The vast majority of Federal Reserve watchers, economists, and financial analysts believe that the Federal Reserve will raise interest rates sometime next year. For the senior housing industry, this means that acquiring senior housing assets could become noticeably more expensive in the near future. Accordingly, senior housing investors and other industry participants who are seeking to take advantage of today’s low rates should contact Cambridge Realty Capital to learn more about the many different financing options that it offers for senior housing transactions.

The Contrary View

Although most observers believe that the Fed will raise interest rates sometime in 2015, there are a few that hold an opposing view, including the noted economist and Nobel laureate Paul Krugman. Mr. Krugman believes that the global economy is so weak that the Federal Reserve will hold off on increasing its benchmark federal funds rate next year out of fear that doing so could do real and lasting damage to the world economy. To support his position, he points to continued weakness in some of the major European economies and to China’s struggles to boost demand for goods and services within its borders as evidence that the global economy is in a precarious state. Thus, he believes, an increase in the federal funds rate could cause serious damage to foreign markets and to the United States as well.

Another concern is the ongoing unrest in Eastern Europe, as Russia continues to act erratically. It is also a major supplier of energy to some European countries, and its actions could serious damage many economies in Europe, and might eventually impact the United States’ economy too. Furthermore, Krugman also believes that the lack of inflation in the U.S. and around the world negates the need for the Fed to raise interest rates solely to combat price increases. Inflation has been tempered in the U.S. by low wages and falling oil prices, and this dynamic is occurring in many other countries as well. Lastly, Mr. Krugman has also studied the financial markets and, according to his observations, they point to interest rates hikes being delayed for the time being.

Mr. Krugman’s position that the Fed will not raise interest rates next year is not only contrary to what most Fed watchers believe, but it is also contrary to what most Federal Reserve officials themselves believe. Indeed, according to a survey of Fed officials that was released in September, the general consensus there is that the federal funds rate will rise from its current near-zero level to 1.375 percent by the end of 2015. Most economists believe that this figure is a little high, and the rate will be around one-percent at the end of next year. Nonetheless, in contrast to Mr. Krugman, both parties believe that interest rates will rise in 2015.

To support his argument, Mr. Krugman points to many factors that could presumably motivate the Fed to leave interest rates at their current near-zero level through 2015. However, scores of other economists have analyzed these same factors and are simply unconvinced that this is the case. Time will tell who is correct, but one thing is certain: the Fed will not keep the federal funds rate at near-zero indefinitely. At some point it will raise them and, before it does, senior housing participants who are seeking capital for acquisitions or other purposes should contact Cambridge Realty Capital for assistance with their financing needs.

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