Rates to fall sharply this spring.

Hey mortgage industry, fear not... pricing gets better. The first FOMC meeting of the year has adjourned with news of another cut to key short-term interest rates. In addition to last week's surprise .750 reduction, the Fed dropped them another .50 of a discount point at this meeting. The move didn't surprise some but did surprise others. The move has been met with mixed reactions in the markets. The major stock indexes are posting stronger gains with the Dow now up 160 points and the Nasdaq up 29 points. However, the bond market has not reacted as well. It is currently down from this morning's levels, possibly pushing mortgage rates higher this afternoon. The post-meeting statement indicated that there was still concern about economic weakness and hinted that more rate cuts could come as a result. They did lightly mention that inflation is being watched closely, but that is more or less a given in this economy. So, why the negative reaction in bonds? I can't exactly say for sure, but I suspect it has more to do with stock advances than with concerns about inflation and threats to bonds. The recent volatility in the stock markets had pushed significant funds into bonds as a safe-haven. We may be seeing those funds exit for higher yields in stocks. Fortunately, this will likely be a short-term issue. However, until the markets stabilize, I am holding the current lock recommendations. Today's preliminary reading of the 4th Quarter Gross Domestic Product (GDP) revealed an annual growth rate of 0.6%. That was half what analysts were expecting to see and indicates that the economy was in much worse shape than many had thought during the last three months of last year. This is good news for the bond market and mortgage rates as it eases inflation concerns that hurt long-term securities such as mortgage related bonds. All is well. mac