Mortage Rates Respond to GDP, August 27, 2010

Mortgage Rate Trend Direction:    Up

Economic Reports/Rate Impact:   Revised GDP, 8:30 AM ET, High Rate Impact

                                                            Consumer Sentiment, 10:00 AM ET, Low Rate Impact

Key News:                                         Fed Chairman Speech at Jackson Hole Economic Summit

Summary

Thursday afternoon brought us a significant sell-off in mortgage-backed securities (MBS).  Today may well give us a repeat performance.  Revisions to the 2nd quarter Gross Domestic Product figures are expected to show a dramatic slowing in the US economy.  Later in the morning, Ferderal Reserve Chairman Ben Bernanke will deliver a speech at the Jackson Hole Economic Summit that will be carefully examined for clues to upcoming Fed action to stimulate the economy.  I expect mortgage rates to be higher this morning when initial pricing is released by lenders.  Additionally, if Chairman Bernanke's speech is well received, stocks could rally and mortgage rates could continue to move even higher.

Impact of economic reports

At 8:30 AM ET this morning the US Department of Commerce released revised Gross Domestic Product figures that showed that our economy was growing roughly half as much as previous forecasts during the 2nd quarter.  While the results are negative, analysts were actually predicting much worst revisions.  This has casued the stock market to improve in early trading and MBS to sell-off.

At 10:00 am ET new Consumer Sentiment results will be reported.  No significant change is anticipated.

Impact of international or political events

At 10:00 AM ET, Federal Reserve Chairman Ben Bernanke will deliver a breakfast address to assembled economists and central bankers from around the world at the annual Jackson Hole Economic Summit in Jackson Hole, Wyoming.  Analysts and market watchers will be closely monitoring the speech for several things.

Among the important topics Bernanke is expected to address include:  state of the US and gloabl economy (short and long term), menu of possible Fed actions to stimulate the economy, the preferred course of action for the Fed, his opinion on further Congressional stimulus or debt reduction.  What many analysts have said is essential is for the Chairman to be very clear.  Some of his recent statements, statements by the Federal Open Market Committee and by other Fed Board members have caused concern that there is not a clear goal and path to achieve it within the Fed.  Moreover, there is a sense that disagreements among board members as to the proper course of action for the Fed is developing..