On Wednesday, the Fed raised interest rates again by a quarter of a percentage point, a small increase that pushed rates above 5% for the first time since 2007.
But Fed Chairman Jerome Powell signaled the central bank could pause its year-long rate hike at its next meeting.This reprieve could provide commercial real estate investors with the clarity they need to close deals obstructed due to the uncertainty of recent months.
Powell did not commit to pausing rate hikes until the Fed’s next meeting in June.
Instead, he clarified that the Fed’s to march Wednesday’s statement ruled out that “some additional policy confirmation might be appropriate” – mentioning more rate hikes.
“That sentence no longer appears in the statement,” Powell said. “It’s a meaningful change.”
The committee will now review data on economic activity, employment and inflation ahead of its five remaining meetings this year to determine whether subsequent rate hikes are warranted.
The collapse of Silicon Valley Bank and signature bank March, then first republic Earlier this week, it prompted banks to tighten credit conditions to rein in loan growth and preserve liquidity.
That response does some work for the Fed, as less lending means consumers and businesses will spend less, potentially easing inflation.
“I think what has changed [for the Fed] It’s thinking about the longer-term implications of regional banking problems,” Fannie Mae chief economist Douglas Duncan told Reuters. real deal ahead of the Fed’s announcement on Wednesday.
The lingering question, Duncan said, is whether tightening will be enough to slow the economy to levels that meet the Fed’s 2% inflation target.
Fourteen months after raising interest rates, commercial real estate transactions have stalled as buyers, unsure of where rates might go, balk at asking prices and sellers resist lower prices.
The feeling that the rate hike is in the rear-view mirror will give both sides the impetus they need to close the deal. A rate cut could further spur investment sales. The market is now pricing in two rate cuts in the second half of the year, Duncan said.
However, Fannie Mae predicted only one rate cut – in December, Duncan added.
“If the Fed doesn’t see growing concerns about regional banking problems, they’re going to take longer to respond to the inflation they’re looking for,” Duncan said.
“When Powell said ‘we’re going to stay higher for longer,’ we took him at his word,” the economist added.