In an earlier article we discussed how it is not surprising that Wall Street, the futures market, and the Federal Reserve all differ in their opinions on when the Federal Reserve will raise interest rates because there are differences of opinion within the Fed itself on this subject. For example, while William Dudley, the President of the Federal Reserve Bank of New York, thinks that projections for an increase during the middle or second-half of 2015 are reasonable, Charles Plosser, the President of the Federal Reserve Bank of Philadelphia, thinks that they should increase today.
Meanwhile, in contrast to both of these members, a third official at the Federal Reserve is taking a middle of the road path, and is forecasting an increase during the first quarter of 2015. We will need to wait and see whose projections turns out to be the most accurate, but in the meantime, before rates do go up, senior housing providers and investors who are seeking capital for acquisitions or other purposes should contact Cambridge Realty Capital to learn more about the many different financing options that it offers for senior housing transactions.
A Third Opinion
James Bullard, the President of the Federal Reserve Bank of St. Louis, thinks that the Fed will raise interest rates in the first quarter of 2015 because of the jolt the economy and job market should receive from falling oil prices. Falling oil and gas prices should leave consumers with more money to spend on goods and services. This will stimulate the economy by providing businesses with more sales revenue that they can use to expand and hire new workers. Mr. Bullard also believes that the Fed will raise interest rates early next year to combat inflation, as he projects that inflation will increase slightly by the end of this year and will exceed the Fed’s two percent goal next year. This view is different from others at the Fed who argue that the central bank does not need to raise interest rates to combat inflation because stagnant wage growth will do this for them.
Mr. Bullard is one of the more hawkish Fed officials, and his models show that the Federal Reserve should have already raised interest rates more than a year ago. However, unlike Mr. Plosser, who wants to raise rates immediately, Mr. Bullard thinks that the Fed needs to prepare the markets for an increase, so he is willing to wait until early next year to push them up. However, similar to Mr. Plosser, he is also concerned about the possibility that low rates could create unsustainable asset bubbles, and he points to the poor economic growth and deflation that Japan experienced when it kept interest rates low for an extended period of time as a cautionary tale that the Fed should learn from.