With the economy on the mend, the Federal Reserve (Fed) has begun discussing the best way to reduce the significant amount of stimulus it has pumped into it over the past few years. The outcome of these discussions is very important because if the wrong policy is implemented it could damage the economy by stalling demand for a wide variety of goods and services, including senior housing. Accordingly, senior housing providers should stay abreast of the Fed’s discussions in this area so that they can analyze the potential impact of changes in monetary policy on their operations. Meanwhile, while the Fed is debating how best to wind down its stimulus measures, senior housing participants should also continue to take advantage of today’s low interest rates by looking to successful firms like Chicago-based Cambridge Realty Capital for their financing needs. Cambridge Realty Capital has over 20 years of experience in financing and offers a variety of different programs to meet the needs of senior housing owners and operators.
Earlier this year the Federal Reserve began winding down the quantitative easing program it had been using to reduce long-term interest rates. With this program scheduled to end by the end of the year, the discussion has now turned to when, and by how much, the Fed should raise its benchmark federal funds rate from its current near-zero level. The hawkish members of the Fed believe that it should raise interest rates higher and quicker than their more dovish counterparts. Some of these members are now airing their views publicly, including Esther George, the President of the Federal Reserve Bank of Kansas City.
Ms. George is one of the more hawkish members of the Fed, and made this clear in remarks that she made recently to a group of prominent policymakers and economists. In contrast to Fed Chairman Janet Yellen who believes that short-term interest rates should remain at their current near-zero level for a “considerable time”after the Fed has ended its quantitative easing program, Ms. George stated that she “would like to see short-term interest rates move higher in response to improving economic conditions shortly after completion of the taper.” Analysts have forecast that the federal funds rate will be around 2.25% by the end of 2016. This is significantly less than its 4% historical norm. This worries Ms. George who is concerned that keeping rates too low for too long will encourage banks to take risks that threaten the nation’s financial stability and could also lead to the creation of asset bubbles that will damage the economy whenever they burst down the line. She expressed this in her remarks by stating that “The degree of inertia suggested [by that forecast] goes beyond what is required to achieve a smooth exit,” from the current near-zero rate environment and that in her view,“It will likely be appropriate to raise the federal funds rate at a somewhat faster pace.” Ms. George acknowledges the pressure the Fed is under to do everything it can to meet its mandate of fostering maximum employment by keeping interest rates low and stated as much with her comment that “In this environment, the pressure to quickly back away from a rising rate policy will be significant.” However, Ms. George is also steadfast in her belief that rates should be increased to a level that’s closer to historical norms and demonstrated this by going on to say that “…such pressures should be resisted. If not, we risk moving into a confusing stop-and-go policy environment.”