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

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
Nick Rojo and Jeff Burns (Affiliated, iStock)

Affiliated Development launches $125M workforce housing fund

Affiliated Development launches $125M workforce housing fund
Tom Cabrerizo and 6790-6880 Southwest 80th Street (Google Maps)

Developers score $15M construction loan for Miami townhouse development

Developers score $15M construction loan for Miami townhouse development
Triton Center (iStock)

Questions surround $50M in EB-5 investments tied to former INS building: lawsuit

Questions surround $50M in EB-5 investments tied to former INS building: lawsuit
Michael S. Liebowitz and Russell Galbut (Linkedin)

Russell Galbut and partner launch blank check company, plan to raise $100M

Russell Galbut and partner launch blank check company, plan to raise $100M
Southland Mall, 20505 South Dixie Highway in Cutler Bay with JLL's Tom Hall and Danny Finkle (Google Maps, JLL)

Southland Mall’s troubled $65M CMBS loan for sale

Southland Mall’s troubled $65M CMBS loan for sale
Alan Ojeda and 8894 NW 44 Street in Sunrise (Google Maps)

Rilea Group scores $46M construction loan for Sunrise apartments

Rilea Group scores $46M construction loan for Sunrise apartments
Yard 8 and Wood Partners CEO Joseph Keough (Courtesy of ACRE)

Wood Partners lands $86M refi for Midtown Miami apartments

Wood Partners lands $86M refi for Midtown Miami apartments
Masoud Shojaee and a rendering of Shoma Village 

Shoma Group scores $67M loan for mixed-use Hialeah project

Shoma Group scores $67M loan for mixed-use Hialeah project
arrow_forward_ios

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

Loading...