What will rates do this week

This week the bond and equity markets face the problems coming out of Japan and the FOMC meeting on Tuesday. The economic data, while always important, is a little less so now while investors try and handicap the economic importance of the impact of Japan's earthquakes. Two reports on inflation with PPI and CPI due out on Wednesday and Thursday, inflation continues to get attention although there isn't any now, nor any on the horizon----tilting at windmills. Weekly claims are expected to be lower on Thursday and the Philadelphia Fed index of business strength on Thursday are the two keys for data.

The Fed meets Tuesday, we are not looking for anything significant from the meeting. The short statement will likely be about the same as in the past; the fed stands ready to keep rates low, the job market is still struggling, the Fed will complete QE 2 but will not completely abandon a possible QE 3 although that is not likely with the economic improvement. The bond and mortgage markets are somewhat more encouraging, both the 10 yr note and mortgages have moved through their respective resistance levels. That said, rates are tied directly to stock market direction; a rally in equities will push rate prices lower and could change the dynamics overnight.