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The Federal Reserve Raises Interest Rates Again


On December 13, 2017, the Federal Reserve raised interest rates for the 3rd time in 2017. This came as a surprise to few people, since the raise was highly telegraphed, before the meeting. Among other things, what made this meeting interesting was that it was the last of chairperson, Janet Yellin.

Before the meeting I spent some time brushing up on my Federal Reserve knowledge and listened to her comments shortly after the meeting. Fortunately, I also had the pleasure of interviewing David Pascale, Senior Vice President of George Smith Partners, who took the time to explain to me, some of the background to the meeting as well as  well as his thoughts, on a going forward basis.

There is no doubt that, after 7 years of zero or near zero percent interest, the times are changing. As of this writing, the short term interest charged by the Federal Reserve to banks is at 1.5%, which is still, extraordinarily low. However, David expects to see 2 more raises of 1/4%, each in 2018.

What I found most interesting was the focus and disappointment that inflation was too low. What, inflation is too low? I thought controlling inflation was a good thing. I understand that controlling inflation and keeping it low, is a good thing, but it can be too low if your looking for the economy to grow. Talking about inflation and deflation, listen as David talks about the “Goldie Locks” moment and what it means at the Federal Reserve and why you care.

Before the meeting I spent some time brushing up on my Federal Reserve knowledge and listened to her comments shortly after the meeting. Fortunately, I also had the pleasure of interviewing David Pascale, Senior Vice President of George Smith Partners, who took the time to explain to me, some of the background to the meeting as well as well as his thoughts, on a going forward basis.

David can be reached at George Smith Partners by clicking here

Something to Add?

  • Peter Morris

    Another interesting show, Howard. We are also looking at the spread between the 10-year and Cap Rates. Overall, it has been 200-300 bps for some time. I believe the market will react to this as the Fed moves rates up. The question we are looking to answer is how much compression will the market bear before Cap Rates increase and there is a corresponding decline in CRE prices to maintain yield.

    I also believe the Fed is looking at the wrong index – wage inflation; if for no other reason that since the recession the economy has definitely moved to a ‘gig economy’ with far more part-time and project-oriented workers. It is difficult to see wage inflation with that as a background as compared to the former worker who was employed full time in a union job, regular pay increases and a golden watch.

    The whole gig economy exists in the basis of a flexible workforce bidding on the next project. This has a natural tempering on income inflation for a host of reasons.

    And because I am in Canada I will add that the market analysts here think the Central Bank in Canada will raise rates 3 times in 2018 at 25 bps each time. Therefore, by the end of 2018, the rates will have increased a full percentage point compared to the lowest rate.