What does the Consumer Price Index (CPI) number and your mortgage rate have in common? If the pundits are right, the CPI may directly affect mortgage rates almost immediately after they're released. PPI? Probably. What about Non-Farm Payroll numbers, will they have an impact? Most every time. The fact is that our economy has a direct impact on interest rates. If your goal is getting the best rate, then you need to know how economic data can increase or decrease market rates.

First, it's important to understand how economic numbers can affect interest rates, including fixed mortgage product. Generally, interest rate gurus look at two things: an overheated economy, and inflation. As an economy picks up steam, businesses look to expand by making more products or providing more services. When they do, they increase the demand for money in terms of expansion capital, they find they can charge more for their products or services. Demand for capital increases the costs of borrowing -- banks can charge more for their loans -- and being able to charge more for a box of widgets drives up prices.

Both capital demands and higher prices mean inflation. Inflation kills an economy, and it's a key item The Fed watches when deciding to increase, decrease or keep rates the same.Why does that matter?

In last week's article, we explored mortgage bonds. Mortgage bonds are no different than any other bond; they offer a fixed return over a fixed term. A bond could give an investor a 5 percent return over 3 years, for instance. There is little risk in bonds, especially when compared to equities which can rise and fall on the trading floor. In a dragging economy when stocks aren't doing well, investors can instead get a solid return by investing in bonds. In this case, mortgage bonds. Yeah, the return may not be as great as a good stock pick, but if there aren't any good stock picks investors look at bonds.

If a bond yields $10,000 over three years to an investor, that could be a solid return. But only if inflation doesn't eat away at the yield. Because the return on a bond is a fixed amount, it doesn't adjust with inflation, it remains the same. If inflation increases by 5 percent each year, after three years that same $10,000 is worth much less than originally promised.

In short, the better the economy, the greater the likelihood for inflation. People pull money out of bonds, driving up rates. Poor economy? Lots of people out of work? People pull money out of stocks and into bonds. Bad economy, low rates. Strong economy, high rates. Generally speaking, of course.

So how does that affect you? Many consumers pore over economic data, watch the financial news channels and try to "position" themselves into picking their interest rate at the perfect time. I can't tell you how many times I've heard something like, "Nah, I'm not going to lock today, I think the economy is in terrible shape. I'll lock after the Unemployment Numbers are released this Friday" or some such. The theory is, if a bad unemployment number is evidenced, rates could indeed drop. Or, if the Consumer Price Index shows that Consumer Prices are stable, then rates could take a breather. Or not.

The problem with economic data and interest rates is that you'll only be able to take advantage if the numbers work in your favor. If they don't, you lost out big time. How so?

If rates on Thursday are 6.00 percent and you decide to wait until Friday's Non-Farm Payroll Data is released, if you're right and the economy is still dragging, you'll most likely see a slight rate decrease (all other economic/political factors being equal). You win. But if Non-Farm Payroll numbers are stronger than expected, and lots of folks are back to work making big bucks then it's too late. You lose. Lenders issue rates every morning and typically wait until most economic reports have been released before setting their mortgage rates. The nice little 6.00 percent on Thursday is now 6.25 percent and rising on Friday.

Truth is, there are plenty of armchair economic forecasters that play this game each and every day. The other truth is, no one, absolutely no one can know what the economic numbers will be. It's really a 50/50 gamble. If you wait, you might be right.

Next Week: Interest Rates and Closing Costs