Fed says it will shrink its balance sheet, which is good and bad news for real estate

Quantitative easing has kept interest rates low

TRD New York /
Jun.June 15, 2017 09:55 AM

Janet Yellen (Credit: Getty Images)

The Federal Reserve on Tuesday announced it would raise short-term interest rates again, but the real news was its decision to start selling off assets.

The Fed bought up $4.5 trillion in bonds and other securities in the wake of the 2008 financial crisis in a bid to stabilize financial markets and push down long-term interest rates. But as the economy improves, there is less of a need for the program, dubbed quantitative easing.

“The economy is doing very well, is showing resilience,” Fed chair Janet Yellen said at a press conference. The central bank will shrink its portfolio by a paltry $10 billion for now, but plans to increase that amount each quarter.

“We should want the Fed to raise rates because it signals something good about the underlying economy,” Citigroup strategist Tobias Levkovich told the Wall Street Journal. “When it gets overheated and the Fed has to cut if off, that’s when you get worried.”

The federal funds rate, a benchmark interest rate for overnight loans between banks, is set to rise by 0.25 percentage points to a range of 1.0 to 1.25 percent.

The Fed’s confidence in the U.S. economy should be good news for the real estate industry, but a slow end to quantitative easing also carries risks. By inflating demand for bonds, the program pushed down long-term interest rates, allowing real estate investors to borrow cheaply and pushing up property valuations. A rise in interest rates could reverse that dynamic.

Yellen said the Fed plans to move slowly to avoid market disruption. “The plan is one that is consciously intended to avoid creating market strains and to allow the market to adjust to a very gradual and predictable plan,” she said Wednesday.

Fed officials had earlier indicated that it may be time to start selling off its $1.75 trillion in mortgage bond holdings.  [WSJ]Konrad Putzier

Related Articles


Real estate stocks push up this week as U.S.-China trade tensions ease

416 West 25th Street and Maverick Real Estate Partners principal David Aviram (Credit: Google Maps and LinkedIn)

Chelsea landlord claims “predatory” lender is charging a crippling interest rate as punishment after losing foreclosure case

Joel Schreiber (Credit: Shir Stein and Wikipedia)

WeWork’s first investor used his stock as collateral. Now his lenders are suing him

Cammeby's International Group founder Rubin Schron and, from top: 194-05 67th Avenue, 189-15 73rd Avenue and 64-05 186th Lane (Credit: Google Maps)

Ruby Schron lands $500M refi for sprawling Queens apartment portfolio

163 North 6th Street and the Tel Aviv Stock Exchange Bull (Credit: Google Maps, Wikipedia)

Joel Gluck’s Israeli bond issuance falls through as Williamsburg rental project faces financing crunch

NYC’s foreign investment landscape in the era of trade wars and heightened nationalism

Fed cuts rates, signaling caution ahead for real estate investors

Larry Silverstein and the Tel Aviv Stock Exchange (Credit: Getty Images)

Institutional investors swarm Silverstein’s new TASE bonds