Intelligent Investment
Economic Watch: Fed Cuts Rates by Quarter-Point
November 7, 2024 2 Minute Read
Executive Summary
- In response to a cooling labor market and easing inflation, the Federal Reserve lowered the federal funds rate by 25 basis points (bps) today to a range of 4.50% to 4.75%.
- CBRE believes that the Fed is likely to reduce the federal funds rate by an additional 25 bps in December, followed by several more cuts next year.
- We expect that the 10-year Treasury yield will remain above 4% in the months ahead, subject to the direction of fiscal policy and its implications for the size of the federal budget deficit.
- Long-term interest rates above 4% will weigh on investment activity, notwithstanding the Fed continuing to lower short-term interest rates.
- CBRE expects that continued rate cuts and economic growth, combined with greater certainty over corporate tax rates, will be a tailwind for leasing activity in coming quarters.
The Bottom Line
Today’s Fed rate cut was widely expected. The Fed indicated that easing inflation and a cooling labor market justified the cut. The Fed also indicated it will continue to reduce its balance sheet (quantitative tightening).
We expect that the 10-year Treasury yield will remain above 4% over the near term. We also expect more volatility in the bond market due to the potential for more stimulative fiscal policy, resulting in a continued large budget deficit and resurgent inflation.
CBRE still forecasts a soft landing for the U.S. economy, with the possibility that economic growth could be higher than expected. We foresee the nascent recovery in investment sales continuing next year. However, the recovery could be subdued if bond yields remain elevated. Near-term leasing activity will stay healthy amid economic growth and greater clarity on corporate tax rates.
