The Key Reasons Why We Won’t See a Rate Hike this Year


I’ve said it before and I’ll say it again. The U.S. economy is poorly prepared for any interest rate hikes this year.

And, as long as the Federal Reserve leaves rates unchanged, commercial real estate will be attractive as it has been, especially to overseas investors looking for opportunities in a low-rate environment. The Fed may hint that a hike is likely this December 2016, but I wouldn’t hold my breath.

Despite three dissenting opinions for a rate hike in September, interest rates were unchanged.

“The committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives,” said the latest statement.

While Eric Rosengren, a voting member of the Federal Reserve, may believe there’s a “reasonable case” for a rate hike, we beg to differ.

Rosengren believes that “despite headwinds from abroad,” the U.S. labor market has improved quite well with inflation “slowly returning” to the Fed’s 2% target rate.

He believed that the jobs market may “reach or even exceed full employment over the next year.”

Unfortunately, that prediction is fantastical thinking at best.

If the employment rate was healthy, inflation would not be stuck at 1.6%.

We would also see evidence of rising retail sales from confident consumers. Instead, such sales fell 0.3% in August 2016 to $456.32 billion.

Wage growth would be stronger, as well. But that’s not the case.

If the Fed were confident about the economy, it wouldn’t have cut GDP or unemployment forecasts either. But that’s exactly what they did.

Even if there is a near-term threat of higher interest rates, commercial real estate investors shouldn’t be greatly concerned for reasons we also point out here