However, recent developments in several areas, especially energy prices, now suggest a third possibility, one that could be a boon for both stocks and bonds: The Fed might be content to sit on the sidelines for a very long time. There was nothing to dispute that notion after its Sept. 20 meeting, when the Fed decided to leave its target rate on hold, at 5.25 percent, for the second time in a row. On balance, the trends in inflation and economic growth appear to be closely tracking the favorable expectations the Fed layed out in its June forecast. Based on the Fed's statement, policymakers still think the risks associated with attaining its desired paths for growth and inflation are slanted slightly toward the risk of more inflation. However, they also believe price pressures "seem likely to moderate over time," with lower energy prices helping toward that end.
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