The Federal Reserve Board today raised short-term interest rates by 25 basis points, lifting the federal funds rate to 3% and the discount rate to 4%. The Open Market Committee noted that "pressures on inflation have picked up in recent months, and pricing power is more evident." Nonetheless, the central bank signaled that it will continue to raise interest rates at a "measured pace."
Ellen B. Safir, CEO of fixed-income manager New Century Advisors, said the Fed doesn't "want to alarm markets." Although the central bank is aware of the increase in inflation, "given the leverage in the system, they just can't afford to bring the economy down with a precipitous move." For the long term, she still expects inflation-adjusted securities to do well because the seasonal inflation accruals on Treasury inflation-adjusted bonds are still positive, and she expects "they will be excellent for the month of June, as well."
