Mortgage rates remain at the most favorable levels of the year, not that buyers are exactly flocking to snap up cut-price homes. With rates at these levels, refinance activity is picking up a little bit, though. The economy is exhibiting more signs of recent slowness and there doesn't seek to be any new forward momentum forming.

In the midst of this, the Federal Reserve continues to ponder how it will act to manipulate monetary policy in the coming months and years. 

While QE2 -- the Fed's program of purchasing an additional $600 billion of Treasury debt, is coming to an end next month, it's worth remembering that this was simply added onto other supports in place, such as the re-investment of money the Fed is earning on the Mortgage-Backed Securities and Treasuries it purchased in 2008 through 2010. Those funds are already being re-invested in Treasuries, providing a reasonable level of demand to help keep interest rates low.

But how to wind down these kinds of operations? The minutes of the meeting from April 26 suggest that the Fed will start trimming these supports with an increase in the Federal Funds rate from today's near-zero levels before embarking on sales or retirement of the assets they are holding. At some point, all the mortgages they hold will be returned into the private market, and sales are expected both structured and announced well in advance... and even then, the Fed will remains sensitive to conditions so as not to disturb the markets needlessly.

No decisions were made on the timing or ultimate methodology which will be utilized. The Fed will likely use combinations of paying interest in reserves, selling assets, principal reinvestment and manipulating the Federal Funds and Discount Rates to achieve its goals.

One thing seems fairly clear, though: Given the state of the economy, presently groaning under high food and gasoline prices, it is unlikely that anything more than the expiry of QE2 is coming anytime soon, unless inflation pressures begin to spread and deepen. It's hard to say at this point, but the first change to policy isn't likely to happen until later this year, at the earliest.

April was certainly slow on the labor front, as well, when we saw a considerable upward flare in initial unemployment claims, which topped out at a high of 478,000 during the last week of the month. Since then, we've seen some steady improvement, and during the week ending May 14, only 409,000 new claims were filed at state windows. It is not yet clear us the record-setting flooding along the Mississippi river will push claims back up in the weeks ahead, but they would be temporary jobs displacements at worst.

Consumer moods soured a little more, according to Bloomberg. The Consumer Comfort Index moved back towards recession-level lows, with the indicator moving down by three points to minus 49 for the week ending May 15. So long as gasoline prices remain elevated and jobs scarce, moods probably will remain quite subdued.

Mortgage rates are low and favorable and affordability is great. Few folks seem to care, save some late-to-the-game refinancers. Those buying a home now are a bright bunch - great prices for homes and low rates.  

The Raise

Employee: Excuse me sir, may I talk to you?
Boss: Sure, come on in. What can I do for you?
E: Well sir, as you know, I have been an employee for over ten years.
B: Yes.
E: Sir, I would like a raise. I currently have four companies after me and so I decided to talk to you first.
B: A raise? This is just not a good time.
E: I understand your position, and I know that the current economic downturn has had a negative impact on sales, but you must also take into consideration my hard work, and loyalty to this company for over a decade.
B: Taking into account these factors, and considering I don't want to start a brain drain, I'm willing to offer you a ten percent raise and an extra five days of vacation time. How does that sound?
E: Thank you, sir! I'll work harder than ever.
B: Before you go, just out of curiosity, what companies were after you?
E: The mortgage company, the electric company, the gas company, and the water company.