Fed’s Powell Signals Confidence in Rate Cut Path

Powell says inflation is close to where it needs to be for the central bank to start cutting interest rates.

Fed's Powell Signals Confidence in Rate Cut Path

Powell says inflation is close to where it needs to be for the central bank to start cutting interest rates.

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Good morning. Welcome to the weekend edition of CRE Daily.

  • 📰 Feature: Fed ‘not far’ from having confidence to cut rates

  • Catch up: The most-read stories from the week

  • 👍️ Reviews: 4 new product reviews on CREDaily.com

  • 📈 Chart: Top 10 REITs by equity market cap

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FEDERAL RESERVE

Fed's Powell Signals Confidence in Rate Cut Path

Federal Reserve Chair Jerome Powell recently signaled that the U.S. central bank is close to having the confidence needed to start reducing interest rates, given the progress in controlling inflation.

Feds stance: At a Senate Banking Committee hearing, Powell conveyed a positive outlook on the continuing reduction of inflation rates, stressing the Fed's pursuit of a stable 2% inflation goal. Despite recent spikes, he remains optimistic about the persistent downtrend observed since last year. Inflation currently sits at 2.4%, with core inflation at 2.8%, both steadily decreasing.

Market response: Powell's remarks led to a slight decrease in yields on 2-year Treasury notes, and industry watchers are now more firmly anticipating a rate cut by June. The Federal Reserve's upcoming meeting on March 19-20 is highly anticipated for further insights into rate and economic projections for the year.

Protect the banks: Aside from monetary policy, Powell's congressional hearings touched on intensifying scrutiny of the banking sector, specifically commercial real estate market loans. Powell views the associated risks as “manageable” but said he was in active conversations with regional banks holding troubled portfolios, particularly in office and retail sectors.

➥ THE TAKEAWAY

Big picture: The central bank is ensuring institutions are well-prepared to handle potential losses, especially medium and smaller-sized banks, which are more affected than larger lenders. Preparations include maintaining adequate capital and liquidity and having a concrete plan to address expected losses. As for the broader economy, Powell says, “I think we’re in the right place.”

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⏪ Weekend Wrap-Up

Catch up on the most clickworthy stories of the week.

  • Fear and Greed: The latest Burns + CRE Daily Fear and Greed Index shows investors in a holding pattern yet poised to boost investments in the next six months.

  • Major changes: The Low-Income Housing Tax Credit (LIHTC) is poised for its most significant reform in nearly four decades.

  • Broadband freedom: The FCC plans to empower apartment dwellers to select their own broadband providers, prohibiting contracts that limit them to certain services.

  • Housing crisis: With an 82% surge in home prices, Miami-Dade proposes a $2.5B bond for affordable housing and infrastructure, pending a November voter decision.

  • Fee shift: NYC is contemplating legislation to make landlords bear rental broker fees, backed by major city unions.

  • Reaching new heights: To counter climbing construction expenses, developers are constructing taller rental buildings with increased units for enhanced profitability.

  • Waiting on the Fed: The H2 2023 Cap Rate Survey (CRS) by CBRE indicates tighter lending standards and distress expected, but yields could be nearing their peak.

  • Bail out: In a move to restore investor confidence, New York Community Bancorp (NYCB) has secured a $1 billion cash infusion led by three groups.

  • Steady decline: The Green Street Commercial Property Price Index marked a consistent decrease, falling 7% annually and 21% from its March 2022 peak.

  • Booster: Senior housing records increased demand, absorbing over 11,000 units in Q4 2023, the highest in five quarters, as reported by Marcus & Millichap.

  • Miami on top: Ken Griffin of Citadel intends to move from Chicago and erect a towering Miami HQ with a luxury hotel, aiming for one of the city's tallest structures.

  • BREIT is back: Blackstone's $60 billion BREIT successfully met all investor redemption requests in February, stabilizing after a tumultuous year of withdrawals from the non-traded fund.

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📈 CHART OF THE DAY

Here’s a list of the top 10 REITs by equity market cap as of end of 2023.

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