Mortgage rates are quickly approaching 6 percent on news that Clouseaus at the Department of Labor have discovered previously suspected but invisible jobs.

Lots of them: January and February reports combined to miss 107,000 jobs now found, and 308,000 in March. That last number may be as high-side wrong as the first-reported 21,000 in February was on the low side, but the credit markets must assume that March and the prior-month revisions are correct, and that the Fed’s patience will soon be exhausted, and then run for cover.

Running they are. Sprinting. One week ago yesterday, the yield on the 10-year T-note was 3.73 percent. At noon today, still deteriorating: 4.15 percent. The long end usually blows up worse than the short end, but not in this move, or ones now likely to follow; one week ago yesterday, the 5-year T-note yielded 2.65 percent; today, 3.14 percent.

Short rates are directly tied to the Fed, and long-term ones only by inference; there is an excellent chance that short rates will continue to rise faster than long as the Fed begins to close the gap from the present 1 percent Fed funds rate toward a 2.5 percent neutral setting, and then begin actual tightening, leaning into an expansion that at last seems to have caught employment traction.

The unusual mortgage-land consequence of a “flattening yield curve”: today, ARM rates moved more than 30-year-fixed ones. The 30s are up only .125 percent-.25 percent, while many intermediate ARMs, especially the 5-year hybrids, have risen twice as much.

As conclusive as today’s employment data may seem, they are not. Wage growth picked up one whole cent per hour. Nada. The fraction of the population in the workforce has fallen to a 16-year low, suppressed by an absence of good opportunity. There is an enormous surge in the numbers of people abandoning the hunt for normal work in favor of self-employment or claiming long-term disability (in my experience, the two are often hard to tell apart).

The single datum most stunning to me, when we tell each other that education will be the key to maintaining employment and the American standard of living: the number of college graduates aged 25 and older with jobs is today the lowest fraction since the late 1970s, and their average wage has fallen since 2001.

Jobs, yes, but what kind?

Other limitations on rapid Fed action: the overheated and fragile condition of markets for real estate, stocks and bonds. The Fed’s extreme ease has created pre-bubbles, if not the fact, but as the Fed tries to escape the bubble-box, it will risk aborting the recovery. The participants in the frothy markets are oblivious. Stocks today have taken off on the good jobs news, ignoring what it means for interest rates, stocks behaving just like the dog in the Larson cartoon, shouting exuberantly out the car window to his canine pals, “I’m going to the vet to get tutored!”

We are likely to have entered a progressive process of rising rates, gradual but high volatility, in which the Fed soon concedes that the economy is tilted toward growth and inflation, and then executes its first back-toward-neutral .25 percent as early as this summer (the Fed would love to wait until the second week of November, but if it waits, and if the data stay strong, the markets will do the work for the Fed). Mortgage hedge-tail chasing will enhance the rate volatility, producing temporary spikes like last August’s, the next maybe as soon as next week.

However, this economic expansion is the most unpredictable in modern times, as budget and geopolitical matters remain unresolved and perhaps irresolvable, as is the extent and controllability of the reflation campaign, and the absorption of excess capacity here and everywhere.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at


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