Interest Increase Unsurprising . . . And of Little Concern

The Federal Open Market Committee bumped the federal funds interest rate up 0.25% on March 15. Few were surprised. Nor was there panic.

Former Federal Reserve economist Robert DeYoung, at the University of Kansas’ School of Business, indicated that, while a single rate increase won’t have much impact on the economy, “the Fed is highly likely to raise rates repeatedly between now and the end of 2018.” Those incremental increases are to prevent the economy from overheating. “Rapid growth could drive inflation above the Fed’s stated target of 2% per year,” DeYoung added.

How will the increase – or future increases – impact commercial real estate values and operating income? According to Tom Park with TH Real Estate, they won’t, as other factors influence values and returns. “If rates are increasing gradually, and are likely to remain at, or below, long-term averages, as is currently expected, real estate would likely be well-positioned to benefit in such an environment,” he said.

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