THE FED EFFECT: How does the Fed hold affect fixed income sectors?

Timing is everything…

As was widely expected, the Federal Reserve’s Open Market Committee opted this week to keep the federal funds rate unchanged for the time being. Though three members of the committee voted to raise the rate, Fed Chair Janet Yellen and her allies maintain that employment and inflation data do not warrant an increase and they continue to resist pressures to tighten monetary policy.

While the Fed was reluctant to act at the most recent meeting, the end of the lower-for-longer era of US central bank policy appears to be drawing closer and a December rate hike looks likely. The FOMC has upgraded their assessment of near-term risks, describing them now as “roughly balanced.” The Fed also clearly signaled its intent this week in its Summary of Economic Projections by showing a preponderance of participants still expect an increase in 2016. As investors’ focus now shifts toward the November elections and December’s FOMC meeting, Standish portfolio managers provide their thoughts on how the Fed’s decision to sit tight for now will affect the various types of fixed income assets they manage.

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