Others contend the rate won’t slide up the scale anytime soon.
Kiplinger’s quotes Sung Won Sohn, economics professor at California State University’s Channel Islands campus, as saying the Federal Reserve is unlikely to change course any time before 2014 or 2015.
“It’s even possible, as the Fed has acknowledged, that with price increases weaker than it feels are needed to grease the wheels of long-term growth, the central bank will continue to push up its aggressive bond-buying program before it begins to take it down,” Kiplinger’s notes.
Even so, a recent Reuters article offers tips on what you can do to protect yourself if you see signs of interest rate creep.
- “Borrow big, now… If you have a home and have not already refinanced your mortgage, consider doing so as soon as possible.
- “Lock in a low rate for your credit cards. Most credit card rates vary monthly, so once short-term rates start to rise, the rates on your balances will rise, too. But card issuers have been aggressive this year to lure new customers with zero interest balance transfers lasting as long as 18 months.
- “Stay short. Don’t tie money up in long-term bonds and the funds that focus on them now… For example, if interest rates rise 1 percent, a 10-year note can be expected to lose 10 percent of its value, while a 2-year note would lose 2 percent of its value.
- “Beware of TIPs. Treasury inflation-protected securities and the mutual funds that buy them will protect your investment from the ravages of inflation. But they will not protect you in a situation where rates rise more rapidly than consumer inflation does — they may actually fall in value faster than fixed-rate bonds would in that circumstance. Last month, consumer prices actually fell 0.4 percent on a seasonally adjusted basis. That is not a good sign for TIPs holders.”
OK, so borrow big now IF you need something that you can afford because it’s not likely to get much cheaper. And keep an eye on the Fed to see whether it’s continuing its bond-buying bonanza, Kiplinger’s suggests. When that stops, keep an eye on bond rates, if you hold some. Nuff said.
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