Amid Fed rate uncertainty, long-term view advised
DALLAS (BP) -- The Federal Open Market Committee's decision to leave the Federal Reserve's target Fed Funds range unchanged means continued uncertainty for institutional investors, but should mean little for long-term investors, according to analysts for GuideStone Financial Resources, the financial services arm of the Southern Baptist Convention.
As reasoned by Fed decision-makers, the Sept. 17 decision to keep rates steady dealt primarily with the need for further improvement in the labor market as well as recent global economic news.
The Fed Funds rate, which currently sits in a range between zero and 0.25, has not changed since 2008. Many experts this summer expected the Federal Reserve to vote to raise rates by a quarter point -- also known as 25 basis points -- at its September meeting.
"Based on the rate outlook produced by Fed members, it seems that most still want to begin raising interest rates by the end of the year," David S. Spika, CFA, global investment strategist for GuideStone Capital Management, LLC, wrote in a commentary posted on GuideStone's www.guidestone.org website.
"Their interest rate projections show that 13 of 17 policy makers see higher rates by the end of 2015. As a result, it looks like the Fed skipped the rate increase (Thursday) only to immediately put it back on the table for the next meeting," Spike said. "However, the Fed did lower its forecast for how quickly and how high the rate will rise in the coming years."
Even as analysts parse every word in the Federal Reserve's statements and from Fed Chair Janet Yellen's press conference on Thursday, long-term investors should not focus on headlines that may cause short-term market fluctuations.
"Retirement investors should focus on their long-term investment objectives and time horizon to retirement," GuideStone President O.S. Hawkins said.
"Impulsive decisions based on any one economic factor, even one as newsworthy and important as the Federal Reserve's decision on interest rates, is generally not prudent," Hawkins said. "The performance of your account moving forward will be determined based on results of the financial markets in the future, not the past."
Spika emphasized that the absolute level of the Fed Funds rate, along with the pace of future rate increases, are more important than the date of the initial hike, which could come in either the October or December 2015 Fed meeting or even in 2016.
"[Thursday's] decision further extends the uncertainty that investors have been dealing with for several months," Spika said. "We believe at some point in the near future the rate hike cycle needs to begin in order for the Fed to retain its credibility with the markets and to remind investors that rates cannot stay at zero forever."