Dedham Condominiums

The Federal Open Market Committee did the expected on Thursday. It raised the target fed funds rate by 25 basis points to 3.25 percent. This is the ninth such increase in the past year. The accompanying statement, which was the object of much speculation, remained nearly identical to previous ones, with the Fed vowing to remove accommodation at a 'measured' pace. On the subject of inflation, the Fed said the inflation pressures stayed elevated, but reiterated that long-term inflation remains 'well-contained.'

The bond markets, which had been trading flat to firmer, rallied on the statement. Traders bought on reassurance from the Fed that inflation, which erodes the value of fixed-rate assets such as U.S. Treasuries, will not likely be a threat to the economy down the road. Treasury yields, which move in the opposite direction of prices, fell as buying gathered steam. Because the rally erupted late in the session, however, it had little effect on mortgage rates, which remained steady.

Economic news was mixed, but somewhat bond-friendly. The Chicago Purchasing Managers' Index of June business conditions edged down to 53.6 from the May reading of 54.1, although any number above 50 indicates expansion in the sector. Analysts were forecasting an increase to 56. Personal Income & Outlays for May missed the mark, with income rising 0.2 percent - less than the 0.3-percent estimate and far below the 0.6- percent increase in April. Personal spending in May was unchanged from April when an increase of 0.1 percent was forecast.

In a separate report, first-time unemployment claims for the week ended June 24 fell 6,000 to 310,000 - the lowest level in two months and far below the forecast for 325,000. The more closely watched four-week average fell to 323,500 and continued claims - people collecting benefits for more than one week - rose to 2.6 million.

Fed Disappoints Wall Street

Stocks opened to the upside but faltered and then fell precipitously shortly after the Fed announcement. Some analysts believe that Wall Street was disappointed the Fed did not hint that its credit-tightening program would end soon. The Dow Jones Industrials lost close to 100 points, and the Nasdaq composite suffered a 0.58-percent loss. The biggest news on the street was the purchase of credit card giant MBNA by Bank of America, although it had little impact on the broader market. Shares of MBNA soared 24 percent on the news, and other credit card companies that could be takeover targets also rose.

Only two Dow Jones components closed in positive territory - Boeing and Home Depot. Shareholders cheered Boeing's new chief Jim McNerney, who was lured from a similar position at 3M. Boeing's stock climbed 7.1 percent, while Home Depot's gain was modest. 3M was the Dow's biggest loser, shedding 4.9 percent due to the loss of its chairman and CEO. DuPont was down 3.6 percent and Hewlett-Packard, Coca-Cola and United Technologies each ended up with 2-percent-plus losses. Eight other Dow components fell more than 1 percent.

The Nasdaq composite, less affected by the Fed statement, held fairly strong until the last hour of trading. Then it slid steeply, losing close to 12 points. PalmOne tried to boost the tech-heavy index by reporting a 33 percent gain in fourth-quarter profits. The stock soared 8 percent, but gave it back, closing near unchanged. JDS Uniphase was the only tech bellwether to escape a loss. It closed flat. Oracle posted the biggest loss, dropping 2.7 percent, while five others lost more than 1 percent.

At Closing: The Dow 30 Industrial Index fell 99.51 points or 0.96 percent to end at 10,247.97; the Nasdaq Composite index lost 11.93 points or 0.58 percent to close at 2,056.96, and the benchmark Standard & Poor's 500 Index closed down 8.54 points or 0.71 percent to end at 1,191.33.

The 30-year Treasury bond was up 1-8/32 in price with the yield falling to 4.19 percent versus a 4.26-percent closing on Wednesday.

The 10-year Treasury note was up 16/32 in price with the yield falling to 3.92 percent versus a 3.98-percent closing on Wednesday.

The 5-year Treasury note was up 9/32 in price with the yield falling to 3.70 percent, versus a 3.75-percent closing on Wednesday.

AVERAGE mortgage rates (zero discount points) based on rates collected nationwide were:

The 30-year Conventional Fixed-Rate Mortgage was at 5.382 percent from 5.374 percent at Wednesday's close.

The 15-year Conventional Fixed-Rate Mortgage was at 4.97 percent from 4.963 percent at Wednesday's close.

Coming Up

Three reports highlight the first day of July, with the ISM index of June manufacturing conditions the most influential. The ISM is expected to come in at 51.5 - up just a hair from the 51.4 reading in May. Any slide in the ISM would put it perilously close to 50. New construction in May could repeat its performance in April by rising 0.5 percent, as analysts expect. And the University of Michigan's consumer sentiment survey for June is also forecast to come in unchanged at 94.8. With the indicators expected to hold firm and the bond markets closing early prior to the holiday weekend, mortgage rates are likely to hold near present levels.

Carolyn Siegel

carolyn@interest.com

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