As the economy continues to pick up steam, the Federal Reserve (Fed) will begin to tailor back the stimulus measures it has used during the past few years to encourage economic growth. It has already begun to wind down its quantitative easing program (QE3), which now consists of the Fed buying approximately $45 billion a month in fixed asset securities to provide banks with additional funds to lend and keep long term interest rates low, instead of the $85 billion a month it was purchasing during its peak. As the Fed continues to wind down QE3 and other stimulus measures, interest rates will rise increasing the cost of borrowing for companies that are seeking capital, including companies in the senior housing industry. Before this happens, senior housing providers and others who are seeking capital for acquisitions, growth, or other needs, should contact the successful financing firmCambridge Realty Capital to learn more about the many different financing programs it offers for these and other purposes.

The Fed recently released the minutes from its April 29-30 meeting and they are highly instructive in that they show that the Fed has come to the conclusion that despite a weak first quarter in which the nation’s gross domestic product grew at a scant .1%, the Fed’s members have confidence that the economy will pick up steam and will soon be able to function at an adequate level without the significant stimulus measures that the Fed is currently employing. Furthermore, the meeting’s minutes show that the Fed is now beginning to consider how best to unwind its stimulus programs and reduce the amount of capital in the nation’s money supply. This pivot was undoubtedly led by the hawks at the Fed who are increasingly concerned that prolonged stimulus measures will lead to high inflation and they are now looking at a number of different options that the Fed can use to raise interest rates, contract the nation’s money supply, and reduce the threat of inflation.

In addition to eliminating its QE3 program, the Fed could also raise interest rates by increasing its benchmark federal funds rate which it has kept at or near zero since 2009, it could increase the amount of interest that it pays to banks who keep funds at the Fed, it could execute reverse repurchase agreements, in which it would essentially borrow money from banks overnight at a fixed interest rate in order to reduce the amount of money in the financial system, or it could pay banks a higher interest rate to keep their funds at the Fed for a longer period of time. Any one of these measures would raise interest rates, thereby increasing the cost of borrowing, which should tighten the nation’s money supply and lessen the threat of inflation to the economy. And while the minutes from its April meeting show that the Fed hasn’t decided which one of these options it will choose, it has started to discuss them and these discussions should continue as the economy continues to grow.

Once the Fed implements a policy that raises interest rates, the effect on seniors housing will be a climate in which borrowing is more expensive resulting in a period of reduced M&A activity and the construction of new communities. Before the Fed raises rates and this starts to happen, senior housing providers, investors, and other industry participants who are seeking capital for growth or other reasons should contact Cambridge Realty Capital and utilize one of its various financing programs to meet their capital needs.

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