Falling U.S. interest rates offer opportunities for investors

Photo credit: Pixabay/Thomas Breher

To cut or not to cut; that is the question. On Friday, President Trump called on the Federal Reserve to immediately cut interest rates. While U.S. interest rates are just below 2.5 percent—low by historical standards but at the highest they’ve been in more than 10 years—Trump has asked them to be at about 2 percent, according to news reports. But  the Fed has answered that now’s not the time to cut rates.

That said, the Fed has shifted its policy outlook and interest rates have fallen, according to a Marcus & Millichap report. At its latest meeting in March, the Fed indicated that it would end rate hikes during 2019, but potentially increase rates one time next year. The Fed also intends to end the runoff of its balance sheet, also known as quantitative tightening.

That has opened up opportunities for investors, according to Marcus & Millichap analysts, as borrowing costs fall and buyers attempt to re-examine deals that couldn’t pencil last fall.

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“The sharp drop in Treasury rates rewidened the spread between cap rates and lending rates, which had previously proved to be an impediment for select acquisitions, particularly in primary markets,” according to the report. “As a result, sales activity could be invigorated by the more attractive yield spread.”

 

STAT TIME: The GDPNow model estimate for real gross-domestic-product growth, on a seasonally adjusted annual rate, in the first quarter of 2019 is 1.7 percent as of March 29, up from 1.5 percent on March 27.

 

And although unemployment and rising wages remain historically low, inflation pressure remains controlled. The core Consumer Price Index reached 2.1 percent, according to Marcus & Millichap. The Fed’s preferred metric, the core Personal Consumption Expenditure Price Index, reached 1.9 percent in February (the central bank has a target of 2 percent). The metric measures the prices paid by people for domestic purchases of goods and services, excluding the prices of food and energy. Both of those figures offer opportunity for the Fed to operate monetary policy without being concerned with rising pressure from inflation, according to the report.

Related Story: 3 things about the U.S. economy to keep an eye on in 2019

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