FRB Action

For the past two days, the Federal Reserve Board has generated a great deal of anticipation over its next action. The Chairman of the FRB, Ben Bernanke, has indicated a willingness to be more open with the thoughts shared by the members and will give a longer-term idea of where short term interest rates will be headed. Yesterday, he gave a clear message that the FRB is planning on keeping interest rates low into 2014, and that it does not see inflation as being the problem it was in 2011. This information is important for planning on how to position fixed income investments for the future. A shift from very short term to higher paying intermediate term fixed investments is now likely, as there will be less fear of an upward shift in interest rates that would reduce the value of bonds. The result will also be likely to mean that corporations will be better able to plan capital expenditures that require financing. Both of these should benefit the economy over time. The stock market is responding favorably to this information, which will be good for corporations, business expansion and profits. Ed Mallon