The Impact of the Federal Reserve Rate Cuts on Commercial Real Estate Markets
Originally published on September 26, 2024, by Morris Davis, Ph.D. for NAIOP.
Citing progress on inflation and the balance of risks, last week the Federal Reserve announced rate cuts of 0.5%, to 4.75% to 5%. Can we expect additional cuts from the Federal Reserve and when, and how would these cuts impact commercial real estate markets?
How deep are the cuts?
According to data from the Fed, on Sept. 20, Treasuries were trading as follows:
- 1-month Treasury 4.87%
- 3-month Treasury 4.75%
- 6-month Treasury 4.43%
- 1-year Treasury 3.92%
After some math, we can use these yields to compute market participants’ beliefs on future Fed actions as follows: 25bp rate cut on Nov. 7, 50bp rate cut on Dec 18. and 75bp rate cut on March 19. In sum, markets are expecting the Fed to cut rates by 1.5% over the next 6 months, and if that occurs, the Fed funds rate will fall from 4.75% to 3.25%.