ARM Wrestling with Bernanke

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San Diego homeowners with adjustable rate mortgages can breathe a sigh of relief. After 17 consecutive -- albeit modest -- rate increases, the Federal Reserve has decided to stand pat and keep its federal funds target rate at 5.25 percent.

The accompanying chart shows the seemingly unstoppable rise in the 1-Year Constant Maturity Treasury, an index often used to adjust monthly mortgage payments, during the Fed's tightening campaign.

The ever-increasing rates wreaked havoc on many holders of ARMs and home equity lines of credit (HELOCs) as their monthly payments adjusted upwards almost without fail.

It seems that these borrowers will finally be spared ever-increasing payments. But the respite may be short-lived. Bernanke and company are hanging their collective hat on the idea that a slowing economy will cause price inflation to decline. If things don't go as planned, and inflation continues to be a problem, it may be onwards and upwards for the federal funds rate once again.

--RICH TOSCANO