Intelligent Investment

Economic Watch: Fed Continues to Hold Rates Steady

November 1, 2023 2 Minute Read

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Executive Summary

  • The Federal Reserve held the federal funds rate at a range of 5.25% to 5.50% today for the second consecutive time. The central bank also affirmed that it will continue to reduce its balance sheet.
  • The Fed noted that tighter financial and credit conditions for households and businesses likely will weigh on economic activity, hiring and inflation.
  • Core inflation has been steadily falling over the past 12 months and likely will continue doing so as the economy weakens in Q4.

The Bottom Line

The Fed’s decision today to hold rates steady was in-line with market expectations. Despite headline inflation remaining above the Fed’s 2% target, core inflation, which excludes food and energy prices, has steadily decreased over the past 12 months. The recent run-up in the 10-year Treasury yield has further tightened financial conditions, which will suppress economic growth and inflation.

CBRE expects the Fed to hold rates steady for the rest of this year, as an economic slowdown takes hold and extends into early 2024. As growth slows, we expect the Fed will cut rates for the first time in March 2024, with two additional cuts throughout next year.

Commercial real estate investment activity is unlikely to improve until capital sources are confident that interest rates have stabilized and pricing has fully adjusted. The market is approaching this point and clear buying opportunities should emerge in the first half of 2024. This will set the stage for increased investment activity in the second half of the year. Leasing activity is expected to improve slowly as companies focus on cost containment in a recessionary environment.

Figure 1: CBRE House View

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