Issue 13, Volu me 4 / Janua ry 27, 2012The FOMC Keeps the Momentum Going The Week Ahead -> The “Keys”Tim McLaughlin - Housing and Employment Data Highlight the Week Now that the dust has settled on the Feds directiveannounced last Wednesday in their statement, we want to Date Economic Release Prediction Lastreiterate several themes. Without a doubt, this is an uber-dovish statement from the Fed. 1/30 Personal Income 0.4% 0.1% First, the extended period language was moved out 1/30 Personal Spending 0.1% 0.1%significantly with the first rate hike targeted for late 2014 orlater. Granted, this could be pulled back closer over time, but 1/30 PCE Core (MoM) 0.1% 0.1%this is the projection as of today. 1/30 PCE Core (YoY) 1.7% 1.7% Second, Bernanke made it clear that the guidance 1/30 Dallas Fed Manufacturing - -3.0sentence, which is decided by the FOMC voters, dominatesthe projections, which comes from the whole committee. In 1/31 S&P/CS Home Price Index - 140.3other words, the alternate projections, which referencepotential hikes in 2012 and/or 2013, should be discounted, 1/31 S&P/CS 20 City (MoM) -0.40% -0.62%as they are dominated by non-voting hawks. 1/31 S&P/CS 20 City (YoY) -3.21% -3.40% Third, the FOMC has quietly raised its inflation target. 1/31 Chicago Purchasing Mgrs 63.0 62.2Just five years ago the discussion was about a 1 to 2%range, and then it moved to 1 1/2 to 2%, then 1.7 to 2% and 1/31 Consumer Confidence 68.0 64.5now simply 2%. Clearly the Fed is worried about running alow target because it means that during recessions there is a 2/1 MBA Mortgage Applications - -5.0%greater risk of either going into deflation or hitting the zerolower bound on interest rates. Hence, create a bigger 2/1 ADP Employment Change 185K 325Kcushion gives more room for fluctuation. 2/1 Domestic Vehicle Sales 10.50M 10.45M Fourth, the Fed has implicitly changed the weights in its 2/1 Total Vehicle Sales 13.60M 13.48M"Taylor Rule". By law the Fed is supposed to put equalweight on unemployment and inflation, but since Volcker 2/2 Initial Jobless Claims - 377Kcame in the implicit sense was that inflation had a bit moreweight. This does not mean the Fed has given up on 2/2 Continuing Claims - 3554Kcontrolling inflation, but, rather, it does mean on the marginthey accept bigger cyclical swings in inflation. 2/3 Nonfarm Payroll 148K 200K 2/3 Private Payroll 174K 212KTakeaways: All of this suggests:(1) The first rate hike will come even later 2/3 Manufacturing Payroll 10K 23K(2) Even stronger odds of QE3 (focused on MBS given Fedsfocus on housing) after the “Twist” is over and if growth 2/3 Unemployment Rate 8.5% 8.5%weakens as most expect(3) Somewhat higher inflation and inflation expectations 2/3 Avg Hourly Earnings (MoM) 0.2% 0.2%(4) More inflation volatility 2/3 Avg Hourly Earnings (YoY) - 2.1%(5) Accommodations to support the broader economy,lending (and housing as a bi-product) and investment 2/3 Avg Weekly Hours 34.4 34.4(corporate and otherwise). 2/3 Underemployment Rate - 15.2%All in all, more positive news to support the market in 2012. Mortgage Access Corp. d/b/a Weichert Financial Services, Executive Offices, 225 Littleton Road, Morris Plains, NJ 07950. 1-800-829-CASH. NMLS Company ID: 2731. Licensed by the NJ Dept of Banking and Insurance. Licensed Mortgage Banker with the State Dept of Banking in NY and CT. Licensed by the Pennsylvania Department of Banking, Mortgage Lender 21042. Licensed Lender in AK, AR, DE, MD, D.C., GA, ME, MI, MN, WI, IA, IL, IN, LA, VT, FL, WV, RI, KY, NC, ID, MS, NE, WY, OK,TN, WA. Licensed by the Virginia State Corporation Commission, License #ML105. Licensed Mortgage Lender in the Commonwealth of Massachusetts. License #ML1713, Certificate #43155. Certificate of Authority to transact business in CO, SC. Registered Mortgage Lender in TX. Licensed with the Financial Institutions Division in New Mexico, License # 01297. Licensed by the Department of Corporations under the California Residential Mortgage Lending Act. Licensed Mortgage Broker and Lender Ohio. Licensed Loan Broker and Lender Rhode Island. Kansas Licensed Mortgage Company, License #MC.0001229. Licensed by the New Hampshire Banking Department, License # 8714-MB. Licensed Oregon Mortgage Lender License #ML2528. Weichert Financial Services arranges loans with third-party providers. Equal Housing Lender.