The Fed didn't raise the Fed Funds target rate yesterday. For the first time since it began tightening in June of 2004 the Fed did not raise the target rate by 25 basis points. During that 2 year period the Fed raised rates 17 straight times for a total increase of 4.25% to a level of 5.25%.
By most measures Fed Funds are somewhat near neutral right now. They are neither adding stimulus or braking the economy. The Fed noted the economy was slowing and that while inflation was a threat, the threat should moderate as the economy slows. If they are right it would be good for both stocks and bonds. If they are wrong inflationary expectations might become embodied in the market and that would be bad for both stocks and bonds.
If you have credit card debt or an adjustable rate mortgage the pause is good news for you. Your interest rate won't go up. If you have a bond ladder or CDs the pause is bad news because you won't be able to reinvest at higher yields on your next maturity.
I personally believe this is just a pause and that interest rates will continue to go up during the rest of this year. We may see 5.75% or even 6.0% by year end in short term instruments.
Comment Preview