The Federal Reserve’s Open Market Committee (FOMC) recently concluded its October meeting. It released a statement shortly thereafter affirming it would, for now, keep the federal funds rate at its current level of near zero, and would continue winding down its quantitative easing program. Low interest rates are one of the main factors driving acquisition and investment activity in the senior housing sector. When coupled with strong demand for senior housing services, the Fed’s decision to not raise interest rates should help continue the robust deal making taking place. While interest rates remain low, industry participants and investors seeking capital for acquisitions, joint ventures, debt refinancing, or sale/leasebacks should contact Cambridge Realty Capital to learn more about the many different financing options it offers for these and other purposes.
Details of the Federal Reserve’s Decision
In a press conference after the Fed’s meeting, Fed Chairwoman Janet Yellen provided extensive information on the Fed’s decision and the thinking of many of its members. She reiterated her earlier assessments, saying, “even after employment and inflation are near mandate-consistent levels, economic conditions may for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the long run.”Ms. Yellen expounded on this in her press conference, stating, “there is no mechanical interpretation for what the term ‘considerable time’ means.” She continued, “I know ‘considerable time’ sounds like it’s a calendar-concept but it is highly conditional and it’s linked to the committee’s assessment of the economy,” and,“the decisions that the committee makes about what is the appropriate time to begin to raise its target for the federal funds rate will be data-dependent.” This data includes information on the labor market, inflation, economic growth, and other financial developments. Lastly, Ms. Yellen stated, “If the pace of progress in achieving our goals were to quicken, if it were to accelerate, it’s likely the Committee would begin raising its target for the federal funds rate sooner than is now anticipated, and might then raise the federal funds rate at a faster rate. And the opposite is also true, if the projections were to change.” This is insightful because it indicates that the Fed is seeking to maintain maximum flexibility as it administers monetary policy for the country.
Some Fed watchers occasionally make firm pronouncements on the timing and pace of interest rate increases. Ms. Yellen’s comments during her press conference indicate they should be careful when doing so. The Fed is reserving the right to quickly change monetary policy based on the data it reviews and how well that data lines up with their projections. Still, the majority of Fed watchers and Fed officials both agree that, if the economy continues to improve, the Fed will raise interest rates next year.