415.970.0000
info@calcosf.com

Category: Janet Yellen (3)

Feb
15

Yellen states reasons for another interest rate hike, but does not give definite date

On Tuesday, February 14, 2017, Federal Reserve Chair Janet Yellen testifed before the Senate regarding current economic trends, bank lending, and possible changes to Dodd-Frank. According to Bisnow, Yellen stated that due to “solid job growth, rising inflation, and healthy wages” that she may “recommend another rate hike” but did not provide specific timing of an increase. The Fed will be exploring the rate hike discussion at its upcoming meeting in March at which a clear timeline may emerge, however, as the article notes Yellen clarified that any future rate hikes would be steered by “economic trends alone” and not on “speculation on fiscal stimulus”.

In regards to bank lending, Yellen indicated that “commercial and industrial loans have surpassed” the number of loans made during the “2008 peak”. Although U.S. institutional lending had decreased, according to the article, capital for commercial projects has been buoyed by “foreign investment and rising interest from institutional investors.” Further, “commercial and industrial loans have been on the rise…increasing by an average rate of 10.6% a month over the last five years.”

Dec
15

How Soon is Now: Fed Follows Through on Rate Increase

Federal Reserve Chairwoman Janet Yellen indicated in November that a raise to the U.S. interest rate could be happening “relatively soon.” The “soon” came just a month later with the announcement by the Federal Reserve yesterday that the rate will increase by an initial 0.25%. However, as reported by the Wall Street Journal, the rate could increase by as much as 0.75% over “three quarter-point moves” in 2017.

Financial analysts are suggesting that the move to increase the rate is a signal by the Fed of its optimism about the strength of the economy and “pointed to a strengthening labor market nearing full employment and inflation moving more rapidly towards targeted levels,” according to the article. This latest increase by the Fed is only one of two in the last decade.

But what the increase to the interest mean for commercial real estate? According to Bisnow, rate hikes usually lead the way to “higher borrowing costs…impacting profitability and future acquisitions.” However, as the article points out, this particular increase was long in the making and investors, REITS and property owners have anticipated this increase and have planned/priced accordingly. Therefore, the impact of the first .25% jump “may not have as great an impact” on commercial real estate activities as the effect that “comes from long-term rates.”