Wednesday, July 22, 2009

Second verse - same as the first.

Fed Chairman Bernanke told mortgage investors just what they wanted to hear yesterday when he promised the central bank has the will and the tools necessary to guide the economy out of recession without spurring inflation. He made those reassuring remarks during his semi-annual monetary policy testimony before the House Financial Services Committee.

Mr. Bernanke is making an encore appearance this morning before the Senate Banking Committee where he will read yesterday's prepared text testimony verbatim into the congressional record for the second time.

He will once again be grilled by lawmakers on everything from his views on President Obama's healthcare plan, to unemployment, to what impact, if any, he thinks the birthrate of coyotes in New Mexico will likely have on the future level of short-term interest rates (I obviously made that last part up - but it is my tongue-in-cheek attempt to highlight how poorly versed some committee members truly are on topics related to the economy and interest rate movement). There is little reason to expect the Fed Chairman will fail to handle every question, no matter how relevant or ridiculous, as deftly as he did yesterday during his appearance before the members of the House committee. Mr. Bernanke will simply reinforce his position that while the Fed is keenly aware of the potential inflation threat down the road - the central banks has the tools to control that threat - though it is highly unlikely it will have to use any of the inflation fighting options at its disposal anytime soon. If this assessment proves accurate, this event will have little, if any discernable impact on the direction of mortgage interest rates today.

Separately, the Mortgage Bankers of America released their seasonally adjusted index of mortgage applications for the week ended July 17^th earlier this morning. The indexed showed that total applications during the period rose 2.8%. Applications for home purchase climbed 1.3% while refinance applications were up 4.0%.