New Fed Chair Expects Inflation Rate to Move Higher
In a widely expected but still worrisome move for commercial real estate investors and financial markets, the Federal Reserve Bank recently raised the federal funds rate a quarter point from 1.5 percent to 1.75 percent, the first of three rate hikes expected in 2018 by the central bank and the sixth quarter-point increase since the beginning of 2016.
The Fed, in its first policy meeting under new Chair Jerome Powell, also raised the longer-term “neutral” rate, the level at which monetary policy neither boosts nor slows the economy. In a news conference, Powell said the economy in general, as well as commercial real estate market – including Philly office space, Philly retail space and Philly industrial space, has recently gained momentum and he expects inflation to finally move higher after years running below its 2 percent historical target.
This CoStar report on the most recent Fed meeting and its effect on national and Philadelphia commercial properties is being offered through Philadelphia commercial real estate broker Wolf Commercial Real Estate, a Philadelphia commercial real estate brokerage firm.
The Federal Open Markets Committee noted in a statement at the end of its most-recent two-day meeting that the market of U.S. and Philadelphia commercial real estate properties has continued to strengthen, and that economic activity has been rising at a moderate rate.
The FOMC noted job gains in recent months, underscoring the central bank’s growing confidence that tax cuts and government spending will continue to boost the economy surrounding national and Philadelphia commercial real estate listings.
While the Fed plans to follow a path of gradual rate increases, Powell said policymakers need to be cautious about inflation. The chair warned that financial market asset prices in the U.S. commercial real estate market – including Philly office space, Philly retail space and Philly industrial space – are high relative to their longer-run historical norms in some areas.
“You can think of some equity prices. You can think of commercial real estate prices in certain markets. But we don’t see it in housing, which is key,” Powell said. “Overall, if you put all of that into a pie, what you have is moderate vulnerabilities in our view.”
In its Monetary Policy Report to Congress last month, Fed policymakers noted “valuation pressures continue to be elevated across a range of asset classes, including equities and commercial real estate. In general, valuations are higher than would be expected based solely on the current level of longer-term Treasury yields,” the report said.
Although rates remain low by historical standards, interest rate increases are top of mind for executives this year involving U.S. and Philadelphia commercial real estate listings. In a sentiment survey by law firm Seyfarth Shaw, 80 percent of respondents expected multiple rate increases, and clearly expect that the increases will begin to weigh on commercial property markets in 2018.
More than one-third, 37 percent, of those dealing with U.S. and Philadelphia commercial real estate properties who were surveyed in February by the Chicago-based firm predicted three rate hikes by the Fed over the next 12 months, up from just 14 percent a year ago.
For more information about Philly office space, Philly retail space and Philly industrial space or other Philadelphia commercial properties, please call 215-799-6900 to speak with Jason Wolf (email@example.com) at Wolf Commercial Real Estate, a leading Philadelphia commercial real estate broker that specializes in Philly office space, Philly retail space and Philly industrial space.
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