Bernanke Sparks Rate Rally.(Ben Bernanke of Federal Reserve Board )

NEW YORK -- Federal Reserve Board chairman Ben Bernanke helped spark a rally in 10-year Treasuries in June by reiterating a policy of "vigilance" in fighting inflation, which the market largely interpreted as foreshadowing additional hikes in short-term interest rates.

Some economists suggested the Fed's anti-inflation stance could portend a slowdown in economic growth, but will it be enough to push down mortgage rates? Could the industry be headed toward another unexpected refinancing boom?

Most economists don't think so, and continue to forecast that mortgage rates will rise, although very modestly, between now and the end of 2006. But everyone agrees that an awful lot depends upon how Mr. Bernanke manages monetary policy in the face of possible inflation threats. Meanwhile, trading in Treasury futures in mid-June, just before the release of key consumer price data, suggested that the market anticipated about a 50% likelihood the Fed would raise rates again at its next meeting in late June.

"It is very hard to speculate on these things, and the Fed never wants to show their hand too clearly, so it is still everyone's guess as to what they are going to do on June ...