Fed watching is a major pastime for investors at any level, but particularly the US stock market and the Commercial Real Estate market have been watching and waiting for every crumb of information they can glean from the central bank’s quarterly gatherings.
Economic news has been steadily improved all year. Unemployment numbers continue downward. This month the Fed finally decided it could reign in one of the primary monetary tools it has used to in a series of sweeping campaigns to revive the American economy, during much of the last six years purchasing trillions of dollars of bonds.
Stock market participants have seen a 131% increase in value since the first phase of the program began. The Fed hasn’t totally gotten out of the bond business. As bonds they purchased mature, they’ll replace them with new purchases to hold their current inventory levels at 4.5 billion dollars.
The impact on the rest of the economy is much harder to assess. The Fed’s goal was that the bond purchases would hold down the cost of mortgage loans and corporate debt, contributing to faster job growth. Certainly it has fueled a burst of lending in the commercial real estate world over the past two years, as property investors, and large corporations have either refinanced existing debt, acquired new properties, or launched development projects. All of these have helped provide more employment and raised overall economic activity levels.
The cessation of the bond purchases has not changed the Feds low rate policy. They clearly stated they expect no changes until mid 2015 at the earliest.
You’ll begin to see more discussion of the risks and challenges of the continuing low rates. There is ongoing risk of housing, debt, or other bubbles fueled by maintaining rates at these levels.
All this being said low rates forces those with capital to find higher yields. Commercial real estate presents a great alternative to a bank or CD. NNN single tenant investments can yield in the 5% to 6 % range, with the backing of some of America’s best companies.
