Today’s post is written by Michael Green, Senior Commercial Loan Originator with Counsel Mortgage Group®, LLC. Mike provides monthly commentary on the commercial mortgage market. Be sure to check back each month for the latest updates.
After much speculation and consternation, the Federal Reserve raised interest rates by a quarter point yesterday, delivering its first increase since July 2023 responding to continued inflationary pressures.
The unanimous decision by all 12 voting members of the FOMC lifted the fed funds rate’s target range to 3.75% to 4%. Prime will be 7%.
Fed officials also signaled that additional tightening is likely. Eighteen of the 19 policymakers who submitted economic projections anticipated at least 1 more quarter point increase by the end of the year. Four officials projected that rates would need to rise by another half percentage point in 2026, implying two additional quarter-point moves. Historically, once the Fed has started a rate move, up or down, subsequent moves have been the norm over the next year or 2 – the single exception being in ’97 (see chart).
The bond market vigilantes have been prodding this increase for the last couple months in response to the rising price of oil, and subsequent inflation, resulting from the war in the Middle East. Last week the 10-year Treasury breached 5%, a rate not seen since early ’23, then in response to President Biden’s COVID policies at the time.
The slope of future increases – if they in fact occur – depends on the completion or continuance of the Iran War, the stabilization of global energy flows and prices, and the outcome of the up-coming election. Although uncertainties are abundant, the fact that the Fed initiated this action provided some relief, and validated the independence of the Fed from the Executive Office (President Trump).
Notably, there is still an estimated $1 trillion of non-bank cash targeted for CRE that is expected to now start to ease into play. If this clarification opens the door for you to consider your CRE financing, give us a call to discuss feasibility and initiate the loan process.
