What impact will the Fed’s decisions to raise its benchmark short-term interest rate a quarter percentage point have on senior housing/healthcare borrowers?
Cambridge Realty Capital Companies Chairman Jeffrey A. Davis says “borrowers will give more thought to the prospect of adding more debt. But at the end of the day, rates still are very close to all-time lows and equity is still looking for yield,” he said.
“At this point, it’s much more important to follow job growth, since job growth is the key to a vibrant economy,” he added.
Nearly eight years after the Great Recession ended, even the Federal Reserve Board seems to agree that the economy is starting to feel more “normal.” At its meeting in March, the Fed raised the short-term rate to a range of 0.75 percent to 1 percent and stuck to its forecast of two more such increases this year – and three in 2018.
At a press conference, Fed Chair Janet Yellen said “the simple message is that the economy is doing well. The unemployment rate has moved way down and many more people are feeling more optimistic about their labor prospects.”
As Mr. Davis points out, by historical standards, the new rate is still very low and the projected increases are gradual. But they represent a veritable sprint based on recent experience and come amid a dwindling supply of available workers and accelerating wage growth.
U.S. job growth was unexpectedly strong during the first two months of the year. And the unemployment rate is near its 10-year low at 4.7 percent, though millions of Americans are still discouraged and on the sidelines, or reluctantly in part-time jobs.
Low unemployment already has pushed up annual wage gains to 2.8 percent from the 2 percent rate that prevailed for most of the recovery as employers bid up to attract fewer available workers.
Although concerns have been raised, Yellen says she sees no evidence that the Fed has “fallen behind the curve” when it comes to keeping interest rates high enough to temper inflation.
Economists believe the latest rate hike is likely to have the biggest and most rapid effect on short-term interest rates for auto loans and credit cards, and expect a lesser impact on longer-term loans such as 30-year mortgages, Mr. Davis noted.