Last week's big news was the rally stocks enjoyed -- the largest in 2009. Wall Street certainly liked hearing Citigroup state it wouldn't need anymore capital injections, and Bernanke stating our recession could be over by end-of-year if the banking system can be stabilized.  He also made it abundantly clear that major institutions would not be allowed to fail.

The consequences of our recessionary spending loomed its ugly head again as China expressed its concern over the safety of the U.S. assets it holds. Bernanke has attempted to quell these inflationary fears by stating the U.S. has an "exit strategy" for preventing inflation by retracting the money supply in a timely manner.

Why should you care about inflation? Well, other than the fact that it raises prices of everything you buy, it also is the arch-enemy of mortgage rates -- when inflation increases, so do mortgage rates -- and fast.

Mark-to-Market accounting was also discussed in Washington as Securities and Exchange Commission's (SEC) Chief Accountant, the Financial Accounting Standards Board's (FASB) Chairman and the Deputy Comptroller for Regulatory Policy in the Treasury Department testified in front of the House Financial Services committee.

Market-to-Market was created to bring more transparency into business, but has escalated the depths of the financial crisis. Expect some sort of change to Mark-to-Market accounting principles as Congress urged the SEC and FASB to present a solution to repair the Market-to-Market situation within three weeks. This change could help stabilize the banks.

Mortgage Rates

Despite stocks' big rally, mortgage rates ended the week only slightly better than where they began. According to Bankrate.com, conforming 30-year mortgage rates averaged 5.37% last week (5.41% the previous week).

Forecast for the Week

Potential big market movers this week come on Wednesday as the Fed delivers its policy statement and rate decision. Tuesday and Wednesday's, Producer Price Index (PPI) and Consumer Price Index (CPI) will also be of particular importance as it measures US inflation (or deflation). These reports are especially interesting after China's recent concern over future U.S. inflation.

Remember: Weaker than expected economic reports are generally good for mortgage rates, and visa versa.