Monday, February 20, 2012

February Market Watch: Fed Keeping Rates Near Zero Until 2014

The Federal Open Market Committee announced after its meeting in late January that it plans to keep interest rates near zero until 2014. This was a somewhat surprising decision, considering that unemployment fell to 8.3% in January, the fifth consecutive month it has decreased, and the economy has seen other signs of improvement in recent months. The Fed remains cautious, and could change course if unemployment falls more significantly and the American economy begins growing at a faster pace. Out of 49 economists surveyed by the Wall Street Journal recently, the majority believed that rates should be raised sooner and were concerned that keeping rates low could spur inflation.

Despite the Fed’s lack of confidence in the economy, the commercial real estate finance market has been performing well. Life insurance company lenders, NBS Financial’s major correspondent relationships, are increasing allocations for 2012. The Mortgage Bankers Association (MBA) is expecting $230 billion in commercial and multifamily mortgage origination during 2012, a 17% increase from 2011, and up to $290 billion in 2015. Although the CMBS market is still nowhere near its pre-recession heights, it has seen improvement in recent months.

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