December 11, 2019
After its two-day meeting this week, The Federal Reserve has held interest rates steady and indicated that no action is likely to come in 2020 amid continually low inflation.
Meeting wide expectations, the Federal Open Market Committee kept the funds rate in a target range of 1.5%-1.75%. The move comes after the Fed enacted three consecutive rate cuts in the federal funds rate this year, most recently on Oct. 30.
Although the President has repeatedly urged the Fed to cut rates, the central bank said that the U.S. economy is in a good place and does not need outside assistance.
“The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric two percent objective,” said the Federal Open Market Committee in a statement explaining the unanimous decision, following several dissents in recent meetings.
Leaders at the Fed predict the economy will grow 2% in 2020, a drop from 2.2% growth in 2019 and 2.9% in 2018.
“We expect moderate growth to continue,” said Fed chair Jerome Powell at a news conference Wednesday. “We reduced interest rates by three-quarters of a percentage point. This shift has helped support the economy and has kept the economy on track.”
CRE experts weighed in on the rates remaining unchanged:
“Powell’s caution on raising rates anytime soon is because inflation has been stubbornly low in the United States and even worse in the EU and Japan. Powell is trying to avoid that fate in the U.S.” said Spencer Levy, senior economic adviser at CBRE. “The bad news about persistently low inflation is that it generally means ‘slow growth’ and this has been bourne out by GDP post-GFC well below prior cycles including the most recent 3Q 1.9% reading. The good news about persistently low inflation is that I think this will continue for a very long time and with low inflation we are likely to see lower cap rates in CRE despite the fact we are at or near record lows across the board in everything but certain forms of retail.”
“The decision to hold rates was expected,” said Ryan Severino, chief economist at JLL. “The Fed will likely now take a wait and see approach. They seemed to indicate that they are done cutting rates, at least through next year. But they also indicated around this time last year that they intended to raise rates three times in 2019, when they in fact cut rates three times.”
“The Fed’s decision to keep interest rates where they are for the foreseeable future comes as no surprise, given the continued strength of the economy,” said George Vail, Principal at Avison Young. “If the economy falters next year, we’ll see further rate cuts then.”
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