The Federal Reserve Board (Fed) decided to keep the Fed Fund Rate at its current level during the meeting just ended wednesday. While they believe that conditions are improving here in the US, inflation is still not where they would like it and the global economic growth is showing less strength than they would like to see. The Fed has said that they are data-dependent in determining when and how much they are going to raise rates. At this point, they anticipate only 2 increases for the rest of the year. That means that the short rates will likely still be below 1% at the end of the year. This is generally as the markets had been anticipating.
Consequently, shortly after the announcement, the stock and bond markets responded favorably to this inaction. The Vix (volatility index) is now nearing 15, which is to say that the markets are signally that they are generally not very concerned about the fact that the Fed did not raise rates this time. Measured, gradual, moderate are words that the Fed has been using to describe the pace at which they will raise rates. With low inflation and a very slow Fed, the negative impact on bond values will potentially be very muted.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results.
The Chicago Board Options Exchange Market Volatility Index (VIX) is a weighted measure of the implied S&P 500 volatility. VIX is quoted in percentage points and translates, roughly, to the expected movement in the S&P 500 index over the upcoming 30-day period, which is then annualized.
1446001 DOFU 3/2016