Thanks for visiting The Mortgage Reports. To stay absolutely current on mortgage markets and important guideline changes, be sure to take my free daily email alerts.

This chart shows the market's predictions of the Fed Funds Rate at the FOMC's December meeting.  It probably looks like gibberish to you, so let me briefly explain what we can all glean from it.

• The x-axis is dates.  This is a running timeline going back 45 days
• The y-axis is percentages.  This represents probability based upon the trading of Fed Fund Futures
• The plotted points represent the possibililties of what the Fed Funds Rate will be after the Fed's December meeting

By looking at the line graphs of 5.00% and 5.25%, we can see why mortgage rates have headed higher this past week after touching on 6-month lows.

At the date of the first yellow line -- labeled "Employment Situation" -- you can see the market's prediction of where the FFR will be in December 2006.  The markets were 85% certain of "no change" to the Fed Funds Rate.  Today, it's about 90%.

However, even as we watch long-term trends, it's the spikes in the chart that give it meaning.  Those spike correspond to "shocks" to the expectations of market players.

Witness:

• September 18, 2006
• September 27, 2006

It only takes one surprise to alter the market's expectation and, therefore, your mortgage rates. 

Source
Fed Fund Probabilities:: Current
The Federal Reserve Bank of Cleveland, October 11, 2006
http://www.clevelandfed.org/research/policy/fedfunds/Index.cfm

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.