Intelligent Investment

Economic Watch: Fed Holds Rates Steady, Signals Caution on Rate Cuts

January 31, 2024 2 Minute Read

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Executive Summary

  • The Federal Reserve kept the federal funds rate at a range of 5.25% to 5.5% today and will continue reducing its balance sheet by $95 billion per month.
  • The Fed removed language from its policy statement about further tightening but stated it needs more confidence inflation “is moving sustainably toward two percent” before considering cuts. CBRE expects the first cut of 25 bps in May.
  • Rising real interest rates will be a headwind for the economy in coming quarters; however, we expect the U.S. economy will remain resilient with growth averaging 1.6% for the year.
  • As the Fed cuts rates, real estate investment activity will pick up in the second half of the year.
  • Leasing activity likely will remain relatively resilient but will be tempered by uncertainty about the economy and business conditions.

The Bottom Line

CBRE expects inflation will continue to fall throughout 2024, with the Fed’s preferred measure (Core PCE) ending the year at 2%. We expect the Fed will make at least four interest rate cuts totaling 100 bps this year. We also expect that the 10-year Treasury yield will slowly decline, ending the year at 3.6%.

Lower interest rates and a resilient economy will result in greater real estate investment activity, which we forecast to increase by 5% year-over-year. Leasing activity should remain relatively resilient, although business and economic uncertainty will continue to be a headwind.

Figure 1: CBRE House View

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