Bond ETFs unfazed by Fed’s decision to keep rates steady

The bond market remained stable Thursday morning after the Federal Reserve kept interest rates unchanged Wednesday, while exchange-traded bond funds remained stable early in the morning.

The Fed kept rates at a 23-year high of between 5.25% and 5.5% on Wednesday as it works to bring the inflation rate down from 3.3% to 2%.

“The Committee does not believe it will be appropriate to reduce the target range until it gains greater confidence that inflation is moving sustainably toward 2 percent,” the agency said in a communicated Wednesday.

But policymakers have said they will start cutting rates once they are confident inflation is heading toward the 2% target. They also reduced their forecast for three rate cuts to just one this year after inflation rises in early 2024.

“The economic outlook is uncertain and the Committee remains closely attentive to inflation risks,” the Fed said.

Also read: Economists estimate Federal Reserve will cut interest rates only once this year, survey finds

Several bond ETFs were trading higher at press time Thursday.

Fidelity Total Bond ETF (NYSE:FBND) shares edged up 0.2% to $45.29, while iShares Core Total USD Bond Market ETF (NASDAQ: IUSB) rose 0.24% to $45.43.

Shares owned by iShares Core US Aggregate Bond ETF (NYSE:AGG) was up 0.29% at $97.61 Thursday morning. Vanguard ETF Tax-Exempt Bond Index Fund (NYSE: VTEB) shares rose 0.23% to $50.33.

The Fed also said it would continue to reduce its holdings of Treasury securities, agency debt securities and agency mortgage-backed securities as part of its 2% inflation target.

“The Committee would be prepared to adjust the monetary policy stance as appropriate if risks emerge that could hinder the achievement of the Committee’s objectives,” the Fed said.

“The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and expectations, as well as financial and international developments,” the central bank added.

Read now: Mohamed El-Erian says softer-than-expected May inflation makes ‘strong case’ for rate cut, Peter Schiff says latest numbers mean ‘nothing’ (CORRECTED)

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