A few years ago, I was dispatched to cover a speech by then-Federal Reserve Chairman Ben Bernanke. Although the topic listed was listed in the Physician's Desk Reference under "Heavy narcotics," my presence was required, "Just in case he makes some news."
No, no, no, no, no, campers. Nooooo. The Federal Reserve chief is NOT in the business of making news because, if that happens, the financial markets are guaranteed to react by going (and allow me to employ a highly technical financial term here) "kerflooey."
What the Fed head does is "signal" the central bank's eventual direction. Since the Fed's main interest rate has been sitting at zero for seven years, signaling a rise should be as easy as imitating a South Florida retiree: Hit the blinker switch while doing 36 mph in the left lane of the Interstate and leave it on for the next 107 exits. Instead, current Chairwoman Janet Yellen has signaled her ever-loving heart out by every means short of reviving the Pony Express. I mean, the woman even changed her ring-tone to "Message in a Bottle."
Blink once for 'up,' Janet
So when the Fed removed the word "patient" from its policy statement Wednesday to signal — once again — that rates would rise, what happened? Investors were so stunned that they sent stocks up by more than 1.2 percent and hit the 10-year Treasury bond with its biggest one-day decline since October.
Consumers, however, have much less to get excited about, as evidenced by mortgage rates, which promptly fell by 2 percent the next day. That's because the Fed's eventual first increase will amount to a whopping quarter of one percentage point, explains Greg McBride, chief financial analyst at the personal finance site Bankrate.com. Maybe, by the end of the year, there'll be another quarter-point hike, too, so somebody fetch my smelling salts.
"For consumers, the take-away is that interest rates are not going to be shooting higher," McBride says. "It is going to be very gradual."
From 'zilch' to 'squat'
With loan rates holding steady or edging up just a bit, the best bet for consumers is to refinance any and all debt, McBride says. You've still got time, but you need to get going. Check your credit score and:
Refinance your home: If you couldn't before because you were underwater or had weak credit, try to make it happen by the end of the year, before fixed rates slip above 4 percent.
Grab a low-rate card deal: Look for those 0 percent credit-card balance transfer offers to disappear as rates rise, so grab one now. With good credit, you can get 18 months interest-free for 3 percent of the amount you transfer. If you can't swing that, just try calling your card issuer and ask for a lower rate.
Lower your car loan: Few consumers realize they can refinance car loans at many local credit unions. Some loans are less than 3 percent. You can lower your payment, shorten your loan term, or both.
Pay off variable-rate debt: Interest charges on your credit cards, home equity lines, student loans and other revolving debt will go up as rates rise, so pay these off first. A cash-out home refinance will also lower your rate and make your interest tax-deductible, but do that only if you have a solid plan to avoid running up your credit cards again.
As for savers, well, interest rates on savings accounts, certificates of deposit and money markets will go up, rising from zilch to zero-point-squat percent, so you'll still be waiting to see any real return. Janet Yellen may not be exercising patience, but you will.
One more thing: buckle your seat belts when it comes to investments. Even though loan rates won't go nuts, stock and bond traders will be sending prices up and down and down and up before each of the next six Fed meetings this year, despite Yellen's intensive signaling. I've even heard that as a last resort, she wants to install the Bat Signal.
Unfortunately, the Fed meets in the daytime.
Brian O'Connor is author of the award-winning book, "The $1,000 Challenge: How One Family Slashed Its Budget Without Moving Under a Bridge or Living on Government Cheese."