The Federal Reserve Board today took a neutral stance on the economy, which could mean a future interest rate increase if economic growth warrants it. The board did not change short-term interest rates, leaving the Fed funds rate at 1.75%.
Steve Cochrane, executive director and chief investment officer of the North Dakota State Investment Board, Bismarck, said rising interest rates could mean the system’s fixed-income investments will underperform their target returns. The system, consisting of the $1.25 billion Teachers’ Fund for Retirement and the $1.15 billion North Dakota Public Employees’ Retirement System, is considering an asset allocation study for its two plans.
Maria Chandoha, co-head of fixed income at Montgomery Asset Management, thinks the central bank will begin tightening interest rates, but not until the summer. "It’s going to be a slow process. I don’t think the Fed is going to want to move too quickly for fear of choking a recovery.” The Fed’s confirmation of an economic recovery, however, does spell good news for investment-grade corporate bonds, Ms. Chandoha said.
