Yellen Testifies

The primary influence on mortgage rates this week was new Fed Chair Janet Yellen's semi-annual testimony before Congress. Although there were no significant surprises, maintaining the status quo for Fed policy was taken as good news for stocks and bad news for bonds. Mortgage rates rose during her testimony and ended the week a little higher.

Janet Yellen took over as Fed Chair at the beginning of the month, and Tuesday's testimony before Congress was viewed as the first big opportunity to see her in action. Yellen made it clear that she would continue the policies seen under her predecessor, Ben Bernanke, with little change. She said that recent weak data and turmoil in emerging markets did not alter the Fed's long-term economic outlook. Her upbeat assessment of the economy lifted stocks, but was negative for mortgage rates. Also hurting rates, she stated that the Fed will continue scaling back its bond purchase program at a steady pace, unless the performance of the economy worsens significantly. The Fed's bond purchases have increased the demand for mortgage-backed securities (MBS), which has helped keep mortgage rates low.

This follows shortfalls in the Employment and ISM Manufacturing reports last week. Forecasts for first quarter GDP have been revised lower by most economists, and the consensus is now for 2.0% growth. The economy is expected to return to a 3.0% growth rate in the second quarter. 

The most significant economic data next week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Wednesday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Thursday. CPI looks at the price change for finished goods which are sold to consumers. In addition, the Minutes from the January 29 Fed Meeting will be released on Wednesday. These detailed Minutes provide additional insight into the debate between Fed officials. Housing Starts will also come out on Wednesday. Existing Home Sales will be released on Friday. Philly Fed and Empire State will round out the schedule. Mortgage markets will be closed on Monday in observance of Presidents Day. 

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