The week of January 21, 2008 was one of the more exciting weeks I have seen on the market in quite some time, and that comes with being just a 4 business day week.  Of course, most of us around here worked Monday, also; I didn't.  I'd planned vacation for the entire week for more than a month. 

By the end of the week, we'd seen a degree of volatility in the stock and interest rate markets that hadn't been seen in a long time.  Here's a quick recap of some highlights:

• Tuesday saw the Dow open down more than 3%, reaching a low as much as 4.8% off of Friday's close
• In a surprise move, the Fed cut short-term rates 0.75% on Tuesday before the market opened
• By the time the market digested this cut at the end of the day on Tuesday, the market closed within 1.1% of its previous close
• Bond volatility increased throughout the week, causing many lenders to suspend protections previously offered to mortgage professionals such as overnight rate locks
• 30-year fixed rates approached 5.375% with 0 points, but ended the week almost 0.5% higher

By any measure, this past week was an exciting one to be watching the market, and a gut-wrenching week for those directly affected.  .  This week should be even more exciting for the watchers and even more nauseating for buyers with floating interest rates.  Here's a brief list of what we have in store:

• Monday: New Home Sales
• Tuesday: Consumer Confidence / Durable Goods
• Wednesday: Gross Domestic Product / Chain Deflator / Fed Meeting
• Thursday: Crude Oil Inventories / Jobless Claims / Personal Consumption Expenditures
• Friday: Jobs / Earnings / Consumer Sentiment

That's about as much important economic data as you could possibly have in a week, and most of it is loaded towards the end of the week.  While all of these reports will have some impact on interest rates, everyone will be looking at the information from Wednesday and Friday.  If the estimates of the current condition are accurate, we should expect interest rates to moderate somewhat this week, as they still have not fully absorbed last weeks changes.  If estimates miss, we could easily see another week like this past one.  Expect that the Gross Domestic Product report will direct all other reports for the week - if it indicates a weaker-than-expected economy, it is more likely that data the rest of the week will follow that negative trend. 

A final thought on this: the Fed has been flexing its muscles lately in an attempt to bolster the economy.  Falling lending rates mean that borrowing should pick up.  More borrowing, though, will lead to higher inflation.  And higher inflation is the enemy of the Federal Reserve.   Kind of makes me think of something a great guru said on his pupil's embarcation. 

Fear -> Anger -> Hate -> Suffering -> Dark Side  (audio)

Economic Weakness -> Lower Rates -> Economic Growth -> Inflation -> Higher Rates 

Expect to see the Fed's future moves driven by conflicting desires to spark economic growth and to maintain low inflation.  Will Bernanke balk at a move towards the Dark Side?  Does anger lead to inflation?  At this point, we can but wait and see. 

Rate Locks: For this week, interest rates should be locked by close of business Tuesday unless you are comfortable with a bit of a wild ride.  Wednesday, Thursday, and Friday, while likely to result in little net change, and likely to follow the current trend of gradual improvement, could see big intraday jumps, followed by large falls, or vice-versa.  Bottom line: if you like your rate now, lock it.