Intelligent Investment
Economic Watch: Fed Makes First of Several Expected Rate Cuts
September 18, 2024 3 Minute Read
Executive Summary
- The Federal Reserve lowered the federal funds rate by 50 basis points (bps) today to a range of 4.75% to 5.00% and said it expects to make two additional cuts this year and four next year.
- CBRE sees this reduction in the federal funds rate as the Fed’s response to the recent softening of the labor market, along with increasing confidence that inflation will fall toward the Fed’s 2% target.
- The Fed also lowered its 2024 inflation outlook to 2.3% from 2.6% (personal consumption expenditures) and reduced its GDP growth forecast to 2.0% from 2.1% for the year.
- The Fed indicated it will continue to reduce the size of its balance sheet.
- CBRE believes that the Fed will reduce the federal funds rate by an additional 25 bps in both November and December, followed by 125 bps in cuts next year.
- We expect that the 10-year Treasury yield will remain under 4% at year-end and be in the mid-3% range for most of 2025 as the Fed eases monetary policy.
The Bottom Line
The Fed indicated that it expects an additional 50 bps in cuts this year and 100 bps in 2025. The forthcoming rate cuts, coupled with lower bond yields, will bolster commercial real estate investment activity and asset values. CBRE forecasts a 5% increase in annual investment activity this year, with further acceleration next year.
Despite slowing job growth, we expect the economy will avoid a recession and a soft landing will buoy occupier confidence, resulting in resilient demand for space across all commercial property types.
Figure 1: CBRE House View
