Well, hating interest rates is obviously a pretty extreme concept. But what is almost as bizarre is the obsession with them shared by the media and certain analysts that is nearly on a Dr. Strangelove-like nuclear-war level.
Every time members of the Fed meet, the world seems to stop, on the edge of its seat, awaiting their decision on interest rates. So far, those monthly meetings have been anything but riveting. After major anticipation before those outings, with hand wringing in the financial community, nothing has happened so far. It’s like theoretically watching a basketball game that ends in a tie after three overtimes. Or the ending of “Lost.” It’s annoying.
Well, with new encouraging employment figures, improved retail sales and a bit of a bounce back in China’s economy–suggesting an improved global financial situation–there is heavy speculation that interest rates will bump up in December. What’s ironic is that the stock market is falling despite these positive economic indicators because of the ongoing concern that interest rates will rise.
Even more ironic about this fear is that interest rates have hovered between zero and 0.25 percent since the recession. And Janet Yellen, the Fed’s chair, has said that interest rates won’t likely rise more than one percent per year.
Despite that, many industries, especially commercial real estate, are waiting with bated breath for this small bump to take place.
U.S. Bancorp, for one, could be scaling back on it commercial real estate investments, due to fears of how rising interest rates could hurt the industry. Executives there also said that they think CRE could be getting overheated as well. The president of the Boston Federal Reserve Bank also warned that commercial real estate development, for example the many cranes around Boston, should give investors pause. He said rates could rise at any of the future Fed meetings, including December’s.
Despite these comments, though, commercial real estate fundamentals seem to be knocking it out of the park in several markets, and the industry appears to be the healthiest it has been in years. The Real Estate Roundtable even points out that financial turmoil abroad will continue to create demand for U.S. commercial real estate, which is seen as a safe haven for international investors, since our economy is seen as more stable than other locales.
In short, it looks like rates are going to increase, at least in the next couple of months. But if they do, they’re not going to rise by much. We’re dealing with a healthy commercial real estate environment and an overall improving economy. It’s hard to think that a slight bump in rates would derail that.
Either way, it would be nice for the drama to end and for the Fed to FINALLY make a decision, so investors know where they stay. What do you think?
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