Here’s the headline:
Post-Downgrade, Higher Rates for Borrowers
Treasurys have fallen sharply since the downgrade, so why would borrowers rates be going up? The story can’t even make it to the subhed without hedging there:
In spite of the Fed’s promise to keep rates low, consumers may see higher rates on credit cards, auto loans and mortgages
On to the lede, and SmartMoney is back to not hedging:
It’s been less than a week since Standard & Poor’s stripped the U.S. government of its triple-A rating and already consumers are starting to feel the effects, in the form of rising interest rates on many loans.
The piece has zero evidence of any consumers starting to feel the effects of higher interest rates post-downgrade. We’re told that credit card rates have remained flat and that 30-year fixed-rate mortgages went up 0.03 percentage points on Monday (left out is that rates yesterday sunk back below Friday levels). Then we’re told that auto loan rates had their “biggest weekly increase this year” last week—before the downgrade.
Unsurprisingly, the hedging is back in full effect in the second paragraph with lots of weasel words (in bold):
In spite of the pledge by the Federal Reserve today to keep its interest rate low for the foreseeable future, the recent years of low interest rates seem to be coming to an end. The rates on most loans, including credit cards, car loans and mortgages, are at least influenced by the yields on Treasurys if not pegged directly to them, and Standard & Poor’s downgrade Friday of U.S. government debt suggests that Treasury yields will eventually rise, dragging the rates on consumer loans with them. While that hasn’t happened yet — in fact, Treasurys have rallied, pushing prices up and yields down — experts expect that won’t last. “Over the long term, all rates will rise,” says Mike Moebs, CEO and economist at Moebs Services, an economic research firm.
So “experts” think, maybe, Treasury rates will rise eventually because, perhaps, the S&P downgrade suggests low interest rates seem to be ending. Since Treasurys are at or near all-time lows, Mr. Moebs isn’t exactly saying anything quoteworthy by predicting interest rates will rise “over the long term.” When might this happen and how will it be tied to the downgrade?
We go to the third paragraph, which further clouds the picture:
Of course, no one knows for certain whether rates will rise, or how quickly, or whether they’ll affect all borrowers equally. But if the historical relationships hold between what consumer borrowers pay and what the government does, here’s a look at what’s likely to happen.
So “Post-Downgrade, Higher Rates for Borrowers,” but “no one knows for certain whether rates will rise”? I see!
What a mess. This is a classic case of not letting the facts get in the way of your conclusion.
You know what a better story might have been? “Post-Downgrade, Lower Rates for Borrowers.”Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at email@example.com. Follow him on Twitter at @ryanchittum. Tags: Credit Ratings, Downgrade, Personal Finance, SmartMoney, The Wall Street Journal