Fed rate may surpass 3% in 2019: Federal Reserve’s Karen Gilmore

Higher rate expected to push up cost of borrowing -- but only one to two hikes expected this year, she confirmed at a CREW-Miami luncheon

Miami /
Jan.January 10, 2019 11:30 AM

CREW Miami President Keren Marti with Federal Reserve Vice President Karen Gilmore (Credit: iStock)

In 2019, the benchmark federal funds rate could crack the 3 percent mark for the first time in more than a decade, according to the Federal Reserve’s top official in Miami.

During a luncheon this week hosted by CREW-Miami, Karen Gilmore, vice president and regional executive at the Miami branch of the Federal Reserve Bank of Atlanta, said the regulatory body is anticipating two hikes this year that could bump up the rate to 3.25 percent. The rate is currently between 2.25 percent and 2.5 percent. A higher fed rate is expected to push up the cost of borrowing for commercial and residential loans.

Gilmore told attendees at the Four Seasons Hotel Miami that the Federal Reserve has dialed back its projected rate hikes for 2019, confirming earlier reports that there will only be two increases this year instead of three. In 2018, the Federal Reserve raised rates four times.

“The federal policy makers [have indicated] there will be one to two adjustments,” Gilmore said. “In September, they were much more aggressive about what would happen in 2019. They have pulled back the pace of the interest rate changes in the coming year.”

While the economy and the labor market finished strong in 2018, there are signs the record growth is slowing down, Gilmore said. The last time interest rates went over 3 percent was in 2005, three years before the global financial collapse and subsequent recession.

Gilmore said the economy and job growth are still tracking upward, but certain employment trends could slow things down. “We are not going into a recession,” she said. “However, a hot labor market can have other ramifications.”

The historically low unemployment rate can lead employers to be forced to raise salaries and wages to attract qualified workers. Those business costs are absorbed by raising prices for goods and services, Gilmore explained. In turn, consumers could end up spending less money, she added.

Another area of concern is that the Republican-led tax cut plan has not led to more spending by businesses that benefited from it, she said. Proponents expected tax cuts would entice companies to invest in new capital such as buying new equipment or building new warehouses, Gilmore said. “But businesses have not been strong investors in their businesses,” she said. “A lot of the tax savings went to stock buybacks and dividends.”

The trend will continue in 2019, she added. Moreover, the Trump tariffs and trade war has dampened economic enthusiasm generated by the president’s tax cut plan. “It put the brakes on all the positive sentiment created by the tax cuts,” she said.

There has also been a pull back on home buying, Gilmore said, with consumers questioning if they should be making long-term investments when interest rates are rising.

Lyan Fernandez, CEO of Attica Consulting Group and a past Crew-Miami chapter president, said Gilmore’s outlook lines up with what the real estate industry is expecting the Federal Reserve to do in 2019. “There was no reason to accelerate raising rates,” Fernandez said. “What she said underlies what everyone in the real estate community already knows: we are on the downside of the cycle.”


Related Articles

arrow_forward_ios
Alex Sapir and Giovanni Fasciano with Arte by Antonio Citterio in Surfside (Photos via Arte by Antonio Citterio/PR Newswire)
Miami penthouse sets cryptocurrency sale record: $22.5M
Miami penthouse sets cryptocurrency sale record: $22.5M
(Photos courtesy of Miami Historic Preservation, Smith Aerials, Colliers)
Development site near MiamiCentral hits the market
Development site near MiamiCentral hits the market
Alliance Residential Company CEO Bruce Ward and 6595 Morikami Park Road (Google Maps)
Alliance Residential buys site, scores $46M construction loan for senior apartments in Delray Beach
Alliance Residential buys site, scores $46M construction loan for senior apartments in Delray Beach
Arbor Management Acquisition Company heads Ivan Kaufman and Maurice Kaufman with a rendering of Aventura Park (Anillo Toledo Lopez, iStock)
Arbor Management buys multifamily dev site near Aventura for $10M
Arbor Management buys multifamily dev site near Aventura for $10M
(iStock)
South Florida resi construction starts soar in March
South Florida resi construction starts soar in March
Eden Multifamily heads Jay Massirman and Jay Jacobson with Cypress Equity Investments CEO Michael Sorochinsky (rendering courtesy of MSA Architects)
Eden Multifamily, Cypress Equity score $24M construction loan for Tamarac apartments
Eden Multifamily, Cypress Equity score $24M construction loan for Tamarac apartments
(iStock)
Home prices across globe hit records, prompting worries of bubble
Home prices across globe hit records, prompting worries of bubble
Steven and Beth Millner with One Thousand Ocean (Patrick McMullan/Getty, Google Maps)
Private equity honcho pays $5M for Boca Raton condo
Private equity honcho pays $5M for Boca Raton condo
arrow_forward_ios

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

Loading...