What began as a quiet week quickly turned negative following the release of Tuesday’s Fed announcement. Mixed economic data and Treasury auctions had little impact. Mortgage rates ended the week significantly higher.

While it was very similar to the last statement, the Fed announcement reflected some degree of improvement in the economy. This caused investors to reduce expectations for further Fed easing through purchases of mortgage-backed securities (MBS). The chance that the Fed would produce enormous additional demand had helped propel MBS prices to their recent highs, so this news caused investors to sell MBS.

The statement also acknowledged that rising energy prices will lead to higher short-term inflation. Investor concern that this will produce higher long-term inflation caused MBS prices to fall and mortgage rates to rise. The PPI and CPI inflation data released this week clearly reflected the impact of higher energy prices.

The Freddie Mac weekly mortgage rate survey released on Thursday showed just a small increase in rates, which could be very misleading. This is simply due to the timing of the survey. Freddie Mac collects data from origination companies on Monday and Tuesday and releases the results on Thursday. In this case, the survey does not reflect the significant rise in mortgage rates which followed the Fed announcement on Tuesday afternoon.

With a light Economic Calendar next week, the Housing data will be the focus. Housing Starts will be released on Tuesday, Existing Home Sales will come out on Wednesday, and New Home Sales will be released on Friday. Jobless Claims and Leading Indicators are scheduled for Thursday.

We’ll have an additional market review at the beginning of next week to rehash this light economic calendar.

Copyright @ 2012 MBSQuoteline