Intelligent Investment

Economic Watch: Fed Holds Rates Steady, Signals Resolve

December 13, 2023 2 Minute Read

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Executive Summary

  • The Federal Reserve kept the federal funds rate at a range of 5.25% to 5.50% today and indicated it will continue reducing its balance sheet by $95 billion per month.
  • The Fed reaffirmed its commitment to lowering inflation to its 2% target, while also acknowledging that risks (inflation vs. growth) have become more balanced.
  • Looking ahead, the Fed now expects inflation to fall to 2.4% and GDP growth to slow to 1.4% in 2024. The Fed’s median expectation is to cut rates by 75 basis points (bps) by year-end 2024.
  • High interest rates and economic uncertainty will keep real estate capital markets activity subdued in early 2024. We expect that investment activity will pick up later in the year as markets fully reprice amid greater interest rate certainty.
  • Leasing activity is likely to remain relatively resilient but will be tempered by slowing economic growth in early 2024.

The Bottom Line

CBRE expects inflation will decline toward the Fed’s 2% target next year. We expect that the Fed will gradually reduce rates to ensure that inflation remains in check. For the year, we forecast that the Fed will reduce rates by 100 bps to a range of 4.25% to 4.50%.

We expect capital markets activity will not pick up until mid-2024; however, recent declines in the 10-year Treasury yield could lead to greater-than-expected investment activity. Leasing activity should remain relatively resilient, although economic uncertainty will be a headwind.

Figure 1: CBRE House View

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