It’s Not What They Do, It’s What They Say

It’s all eyes on the Fed today as the market sits patiently, waiting for the 2:15 P.M. EST press release. Despite strong 2006 Q4 growth figures and a five percent spike in oil prices yesterday, there is an eerie calm while markets wait for the FOMC’s press release.

In its December 2006 press release, the FOMC stated that:

Economic growth has slowed over the course of the year, partly reflecting a substantial cooling of the housing market. Although recent indicators have been mixed, the economy seems likely to expand at a moderate pace on balance over coming quarters.

In other words, the group believed that housing slowed down the economy some but, overall, growth would continue at a "Goldilocks" level.

Today, markets expect with 100% certainty that the FOMC will not raise or lower the Fed Funds Rate, but the FFR is not what concerns them; it’s the verbiage of the press release that matters. If the above key paragraph changes to reflect a move away from "just right" growth into "runaway" growth, mortgage rates will adjust higher in response.