Fed signals low rates are here to stay

Strategy allows inflation to rise, which could bolster commercial real estate asset prices

Federal Reserve Board chairman Jerome Powell (Photos by Samuel Corum/Getty Images; iStock)
Federal Reserve Board chairman Jerome Powell (Photos by Samuel Corum/Getty Images; iStock)

The Federal Reserve has shifted its strategy for setting interest rates, allowing inflation to rise higher than previous targets.

The change codifies what the Federal Reserve has been practicing for the past 18 months, and signals that interest rates will remain low, the Wall Street Journal reported. As the Federal Reserve allows inflation to rise above 2 percent, the target set in 2012, the move could bolster commercial real estate asset prices.

Lower rates can make buying a house more affordable, at least initially. But while the lower cost of borrowing encourages more buyers, increased competition can drive up housing prices.

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With the onset of the coronavirus, the Fed acted swiftly to provide liquidity to financial markets. But in a conference broadcast on Thursday, Fed Chairman Jerome Powell said the crisis demanded more action from lawmakers, who have the power to raise taxes, pass regulations and increase spending.

The response “needs to be an all-of-government, all-of-society kind of thing,” Powell said. “We really need it to be broader than just the Fed.” [WSJ] — Georgia Kromrei