Ben Bernanke - Walking The Line

I don't envy the position that our current Federal Reserve Chairman is in right now with regards to interest rates. He probably knows that he should increase the Fed Funds rate more than 5% to defend the dollar on world currency markets. However, he also knows that if he raises rates more than 5%, he could throw the US economy into recession, because of our dependence on cheap credit. Senators let him know this fact at his last visit to Capitol Hill.

The US is so heavily indebted at the household, corporate, state and federal government levels that the financial day of reckoning is inevitable. For the short-term, my guess is the Fed will probably go 'on pause' at the next FOMC meeting, (maybe even the next two) and keep the Fed Funds Rate at 5.0. Keep in mind the Fed stopped reported changes in M3 money supply back in March.

They probably did this so foreigners and other central banks wouldn't know how much monetary inflation they're creating. History shows that when inflation goes up, so do interest rates. Because of this, they may be forced to resume rate hikes - even in an election year, and over the protests of Congress and the President.

When this happens, adjustable-rate mortgage, credit card and auto loan payments will go up. The prudent move for Americans today is to get the heck out of debt, and don't incur any new debt. I know, you won't be keeping up with the Jones and their 'bling-fest,' but that's alright. You'll sleep better at nights, and won't have to worry about rising rates or payments in the future.