The Federal Reserve announced a 25 basis-point interest rate increase this week and has so far signaled future bumps will be made at a more gradual and reduced pace compared to prior installments. But while the more tempered outlook was welcomed by the market, any impact will be muted because the credit markets have already anticipated and priced in this change.
“The market confidence has already bounced back since inflation turned out to be lower than expected in the last 3 to 4 months as the expectation shifted toward a lower peak level and closer pause,” said Wei Luo, senior economist at CBRE Investment Management.
While the full effect of rate increases has yet to be clarified beyond a current target range of 5 percent to 5.25 percent, with room for more assessment at the central bank’s next meeting in March, the Fed is still hawkish compared to market expectations.
“Investors will continue to be very cautious and selective about taking out new debt because the environment is not ideal for refinancing a large amount of existing debt,” Luo said. She explained investors are more likely to find liquidity and pay higher interest rate caps and that the balance sheet priority will be paying off maturing loans.
‘Frothy’ market
Larry Jacobson, president and CEO at Jacobson Equities, told Real Estate Capital USA that Federal Reserve chair Jerome Powell’s comments included guidance that interest rates are more likely to hold than drop at any point this year. “Obviously, this is because a frothy equity market begets more inflation,” Jacobson said.
