Favorable news from the Fed, weaker than expected economic data, and strong demand for a record $112 billion in Treasury auctions helped mortgage markets this week. While the daily price movements were often large, mortgage rates ended the week just a little lower.

As expected, the Fed made no change in the fed funds rate on Wednesday. Although there was much disagreement about what the statement would say, in general it contained the minimum number of surprises. The Fed offered its most optimistic view on the economy since the recession began, yet officials believe that slack in the economy will keep inflation low. Fed officials continue to expect the fed funds rate to remain at exceptionally low levels "for an extended period."

Of particular significance for the mortgage industry, the end date for the $1.25 trillion mortgagebacked securities (MBS) purchase program was moved from the end of this year to the end of the first quarter of next year. The total quantity of purchases will not change, and the Fed will gradually scale back the level of weekly purchases to minimize disruptions to mortgage markets. Investors had been concerned that the Fed statement might contain less favorable news, and mortgage rates improved after its release. Longer-term, the decrease in demand from the Fed is expected to move mortgage rates higher, and it might lead to greater daily volatility.

This week's housing data was mixed. After four months of increases, August Existing Home Sales fell 3%. Inventories of unsold homes fell to an 8.5-month supply from a 9.3-month supply in July. First-time homebuyers accounted for 30% of total sales. August New Home Sales rose slightly, and inventories dropped moderately.

Also Notable:

• The four-week average of Jobless Claims dropped to the lowest level since January

• The Fed's statement added that housing activity has "increased"

• Oil prices fell to $66 per barrel from a high of $74 per barrel last week

• The Fed purchased $23 billion in agency MBS during the week ending 9/23

Week Ahead

Next week, the important Employment report will come out on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Early estimates are for a loss of about 190K jobs in September. Before the Employment data, the Chicago PMI and the ISM national manufacturing indexes will come out on Wednesday and Thursday. Pending Home Sales, a leading indicator for the housing market, also will be released on Thursday. Personal Income, Final GDP, Construction Spending, Consumer Confidence and Factory Orders will round out the busy schedule. Also notable, the Treasury will announce the size of upcoming Treasury auctions on Thursday.

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