Amidst a week of meager economic data, mortgage bonds prices (the driving force behind mortgage interest rates) will be dictated mostly be performance of the stock market. When stocks rally, investors pull money out of bonds, worsening mortgage rates. When stocks fall, bonds are bought and mortgage rates benefit (which means lower rates for consumers). For example, today’s poor earnings reports for many majorly traded companies are benefitting mortgage rates.

Murmurs of another rate cut are gaining volume as the dollar’s value against foreign currencies begins to regain some lost ground. Inflation numbers came in just a tick above where the Fed would like them, but not high enough to warrant a change in their efforts to curb this housing collapse. Still, further increases in inflation measures (consumer price index and personal consumption expenditures index) could heap another problem onto the already overloaded shoulders of mortgage lending.

The president’s economic council met today, stating very emphatically that there is little to no threat of recession. When asked about the falling dollar, their response was reminiscent to an eight-year-old plugging his ears and saying “La-la-la-la-laaaaaaa.” With approval ratings in the dumpster, the Bush administration is scrambling for anything positive (or at least something NOT negative) to focus on.

Slower job growth can lend most of its deceleration to housing market layoffs, but not all of it.  Non-housing jobs grew at only 80% of its pace last quarter, underscoring a general economic slowdown. This is another good reason for the Fed to cut rates and get into a facilitative mode.

Next week’s Fed meeting and PCE index numbers will be major market movers. Trends favor locking subprime loans and favor floating prime loans. However, given recent market volatility, anything other than a locking bias is akin to rolling the dice and hoping for the best.