What the Federal Reserve Bank says and does can have a significant impact upon consumers at the retail level by affecting such things as mortgage rates, the buying power of the dollar, and the interest paid on credit card balances. Consumers are wise to pay attention to Fed policy in 2008.

When hurricane season is in full swing, we all look to climatologists for help. Similarly, when economic storms hit, it's a good idea to keep an eye on the Federal Reserve. Government monetary policy is a weathervane that will usually accurately predict the future economic climate.

Fed policy and mortgage rates

Here are some timely tips for interpreting Fed policy in terms of the direction of mortgage interest rates in the coming months:

• The Fed indicates that it will tighten rates to fight inflation, so banks will start paying more for the money that they get from the Fed. It's this same money that bankers, in turn, lend to homeowners. Rest assured that they'll pass on those higher costs to customers, as lenders try to preserve profits despite thinner margins

• Many adjustable-rate mortgages (ARMs) follow the LIBOR rate, which is based on monetary fluctuations in Europe, so Federal Reserve policy may not affect those rates so much. But with the UK experiencing a meltdown similar to ours, you can expect LIBOR-rated ARMs to climb.

• 30-year fixed mortgage rates recently hit a 9-month high. Those thinking of taking out a reliable fixed-rate mortgage may be wise to do so now, while rates are still relatively low. Once the Fed gets going, banks will likely follow quickly with their own rate hikes.

• Loans and lines of credit based on home equity are evaporating, so homeowners who want to tap into their equity should hurry. But taking out home equity in a falling housing market can be dangerous, because it can lead to owing more than the home is actually worth. Do so with extreme caution.

• Fed policy has less direct impact on mortgages than it does on credit card debt. Those now carrying balances on their plastic are advised to pay them off quickly. By the end of the year, such debt may be prohibitively expensive.

• Mortgage rates are usually sensitive to fluctuations in yields on 10-year Treasury notes. If those start to move upward, expect mortgage rates to climb.

• Bankers typically take their cues from the Fed to determine how much to raise or lower rates. Even though mortgages may not move in lockstep with Fed funds or the discount rate, they'll typically head in the same general direction before long.

Consumers should give more importance to their own unique financial circumstances than they do to Fed policy. Those who choose mortgages prudently, based on their specific situations, will generally come out ahead, regardless of what happens to prevailing interest rates overall.