Exchange traded funds (ETFs) and the markets waited with bated breath for the Federal Reserve’s decision, and it’s here: they’re doing nothing.
The short-term interest rate will, for the time being, remain at 2%, reports Chris Isidore for CNNMoney.
Fed Chairman Ben Bernanke has been talking tough about inflation, but they’re in a tough spot. Inflation is getting worse, but the economy appears to be slipping into a recession. That is, if it isn’t already there. Unfortunately for the Fed, it can only address one of those issues at a time with its main policy tool – changing interest rates – so it’s stuck, says Martin Crutsinger for the Associated Press.
People can’t seem to agree about what the rest of this year will bring. Some think the Fed will once again raise rates as soon as August, while others believe the Fed will sit it out until after the November elections.
As the decision was awaited this morning, financial and banking ETFs in particular were showing strong movement amid optimism that the Fed would indeed leave the rates unchanged. Keeping the rates steady means that the prime lending rate (a benchmark for business and consumer loans) would remain the lowest they’ve been since the end of 2004.
Among the ETFs trading higher today:
- PowerShares FTSE RAFI Financial (PRFF), down 26.7% year-to-date
- KBW Bank ETF (KBE), down 29% year-to-date
- iShares Dow Jones U.S. Regional Banks (IAT), down 24% year-to-date
- PowerShares Dynamic Banking (PJB), down 8.6% year-to-date
- Regional Bank HOLDRs (RKH), down 26.2% year-to-date
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.