The phrase “we live in a global economy” is used ad nauseam. Yet it is true. Everything is connected. For example, what happens in markets across the globe can have a ripple effect that impacts small businesses in the United States.
With this global interconnectedness in mind, the real estate capital experts at Cambridge Capital Realty keep abreast of a wide range of national and international issues related to finance and economics. Here are some of the stories we’ve been following recently:
Commercial Loan Bouncing Back
Commercial lending took a huge hit during the 2008 financial crisis and subsequent recession. Lending has been slowly, but consistently increasing over the past few years. According to statistics and analysis from the American Banker, November 2014 marked a surprising decrease in loan applications from October 2014 but December posted an increase. Overall, 2014 commercial lending activity finished slightly higher than 2013. The numbers are consistent with the positive outlook being expressed by most bankers who have reported loan growth and an expectation that it will continue.
Controversy over Fed’s “Patience”
As noted in earlier blogs, the Fed has strongly implied that an interest rate hike for its fed funds rate is on the horizon for 2015. Yet, the Fed’s statement on the issue of interest rates was that it will remain “patient” when it comes to increasing its short-term interest rates. Some Fed officials, including the President of the Federal Reserve Bank of St. Louis, are now calling for the Fed to retract the word “patient” from its statement.
Why the emphasis on what seems like semantics? In the opinion of those who want removal of the word, it would allow but not require the Fed to raise rates sooner if economic indicators evidence that the economy would be prepared for such an increase. Thus, the Fed would be better able to keep its options open. On the other side, there are officials that have expressed serious concern that if the word is removed, financial markets would behave reactively and overreact in anticipation of the increase.
Negative Interest Rates, Much Ado About Nothing
Negative interest rates have been getting a lot of buzz lately as several European countries including Denmark, Sweden, and Switzerland, have adopted negative interests rates for the money that banks deposit with them. This means that it will actually cost banks to deposit money with their country’s central banks.
The reasoning behind the moves? An attempt to fight off the risk of deflation. Additionally, the theory behind negative interest rates contends that savers who will now be losing money by saving will be prompted to spend more money, providing an additional economic boost. This theory is far from controversial and a recent article from the Economist theorizes that “negative interest rates do not seem to have achieved much” besides contributing to the fall of a country’s currency.
Good News for Greece (and the Globe)
After weeks of tense talks, a deal was reached between European leaders and Greece that extends Greece’s bailout for four months. It’s a short-term measure and the contentious debates are likely to continue but it’s good news for Greece’s economy, which, of course, impacts the global economy.