December 20, 2018
The Federal Reserve’s Federal Open Market Committee voted to raise the target range for the federal funds rate by 25 basis points to 2.25% to 2.5% on Wednesday. The money policymaking group indicated that since it last met in November, the labor market has continued to strengthen and that economic activity has been rising at a strong rate. The Fed funds rate is now at its highest level since the spring of 2008.
The Committee’s median forecast calls for a slower pace of raises in 2019, including just two rate hikes. That’s down from three in September, though six members of the group still see three rate hikes next year as appropriate.
The Fed says the unanimous decision to bump up the rate for the fourth time this year was based on strong job gains, on average, in recent months, a low unemployment rate and continued strong growth in household spending. The Fed did point out growth of business fixed investment has moderated from its rapid pace earlier in the year.
Both overall inflation and inflation for items other than food and energy remain near 2%, on a 12-month basis. The committee said, “indicators of longer-term inflation expectations are little changed, on balance.”
CBRE’s Spencer Levy added some perspective to the moves by the Fed saying, “The outlook for cap rates in 2019 remains favorable, as debt and equity markets are highly-liquid and commercial real estate fundamentals are good (retail, office, multifamily) to strong (industrial). The Fed’s softening outlook should give confidence to investors, despite strong but slowing rent growth.
“Notwithstanding some late cycle concerns, the volatility in the stock and bond markets makes commercial real estate even more attractive as a long-term capital strategy, and we expect the spread between bonds and cap rates to further compress if this volatility persists. As investors seek yield, U.S. commercial real estate will remain an attractive place to deploy capital,” says Levy.
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