Category: The Fed

Fed Holds Steady on Rates Amid Economic Uncertainty

Posted on by Abigail Grenadier

The Federal Reserve announced Wednesday that it will maintain its benchmark federal funds rate at the current 4.25-4.50 percent range, citing heightened economic uncertainty linked primarily to recent tariff policies.

Fed’s Decision

  • The decision reflects cautiousness by Fed policymakers amid rising inflation expectations and slower projected economic growth. (AP, March 19)
  • Fed Chair Jerome Powell highlighted ongoing economic uncertainty, citing the Trump administration’s potential “significant policy changes” on trade, immigration, fiscal policy, and regulation. (Opening Statement, March 19)
  • “It’s the net effect of these policy changes that will matter for the economy and for the path of monetary policy,” Powell said. “Uncertainty around the changes and their effects on the economic outlook is high.”
  • Fed Chair Jerome Powell also emphasized that uncertainty is “unusually elevated,” largely due to the Trump administration’s extensive import tariffs.
  • “Clearly, a good part of [inflation] is coming from tariffs,” Powell stated, adding that while tariffs may temporarily delay inflation reduction, he believes the effect will ultimately prove transitory.

Looking Ahead

  • Powell stated that the Fed will take a patient, data-driven approach to future rate decisions.
  • “We’re not going to be in any hurry to move,” Powell said. “Our current policy stance is well-positioned to deal with the risks and uncertainties we face.”
  • According to the Fed’s quarterly projections, officials expect GDP to grow 1.7 percent this year, a drop from their 2.1 percent estimate in December.
  • While Fed policymakers still anticipate two quarter-percentage-point rate cuts by year-end, consistent with their December forecast, this expectation primarily reflects concerns over slowing economic growth counterbalancing rising inflation and what Powell described as uncertainty-driven “inertia” given the unclear outlook. (Reuters, March 19)

Pressure From The White House

  • President Trump criticized the Fed’s cautious approach via Truth Social, advocating for rate cuts, stating, “The Fed would be MUCH better off CUTTING RATES as U.S. Tariffs start to transition (ease!) their way into the economy. Do the right thing.” (ABC News, March 20)
  • Earlier this week, President Trump nominated Federal Reserve governor Michelle Bowman as vice chair for supervision, the central bank’s top regulatory position. (Bloomberg, March 17)
  • Senate Banking Committee Chair Tim Scott (R-SC) applauded the nomination and called Bowman an important voice in “pushing back on burdensome rules.”

Implications for CRE

  • The decision to maintain current interest rates carries significant implications for commercial real estate. Stable and lower interest rates can provide a more predictable environment for financing and investment decisions.
  • The Fed’s decision reinforces findings from our Q1 2025 Sentiment Index that the CRE industry remains in a transitional period. Released in February, the Index showed signs of market stability—but also lingering uncertainty over tariffs, expiring tax cuts and regulatory reforms that could slow investment and economic growth. (Roundtable Weekly, Feb. 21)
  • Heightened economic uncertainty, particularly from tariff policies, could dampen investment activity and make it challenging to attract foreign capital—both critical elements needed to drive economic growth.
  • Reduced investment activity also risks hindering development projects, including the creation of affordable housing, and could slow ongoing efforts to revitalize communities and cities still recovering from pandemic disruptions. (CBRE, March 19)

RER will continue to track coverage on interest rates and tariffs, and the implications for commercial real estate.

Federal Reserve Opts Out of Cutting Rates

Posted on by Abigail Grenadier

The Federal Open Market Committee (FOMC) held the federal funds target range steady at 4.25% to 4.50% on Wednesday, as widely anticipated, during its first meeting of 2025. This decision marks a departure from three consecutive rate cuts, which collectively lowered the target range by 100 basis points since September.

Fed’s Decision

  • Chair Fed Jerome Powell indicated that inflationary trends are headed in the right direction. The Fed maintained its assessment that the risks to its dual mandate—promoting a strong labor market and controlling inflation—remain “roughly in balance.” (ConnectCRE, Jan. 29)
  • The country’s inflation rate remains somewhat elevated above the Fed’s target of 2%. In projections released at last month’s meeting, most officials signaled they expected the Fed to lower rates in the year ahead, but were less certain over how many times the central bank would cut.
  •  Most of them penciled in two rate cuts this year, down from four cuts in projections released last September, assuming progress in lowering inflation continued. (CoStar, Jan.29) (WSJ, Jan.29)

Looking Ahead

  • Powell highlighted that future decisions will be guided by “real progress” in bringing inflation down toward the Fed’s target or “some weakness” in the labor market. (ConnectCRE, Jan.29) 
  • President Donald Trump’s plans to cut taxes, impose hefty tariffs on key imports and deport millions of immigrants who lack permanent legal status have generated unusual uncertainty about the course of the economy, inflation and interest rates. (USAToday, Jan. 27)
  • Thomas LaSalvia, Moody’s head of commercial real estate economics, told CoStar News in an email that “all eyes are now shifting away from Fed action and towards economic consequences of new administration policies.” He added that “moving forward, the extremity of those policy actions will be more influential on economic health.” (CoStar, Jan.29)

