Fire, ready, aim

So the U.S. didn't really lose 4,000 jobs in August after all -- we picked up 89,000, the Labor Department said today in releasing the revised numbers for August along with its report for September (110,000 new jobs, about as expected).

Does that mean the Fed overreacted when it cut the federal funds rate by 50 basis points on Sept. 18? Well, they can't take it back now, but the new jobs numbers make it a lot less likely that the Fed's Open Market Committee will cut rates again when it meets at the end of the month. That's the sentiment investors are expressing today as they buy stocks and dump bonds.

"There is not enough ammunition for another ease in October," T.J. Marta of RBC Capital Markets tells the Associated Press (via Yahoo! Finance).

Mortgage broker and syndicated columnist Lou Barnes agrees, saying the September jobs report "dashes hopes for mortgage rates to fall to refi levels" and is "likely to put the Fed on hold."

While the global economy still appears to be going strong -- raising fears of inflation -- the housing slowdown could still tip over the economy, Barnes thinks. But rates on fixed-rate mortgages didn't fall after the Fed cut short term rates in September, and they could actually go up if the Fed does so again, Barnes writes:

"I think the Fed is paralyzed here. If it cuts before a recession is in plain evidence, the globalists -- right or wrong about their inflation fear -- will more than counter, selling the dollar, bidding up commodities and energy, and selling bonds. Short rates would fall, but the fixed-mortgage decline that housing needs so badly would instead rise."

In the mean time, more evidence of the magnitude of the losses in mortgage lending emerged today, with Merrill Lynch announcing $4.5 billion in write downs on CDOs and subprime mortgages, and Washington Mutual revealing it expects third quarter earnings will be down 75 percent as it boosts loan loss provisions to $975 million (see Inman News story).

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