The Federal Open Market Committee today raised its target for the federal funds rate by 25 basis points, to 2.75%. The Fed kept its measured pace of raising rates, allowing big borrowers like General Motors Corp. and leveraged hedge funds a chance to adjust to the market impact and avoid major blowups, said John Cerra, managing director and active fixed-income portfolio manager at TIAA-CREF Investment Management.
But Mr. Cerra said the Fed "has given notice it can no longer clearly signal what it is going to do" and may not keep its next action at only a 25-basis-point rise because of concern about inflation, and "that means higher uncertainty" for investors. "For active portfolio managers who bet on interest rates, the Fed is telling you rates are going up. ... It won't be a fun year in bonds."
Anthony Chan, managing director and senior economist at JPMorgan Asset Management, agreed that the Fed action today introduces more uncertainty because it may end its measured rate rises. "Investors will see this (today's action) as good news. Inflation has picked up, but not so much that the Fed would raise rates more than it did," Mr. Chan said.