Pressure From The White House

  • Trump says he will “demand” lower interest rates in a virtual address last week to the World Economic Forum in Davos, Switzerland.
  • When asked about the comments, Powell, sought to stay above the fray. “I’m not going to have any response or comment whatsoever on what the president said. It’s not appropriate for me to do so,” he said. “The public should be confident that we will continue to do our work as we always have, focusing on using our tools to achieve our goals.” (USNews, Jan.27)
  • In the wake of the Fed’s interest rate announcement, President Trump took to Truth Social: “Because Jay Powell and the Fed failed to stop the problem they created with Inflation, I will do it by unleashing American Energy production, slashing Regulation, rebalancing International Trade, and reigniting American Manufacturing, but I will do much more than stopping Inflation, I will make our Country financially, and otherwise, powerful again!” (TheHill, Jan.29)

What to Watch: Tariffs

  • White House Press Secretary Karoline Leavitt told reporters today President Trump plans to move forward with a 25% tariff on imports from Canada and Mexico starting tomorrow, and an additional 10% tariff on Chinese imports. (USA Today, Jan. 31)
  • Howard Lutnick, Trump’s Commerce Secretary Nominee, told the Senate during his confirmation hearing this week, that he advised Trump to impose country-by-country tariffs to restore trade “reciprocity” and vowed to tighten restrictions on China’s access to advanced AI technology. (Reuters, Jan. 29)
  • These tariffs could have significant repercussions for the U.S. economy, including housing affordability. Any tariffs on imported materials like steel, aluminum and lumber are likely to drive up costs for developers and impact efforts to address the housing shortage. (Roundtable Weekly, Jan. 24 | Nov. 27)

The Roundtable will continue to track coverage on interest rates and tariffs, and the implications for commercial real estate.

Increased Pace of Fed’s Quantitative Tightening Raises Concerns About Liquidity Stress in Banking System

Posted on by Trey Jackson

The Federal Reserve

As the Federal Reserve accelerates the unwinding of its nearly $9 trillion balance sheet this month, there is growing concern about the impact that quantitative tightening (QT) may have on credit market liquidity and the overall economy. (Financial Times, Sept 14 and Reuters, Sept. 15)

QT & Liquidity

  • The Fed launched its QT initiative on June 1 with initial caps set for $30 billion in U.S. Treasuries and $17.5 billion in agency mortgage-backed securities—but scheduled the caps to increase this week to $60 billion and $35 billion, respectively. (Federal Reserve, Plans for Reducing the Size of the Federal Reserve’s Balance Sheet, May 4)
  • The increased QT pace of up to $95 billion per month has sparked concerns about how contracting liquidity conditions could impact the overall economy and whether the Fed may seek an early exit from QT. (Financial Review, Sept. 14 and BGov, Sept. 12)
  • The QT increase prompted a Bank of America warning to clients this month that strain on bond market liquidity is “one of the greatest threats to global financial stability today, potentially worse than the housing bubble of 2004-2007.” (MarketWatch, Sept 15 and New York Times, Sept. 11)
  • The Fed’s expected policy interest rate increase by 75 to 100 basis points next week would keep borrowing costs elevated as the central bank’s scheduled QT effort increases.

Soft Landing Challenge

Roundtable Board Member Barry Sternlicht

  • The challenge for the Fed is whether it can achieve a “soft landing”—reducing the inflation rate while avoiding a recession—while the U.S. economy faces volatile inflationary factors from the war in Ukraine, high energy costs, and supply chain disruptions.
  • Rising interest rates and various market conditions around the world could lead to a global recession next year, resulting in “lasting harm” to emerging and developing economies, according to an analysis released today by the World Bank. (Financial Times and UPI, Sept. 16)
  • “Recent tightening of monetary and fiscal policies will likely prove helpful in reducing inflation,” said Ayhan Kose, the World Bank’s Acting Vice President for Equitable Growth, Finance, and Institutions. “But because they are highly synchronous across countries, they could be mutually compounding in tightening financial conditions and steepening the global growth slowdown.” (World Bank news release and analysis, Sept. 16)
  • Roundtable Board Member Barry Sternlicht (Chairman and CEO, Starwood Capital Group), above, appeared on CNBC’s Squawk Box yesterday to discuss the Fed, inflation, and the U.S. economy. Sternlicht stated the economy is “braking hard” and that prices will begin to decrease after recent Fed measures.

The Roundtable’s Fall Meeting next week in Washington will include a discussion on the Fed’s actions and economic conditions with Dr. Austan Goolsbee, former White House Chairman of the Council of Economic Advisers from 2010-2011 and a member of President Barack Obama’s cabinet.

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Fed Raises Interest Rates, Signals More Hikes, Boosts Economic Forecasts

Posted on by Trey Jackson

In the Federal Reserve’s first major decision under new Chairman Jerome Powell, the central bank on Wednesday raised the federal funds rate 25 basis points (to a range of 1.5 percent to 1.75 percent) and boosted its U.S. economic growth forecast for 2018 and 2019.  (Federal Reserve Statement and Projections, March 21).

