Members of the Federal Open Market Committee meeting in Washington signaled a greater willingness to consider raising the federal funds rate, based on their assessment of appropriate rate targets released Wednesday at the end of a two-day meeting.
With some of the more dovish members of the committee seeing slightly higher target rates, “they've effectively come out and said the taper is going to be discussed. They're planning on raising rates sooner than it seemed last time,” said Robert Tipp, managing director and chief investment strategist for Prudential Fixed Income, in an interview.
“This is a guardedly more positive economic picture, and there are no concerns (about) creeping inflation that would cause them to be more dovish,” Mr. Tipp said.
Echoing comments from the FOMC's May meeting, the FOMC members said in a statement that they expect economic growth to proceed at a moderate pace, with a gradual decline in unemployment. Those conditions led them to keep the federal funds rate at zero to 0.25% and to continue monthly purchases of $40 billion in agency mortgage-backed securities and $45 billion in longer-term Treasury securities, while staying prepared “to increase or decrease” the pace of purchases known as quantitative easing.
“It's interesting that the market is reacting so violently to what is essentially the same,” said James Camp, managing director of fixed income for Eagle Asset Management. “To me, it says that the markets are depending on stimulus. I think once the stimulus is taken away, it could dramatically affect pricing, mostly in emerging markets, high yield and corporate markets. The risk markets are going to struggle,” Mr. Camp said.
