officials do not agree with investors that economic conditions have pulled forward the likely timing of Fed rate hikes. Rather, Fed officials still expect that the first rate hike will take place long after the end of the QE program. This article caused mortgage rates to move lower at the end of the week.

Without a doubt, the big story this week will be Wednesday's Fed meeting. While expectations are low that it will take place Wednesday, we are at the point where the announcement that the Fed will taper its bond purchases could come at any meeting. Even hints about the timing likely would cause a large reaction. The most significant economic data will be Tuesday's CPI inflation report. The Consumer Price Index (CPI), the most closely watched monthly inflation report, looks at the price change for those finished goods which are sold to consumers. Housing Starts will also be released on Tuesday. Existing Home Sales will come out on Thursday. Philly Fed, Empire State, and Leading Indicators will round out the schedule.