There’s certainly a lot going on in the news cycle lately, so you might have missed the latest interest rate increase from the Fed. Don’t worry, we’ll catch you up on what you need to know.
A quick recap of recent changesIn short, the Federal Reserve increased interest rates last month, reaching a benchmark lending rate of 0.75% to 1%. The last hike was three months before that, and prior to that, the last time they were raised in any significant way was in December 2015.
The future of interest ratesThe Federal Open Market Committee (FOMC) is expected to increase interest rates twice again this year. Overall, rates are expected to increase from 1.8% to 1.9% this year and could hit about 2% in 2018. Part of the reported reason for this increase is a projected GDP boost of 2.1% this year, and experts see the same jump taking place in 2018. Many economists see this as a positive trend, of course. Interest rates were near zero during the Great Recession, but now that things are improving, the FOMC thinks a hike is appropriate.
What this means for commercial real estateDespite a volatile political climate, the economy is holding up well for the moment. Foreign investors are still looking to U.S. commercial real estate as a safe haven, both in primary and secondary markets and across asset sectors. Despite uncertainty, the FOMC’s actions illustrate a positive outlook on these and other economic trends.
As we noted last December, most savvy commercial real estate owners saw this coming. After all, the FOMC has not exactly made it a secret that these hikes were on the horizon.
The main thing to watch is investment activity in REITs. While the interest rate hike could seem to have a negative impact, it’s important to note that the top REITs did pretty darn well last year. Their fundamentals were strong year over year, and so far, there is no reason to think that this is going to change any time soon, despite the problems that the retail sector is having with store closures.
Though the stock market has taken a bit of a hit of late, it has done well enough overall since the switch of presidential administrations.
We’ll keep you up to date on all of the quarterly FOMC meetings regarding interest rates and will continue to guide you through how they will impact commercial real estate. To that end, make sure you’re subscribed to this blog to get regular updates.