This morning we got some key economic reports relating to inflation.  Core consumer price index, which is a measure of inflation on the consumer level but does not include food and energy rose 0.0% this month.  Economists where expecting a 0.1% rise and last month we saw a -0.1% decrease.  The overall consumer price index showed a decrease in consumer prices of -1.7% month over month with economists expecting a -1.3% decrease.  Both of these reports continue to show inflation is dropping and is of no concern right now to the Fed.  We also got the housing starts numbers.  Economists where expecting 730,000 new housing starts but the number came in much lower at 625,000 which is down 18.9%.  I find this to be good news for the housing market as less new home being built will allow for the current inventory to sell down.  Overall, the economic reports we received this morning are all friendly to us in the mortgage business and for anyone shopping for a mortgage.   

Later today we will receive the fed announcement on interest rates.  The consensus is for the fed to lower the benchmark rate from 1% to .50% and with inflation of no concern, we might even see a .75% cut but a cut is in the bag.  The more crucial bit of news will be the accompanying statement as a cut to the benchmark fed rate does not mean a cut to mortgage rates.  Each time this year the fed has cut the fed fund rate we have actually seen a large jump higher in mortgage rates but we do have a wild card… the Treasury.  The Treasury has already stepped in to start buying mbs, so if we start to see a sell off, you can bet that the treasury will step in to buy which will help to keep mbs prices high and mortgage rates low.  Thus, the key to the fed announcement today will be if they make any statement in regards to the mbs buying that they intend and are already doing. 

Yesterday was a very low volume day and mbs closed about where they opened.  So far this morning, mbs are even on the day and I do not expect much movement one way or the other until the fed announcement at 2:15pm eastern.  As for right now, you are pretty clear to float, but things can change very quickly at fed time.  We will post back after the announcement with an analysis.