Federal Reserve Chairman Jerome Powell held his first news conference since becoming Chairman, echoing the Federal Open Market Committee’s views on a strengthened economic outlook in recent months.

During a week when the Trump Administration slapped $50 billion in trade tariffs on China, followed by a 724 point plunge in the Dow Jones Index, the Fed also voted unanimously to approve a 25-basis-point increase in the primary credit rate to 2.25 percent, affecting what commercial banks and other depository institutions pay on loans from regional Federal Reserve Banks.

The Fed is expected to lift the rate two or three more times this year, and three times next year, citing a strengthening labor market and moderately rising economic activity, partnered with a consistent low unemployment rate, as reasons for further hikes. (Reuters and Federal Reserve Statement, March 21).

Chairman Powell held his first news conference since becoming Fed Chairman, echoing the Federal Open Market Committee’s views on a strengthened economic outlook in recent months, “Fiscal policy has become more simulative, ongoing job gains are boosting incomes and confidence, foreign growth is on a firm trajectory, and overall financial conditions remain accommodative.” (The Washington Post, March 21)

Fed officials significantly changed their economic forecast from their previous projection done before the Tax Cuts Jobs and Act passed in December, with GDP for 2018 originally at 2.5 percent increased to 2.7 percent, and increased the 2019 expectation from 2.1 percent to 2.4 percent.  (The Washington Post, March 21).

“The job market remains strong, the economy continues to expand, and inflation appears to be moving toward the FOMC’s 2 percent longer running goal,” said Powell. (Bloomberg, March 21)

The Federal Reserve will hold their next meeting in early May. 

Fed Poised to Raise Interest Rates Amid Growing Concerns About Escalating Trade Disputes

Posted on by Trey Jackson

Federal Reserve policymakers this week signaled they are likely to raise interest rates next month, after releasing minutes of their most recent Federal Open Market Committee (FOMC) meeting showing growing concerns over the economic repercussions from escalating trade disputes. 

Fed Chairman Jerome Powell today delivered remarks on “Monetary Policy in a Changing Economy” at the Federal Reserve Bank of Kansas City’s annual economic symposium .  (reference:  Powell’s speech, Aug. 24)  

  • Fed Chairman Jerome Powell today delivered remarks on “Monetary Policy in a Changing Economy” at the Federal Reserve Bank of Kansas City’s annual economic symposium .  Powell said the Fed faces two major risks of “moving too fast and needlessly shortening the expansion, versus moving too slowly and risking a destabilizing overheating.  I see the current path of gradually raising interest rates as the FOMC approach to taking seriously both of these risks.”  ( Powell’s speech , Aug. 24)   
  • As central bankers and economists gathered this week for the symposium, Kansas City Fed President Esther George yesterday told Bloomberg Television, “My own forecast is that it will be appropriate to raise rates a couple more times this year.”  Dallas Fed President Robert Kaplan added in a CNBC interview that he sees three or four rate increases necessary over the next nine to 12 months.  
  • FOMC members are aiming to set interest rates to a “neutral” setting — one that neither spurs nor slows economic growth.  Powell’s comments at today’s symposium come after his testimony before the Senate Banking Committee last month, when he stated, “With a strong job market, inflation close to our objective, and the risks to the outlook roughly balanced, the FOMC believes that – for now – the best way forward is to keep gradually raising the federal funds rate,” (Roundtable Weekly, July 20)  
  • Regarding commercial real estate, the FOMC’s meeting minutes released Wednesday show “CRE loans at banks maintained solid growth over the past several quarters, with growth shared across all three major CRE loan categories.”

    • FOMC minutes show growing concern among monetary policymakers over how trade disputes could pose a threat to economic growth.

  • The minutes also show growing concern among monetary policymakers over how trade disputes could pose a threat to economic growth.  “All participants pointed to ongoing trade disagreements and proposed trade measures as an important source of uncertainty and risks.  Participants observed that if a large-scale and prolonged dispute over trade policies developed, there would likely be adverse effects on business sentiment, investment spending, and employment,” according to the  Fed’s minutes.  
  • “Moreover, wide-ranging tariff increases would also reduce the purchasing power of U.S. households.  Further negative effects in such a scenario could include reductions in productivity and disruptions of supply chains,” the minutes continue.  
  • Yesterday, the U.S. and China started implementation of 25 percent tariffs on $16 billion worth of each other’s goods, according to Reuters.  The negative economic impact of tariffs on each state is the focus of a recent U.S. Chamber of Commerce analysis.  (Politico’s Morning Money, Aug. 23)  
  • Commenting on last week’s Q3 Real Estate Roundtable Economic Sentiment Index, Roundtable President and CEO Jeffrey DeBoer noted, “Looking to future market conditions, industry executives are noting uncertainties regarding the November midterm elections and growing interest rate and international trade concerns.  Policymakers must stay focused on developing pro-growth policies that continue to benefit the overall economy and spur job growth.” 

The FOMC’s next meeting is scheduled for Sept. 25-26.  Former Fed Governor Kevin Warsh (2006 to 2011) will address Roundtable members on Sept. 26 during The Roundtable’s Fall Meeting in Washington, DC.