FED's Pause: Impact on Real Estate and the Balancing Act of Rates
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Episode Transcript:
The Federal Reserve's recent announcement to maintain the federal funds rate between 5.25% and 5.5% brings both a sense of immediate relief and prolonged uncertainty to the financial landscape.
Chair Jerome Powell, addressing the press conference following the decision, kept the door ajar for future rate hikes, remaining non-committal on any potential action. He emphasized the need to target inflation at 2% and acknowledged the time lags in the economy due to monetary policy.
However, the decision to keep rates stable might not immediately affect the commercial real estate market significantly, according to Ryan Severino, BGO's Chief Economist in the U.S. Severino noted that rates are already high, and the persisting volatility in interest rates persists.
Nonetheless, Severino pointed out that the recent deceleration in the rate hike pace in 2024 implies the Fed's approach is closer to the conclusion of the tightening cycle than the outset, though more certainty is necessary to support market stability.
Despite inflation continuing to soar above the 2% target, the Fed opted to maintain rates due to inflation still hovering around 3.7% annually and even higher at 4.1% when excluding food and energy costs. Harris Lukashok, Bayport Funding's Head of Origination, noted that the Fed seems to be in a 'wait and see' mode, aligning with the uptick in those anticipating a hike at the December Federal Open Market Committee meeting.
Lukashok highlighted that the commercial real estate sector is adjusting to this new prolonged higher-rate environment, signaling a potential shift in business strategies by developers and encouraging lenders to consider financing in these evolved market conditions.
This latest rate stagnation maintains the highest rates seen in more than two decades, with the last similar rate experienced in May 2000 at 6.25% to 6%. Powell affirmed that maintaining rates through two consecutive meetings won't impede FOMC decision-making during the December session, the last one for 2023.
As the Fed navigates its course in tackling inflation, Powell underscored that reducing inflation might require a period of tempered growth and some slackening in labor market conditions. The uncertainty remains, but the Fed remains focused on making timely and appropriate decisions to steer the economy.
This is Tyler Cauble, Signing off