Federal Reserve to Begin Tapering Asset Purchases
- Fed responded to pandemic by buying $120B/month in treasuries and MBS, boosting liquidity and lowering yields
- 10-Year fell from 1.5% in Jan. 2020 to 0.7% by March; Stayed below 1% until 2021, now hovers around 1.3%-1.5%
- Fed now plans to reduce purchases by $15B/month, until fully done in summer 2022, but could adjust as needed
Lower Interest Rates Supported Economic Growth, Inflation
- Compared to pre-pandemic, core retail sales are up 19%, corporate investment up 12% and home sales up 9%
- Injection of money also spurred inflation; headline inflation rate is 5.4%, up from 2.3% before the pandemic
How Will Fed Tapering Impact Commercial Real Estate?
- Fed easing back purchases will likely push interest rates steadily higher
- Gradual rise unlikely to slow CRE transactions; too much capital looking for yield & CRE good inflation hedge
- Investors should consider locking in rates or refinancing now, as rates are only expected to climb
* Through September; 10-Year Treasury through November 04
Sources: Marcus & Millichap Research Services, Federal Reserve, BEA, BLS