AJ's ECONOMIC BUZZ:

Last Week's Economic Retrospective:

The Dow hit another historic high last week closing above 12,000 and did so on the anniversary of "Black Monday". &8220;Black Monday&8221; occurred in 1987 when the Dow plunged by 508 points and suffered its second largest loss in history. The strong stock gains of late seem to indicate that investors continue to feel good about the US economy and perhaps believe that the feds can achieved that rare feat of a "soft landing"; slowing down the economy without actually stalling the economy out.

The economic reports last week were mixed but did underscored the message that the US economy is still strong along and exceeding most analysts expectations. Almost all the recent reports bear this out; housing numbers remain better than expected, employment is still reasonably strong, the stock market is soaring and as a result, and inflation continues to be hotter than anticipated.

Bonds and home loan rates were fairly stable last week but were sensitive to the fact that inflation remains stubbornly present in the economy. This is why Bond pricing and home loan rates worsened slightly in recent days.

While there were no clear-cut signals, the stream of upbeat reports indicate that the economy has not slowed down as much as the Fed expected What this might mean is the Fed might consider increasing rates to combat the persistent inflationary pressure that still remains in our economy.

This Week&8217;s Economic Forecast:

This week is expected to be exciting. The Richmond&8217;s Federal Reserve President Jeffrey Lacker and his team of "dissenters" will try to persuade the rest of the Fed members that another rate hike is in order. Jeffery Lacker and his team seem to feel all recent news hints of inflation and controlling inflation is the Federal Reserve's main charge. Last week's reports hinted at an inflation rate around 2.9% while the Fed&8217;s targeted inflation rate is 1 - 2%.

The action in Bond pricing and home loan rates should be lively this week when the Feds make their announcement on Wednesday. If the Fed decides to remain in a paused mode, the Bond market and home loan rates may move in a positive manner if the accompanying Policy Statement indicates that the Fed does indeed feel inflation is controlled. However, if their statement does hint of inflation, then there is the real possibility Bonds and home loan rates will worsen as market reacts to inflationary fears.

By the same token, a rate hike would be a surprise after two consecutive decisions to pause. And while normally a move to control inflation helps Bonds and home loan rates to improve, a surprise hike might just confirm those inflationary fears, and cause Bond pricing and home loan rates to worsen.

At this point, it&8217;s a wait and see situation on what the Feds will do, how the market will react and the effect on Bond and loan rates.