After years of keeping its benchmark federal funds rate at near-zero to stimulate the economy, the Fed is finally poised to raise them sometime next year. The timing of any interest rate hike is crucial to the senior housing industry because of the effect it will have on borrowing costs and, by extension, property values and mergers and acquisitions. Accordingly, before interest rates rise, senior housing providers and investors who are seeking capital to purchase additional properties, or for other reasons, should contact Cambridge Realty Capital to learn more about the many different financing options that it offers for acquisitions and other purposes.

According to feedback from 19 Wall Street banks that deal directly with the Federal Reserve, or ‘primary dealers’ as they are more commonly known, 14 of them expect the Federal Reserve to raise interest rates by June 2015. They also expect borrowing costs to increase to one percent by the end of 2015. These dealers believe that, because the economy and labor markets are both improving, near-zero interest rates will not be needed by next summer to stimulate the economy any further. Just as important, the Federal Reserve, which is already feeling pressure from some politicians in Washington to raise rates, will experience a harder time justifying keeping them at near-zero in light of the country’s improving economic picture. However, the view shared by these dealers is somewhat different from what the futures market is saying about interest rates.

According to recent trading activity in Fed funds futures contracts, traders believe that there is a 63 percent chance that the Fed will raise interest rates in September 2015, versus only a 36 percent chance that it will raise them in June. Also differing from the predictions of primary dealers are those of Federal Reserve officials themselves. For example, while the majority of primary dealers believe that interest rates will stand at one percent by the end of 2015, the median forecast of officials at the central bank is for interest rates to stand at 1.38 percent instead. Furthermore, the majority of primary dealers also believe that the federal funds rate will stand at 2.5 percent at the end of 2016, which is significantly less than the 2.88 percent figure that Federal Reserve officials believe it will.

Time will tell which one of these groups’ projections is more accurate. A lot can happen between now and next June that could change the trajectory of future interest rate hikes. For example, the Fed might hold off on raising interest rates if the economy contracts suddenly due to another harsh winter like the one the country experienced last year. However, if the economy and labor market continue to improve, then interest rates will almost certainly rise sometime between June and September next year.

Recent Posts

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Start typing and press Enter to search