The Federal Reserve Board today stood pat on short-term interest rates. In announcing its widely anticipated decision to keep the federal funds rate at 1%, the central bank said mixed economic signals led to its decision to maintain an "accommodative stance" on interest rates. The statement also noted that the risks of deflation, or a fall in inflation over the next several quarters, still slightly exceeded the risks of inflation rising.
The Fed's moves signal that it could start tightening interest rates by early next year, said James W. Paulsen, chief investment strategist at Wells Capital Management. Mr. Paulsen, who sees the Fed's decision as "slightly negative for bonds," said investors would be smart to begin reducing their exposure to bonds for the next year or so. He noted that yields on 10-year Treasury bonds have already climbed to 4.35%, from 3.1% about 60 days ago, as fears of deflation have diminished, and they could rise even further as the economy recovers.