Federal Reserve policymakers Tuesday left the federal funds rate unchanged at a targeted range of zero to 0.25%, according to a Fed statement.
The Federal Open Market Committee action “makes fixed income attractive” as an investment, because inflation — a worry of investors coming into the year — is likely to be subdued, said Robert Vanden Assem, managing director, head of U.S. investment-grade credit at PineBridge Investments.
The FOMC's action “could be part of a concerted effort that will be successful,” Mr. Vanden Assem said. “It does address one part of the problem, housing. It isn't necessarily going to solve all our other problems. You need to simulate private-sector investment and growth.”
The FOMC's action “continues our view, which we have held all year, that rates would have to stay low for a long period of time,” he said.
“The new (corporate) issue market has been active” but companies haven't been using the new debt to grow, Mr. Vanden Assem said. “There is a lack of confidence in the private sector and that translates to a lack of job growth.”
Growth will require more clarity and stability on regulation and taxation, Mr. Vanden Assem added.
In making its rate decision, the FOMC believes “the pace of economic recovery is likely to be more modest in the near term than had been anticipated,” the Fed statement said.
The committee “continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
“Measures of underlying inflation have trended lower in recent quarters and, with substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time,” the statement said.
Thomas M. Hoenig cast the only committee member dissenting vote on the action. He believes the “economy is recovering modestly, as projected,” the statement said. “Accordingly, he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and limits the committee's ability to adjust policy when needed.”