Keeping the Credit Markets Open

The Fed announced yesterday that it would be keeping its benchmark interest rates at near-zero levels for a while yet. That's not really a surprise, since the economy remains sluggish and inflation is, in the words of the Fed, "subdued." In fact, one thing the Fed may have been responding to is that the credit markets have slowed up a bit lately.

In 2009, the corporate bond market sold a whopping $1.24 trillion worth of bonds. That was a record, and up a staggering 42 percent from the $874 billion that had been sold in 2008. But now, in 2010, corporate bond sales are running behind that pace. Less than $250 billion has been sold so far in 2010, or an annual pace of just under $1.2 trillion. While that's still historically strong, it's not a great sign when bond issuances decline in the middle of an economic recovery.

When people talk about the necessity of a strong credit market, they're generally referring to corporate bond flows. If the Fed is keeping interest rates down in part to keep these credit markets flowing, that's a good thing.