The Fed appeared to confirm something investors have come to expect for a couple of months: Its campaign of raising interest rates is at an end.
The key takeaways from the NAI Great Lakes team regarding the Feds final meeting of the year which took place today:
Federal Reserve officials left interest rates unchanged in their final policy decision of 2023 and forecast begin to cut borrowing costs in the coming year, a sign that the central bank is shifting toward the next phase in its fight against inflation.
Fed officials forecast roughly three rate cuts of a quarter-point each next year, more than they predicted when the Fed met back in September.
The two-year Treasury yield, which is sensitive to changes in interest rate expectations, moved abruptly in response to the Fed’s projections, sliding by more than a quarter of a percentage point to 4.437 percent, its biggest one-day decline since the banking crisis in March. The 10-year treasury yield dropped by 18bps to 4.028 percent.
Following today's announcement, Wall Street futures pricing suggests that there may be up as many as five rate cuts in 2024.
The Federal Funds target rate remains at a range of 5.25 to 5.5 percent, where they have been since July. After making a rapid series of increases that started in March 2022 and pushed borrowing costs to their highest level in 22 years as of this summer, officials have now held policy steady for three straight meetings.
The CRE sector is a winner from today’s news as lenders begin to reduce their lending spreads, the lenders who moved to the sidelines will begin to reengage the market. That would expand the pool of potential debt capital available to investors and support transaction activity going into 2024.