Fed watching is a perennial pursuit for the commercial real estate industry: reading the tea leaves of the chair’s opaque statements and speculating whether the target federal funds rate will lifted, lowered or held steady.
Prior to last week, the consensus seemed to be for a 0.25 percent increase the target federal funds rate at the Federal Open Market Committee meeting in December, and perhaps one or two additional quarter-point increases in 2017. But that was before Donald Trump was elected president.
Now, Fed watchers are expecting a more inflationary environment (as a result of proposed fiscal stimulus plans), and that could mean additional rate increases in the year ahead. JLL notes, in its 2016 Election Impact report, some of the monetary policy implications of the election:
“The initial expectation was that a Trump victory would create more volatility and take the expected rate hike by the Fed in December off the table. However, if the markets remain stable, the Fed will instead focus on the underlying fundamentals of the economy (e.g. market at or near full employment, wage growth, stable pricing). There is some question about whether Federal Reserve Chair Janet Yellen will resign or be replaced given the new regime. Trump’s fiscal plan seems to point to a rise in the deficit, which could lead to higher inflation and interest rates expectations.”
While markets have remained stable in the wake of the unexpected election results, considerable policy uncertainty remains, and the potential for volatility is high. PGIM Real Estate’s report, U.S. Election Results and Implications for Americas Real Estate, points to four key adjustments to the status quo, with restrictive trade and immigration policies — building on Trump’s divisive campaign promises — as “likely to have a net negative impact on U.S. commercial real estate tenant and investor demand.” These would be partially mitigated by increased infrastructure spending and reduction in taxes. PGIM Real estate notes:
“While some of these policy shifts may be significant, it is unclear how strong Trump’s mandate is, and perhaps more importantly whether some of his policy priorities are shared with Congressional leaders in his party. This may prolong the policy uncertainty period well into next year and potentially longer, and possibly result in legislation that is mostly incremental rather than abrupt.”
The views, statements and opinions expressed in this article are those of the author and are not necessarily those of Institutional Real Estate, Inc.
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Loretta Clodfelter is editor of Institutional Real Estate Americas.
