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

arrow_forward_ios
With a cooling trade war, stocks perform well, including real estate. (Credit: iStock)

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

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

Chelsea landlord claims “predatory” lender is charging a crippling interest rate as punishment after losing foreclosure case
 David Bistricer of Clipper Equity and 77 Commercial Street in Greenpoint (REIT and Google Maps)

Bistricer lands $386M construction loan for Greenpoint project

Bistricer lands $386M construction loan for Greenpoint project
109 East 79th Street and Victor Sigoura (Google Maps; Getty)

Victor Sigoura lands $133M construction loan for UES condo

Victor Sigoura lands $133M construction loan for UES condo
From left: Mapleton Rentals at at 1555-1575 61st Street in Mapleton, 1440 Story Avenue in Soundview, Beard-Van Brunt at 411 Van Brunt Street in Red Hook

Abraham Leser targets $74M refi for Brooklyn, Bronx properties

Abraham Leser targets $74M refi for Brooklyn, Bronx properties
A rendering of 1998 Second Avenue in Harlem and Peter Fine (Credit: GF55 Architects)

Peter Fine inks $70M construction loan for Harlem resi project

Peter Fine inks $70M construction loan for Harlem resi project
JPMorgan Chase's Jamie Dimon and Fortress Investment Group's Wes Edens (Dimon via Mark Wilson/Getty Images; Edens via Scott Olson/Getty Images)

JPMorgan, Fortress are the latest firms to build up war chests

JPMorgan, Fortress are the latest firms to build up war chests
326 West 87th Street and 30 Park Place (Credit: Google Maps)

Luxury home contracts reach highest levels since shutdown

Luxury home contracts reach highest levels since shutdown
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...