The Federal Reserve reduced the federal funds rate by 25 basis points, bringing the target range down to 1.75 percent to 2 percent, according to CBRE. With this reduction, monetary authorities are moving to mitigate the negative effects of various risk factors — largely external — that continue to mount. Additionally, the interest rate on excess reserves was reduced to 1.8 percent —representing a decrease of 30 basis points — to alleviate stress in short-term lending markets.
The global economic picture has continued to become more clouded as growth slows in large economies across Europe and Asia. Ongoing trade disputes — along with Brexit, heightened Middle East tensions and other geopolitical risks — are weighing on economic growth. In the United States, inflation remains subdued — giving the Fed flexibility to take a more accommodative policy stance — and both GDP and employment growth have slowed. Today’s rate cut reflects the Fed’s response to an evolving economic landscape.
Implications for CRE
The economic and geopolitical uncertainty is negatively impacting cross-border transaction volumes . Still, first-half 2019 transaction volumes remained healthy and in line with the pace of activity over the past three years. Additionally, today’s interest rate reduction will support economic fundamentals and should translate into lower borrowing costs. Furthermore, recent stress in the short-term lending markets — largely due to technical issues — are likely to dissipate, as the Fed cut interest rates on excess reserves and can inject liquidity as needed. Further reductions in short-term interest rates would also help alleviate liquidity issues in short-term markets.
