The Federal Reserve is widely expected to increase interest rates by 25 basis points at a meeting of the Federal Open Markets Committee meeting on May 3, with commercial real estate market professionals anticipating either a pause or slowdown in future rate increases that will help provide stability for key benchmarks and credit spreads.
A 25bp increase would be a rise in the Federal Funds target rate from its current level of 4.75-5 percent to 5-5.25 percent. Marcia Kaufman, chief executive of Bayport Funding, a Great Neck Plaza, New York-based mortgage lender, believes it is possible the latest metrics around inflation could lead the Federal Reserve to take a less hawkish stance.
“We are cautiously optimistic that the Fed may pause rate hikes provided the data reflects abated inflation. However, while benchmark rates may potentially decrease, recessionary concerns may serve to increase credit spreads and overall lending activity,” Kaufman told Real Estate Capital USA.
The CPI index, a key inflation marker, showed a decline in April. At the same time, the benchmark 10-year Treasury has also been more stable and trading in a narrower range over the past three to four weeks. Still, the yield curve remains inverted as investors remain concerned about a myriad of short-term risks.
“We have witnessed some rate compressions across the Treasury bond market, but the inverted yield curve continues to reflect overall market concerns,” Kaufman said. “Thirty-year rates versus short terms reflect overall economic concerns. In addition, we continue to monitor price indices, global events like the situations in Ukraine, Russia, Sudan, China and potential domestic political discord.”
Jonathan Gray, Blackstone’s chief operating officer, outlined a slightly different scenario. “The Fed is likely to pause or maybe go 25 basis points higher from there, but I think they’re unlikely to pivot as quickly as the market is expecting,” he told the Financial Times last week.