It was a quiet week for mortgage rates last week. Most of the economic data came in close to expectations and the Fed Minutes contained no major surprises. As a result, mortgage rates ended the week just slightly higher.

The primary message that investors received from the highly anticipated Minutes from the January 30 Fed meeting was that Fed officials remain divided on the outlook for the Fed's MBS and Treasury purchase program. The Fed's current position is that the program will continue until substantial improvement in the labor market takes place, specifically until the Unemployment Rate declines to 6.5%, as long as inflation remains below 2.5%. According to the Minutes, concern about the costs and the risks of the program appears to be growing, causing some officials to suggest that the program may end before the labor market goals are reached. The Minutes left investors more uncertain about future Fed policy.

The inflation reports released this week showed that current levels of core inflation remain far below the 2.5% rate that would begin to concern Fed officials. January Core CPI, which excludes food and energy, was 1.9% higher than one year ago. January Core PPI was even lower. Fed officials generally prefer to look at core inflation levels, which exclude the most volatile components like gas prices and give a clearer picture of long-term trends. One concern about the Fed's current easy monetary policy is that it could lead to higher future inflation. If core inflation were to climb sharply, it would pressure the Fed to scale back its stimulus, which would not be good for mortgage rates. For now, though, there are few signs of higher core inflation to worry investors.

Also Notable

• January Existing Home Sales increased slightly from December
• The inventory of existing homes for sale declined to the lowest level since December 1999
• Oil prices declined to the lowest level since the first week of January
• The Treasury will auction $99 billion in 2-yr, 5-yr, and 7-yr securities next week

This Week

This last week of February will be packed with economic events. The biggest news may be Fed Chief Bernanke's testimony before Congress on Tuesday and Wednesday. New Home Sales will be released on Tuesday. Durable Orders and Pending Home Sales will come out on Wednesday. Revisions to fourth quarter GDP and Chicago PMI are scheduled for Thursday. ISM Manufacturing, Core PCE inflation, and Personal Income will be released on Friday. Consumer Confidence, Consumer Sentiment, and Construction Spending will round out the schedule. There will be Treasury auctions on Monday, Tuesday, and Wednesday. Investors also will be watching Italian elections over the weekend.

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