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Yellen’s Last Hurrah: Fed’s Key Rate Unchanged
The Federal Reserve Bank left the benchmark interest rate unchanged in a still-low range of 1.25% to 1.5%, in what was Janet Yellen’s last meeting as the group’s chair. That slightly surprising decision runs counter to the Fed’s previous actions, which modestly raised the rate three times in 2017 and five times since December 2015.
The commercial real estate sector closely watches the rate because of how it might affect lending.
George Smith Partners’ Tenzer
George Smith Partners’ Gary Tenzer says, “Increases in the Fed Funds rate directly affects the short-term borrowing rates on bridge and construction loans. Long-term mortgage rates are also increasing, as evidenced by a 30 bp increase in the 10-Year Treasury since the beginning of the year.”
The Fed views the job market as healthy, and the overall economy continuing to improve. Though the central bank now expects inflation to finally pick up this year, stabilizing around a target level of 2%. Most economists expect the Fed to resume raising rates at least three times in 2018, starting in March.
Tenzer adds, “Increasing rates negatively impact leverage, in the short-term, cap rates and values in the near to mid-term. Increasing inflation is generally looked at as good for commercial real estate, particularly for those owning real estate with rents indexed to inflation and long-term, fixed-rate debt.”
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- ◦Economy
- ◦Financing
