After its April meeting concluded yesterday, the Federal Reserve (Fed) released a statement on the actions it decided to take. These actions came as no surprise to analysts and economists whose projections were pretty much in line with the Fed’s decisions.
Analysts had projected that the Fed would continue tapering its quantitative easing program by $10 billion each month and would not make any changes to the federal funds rate which has been between 0% and .25% since December 2008, and that is exactly what the Fed decided to do. There was little dissent in taking these actions as the vote on them was 9-0. The Fed’s actions were also in line with what traders and investors were expecting and this was apparent by the lack of movement in the stock market after the announcement was made. By continuing to taper its quantitative easing program the Fed is saying that it believes the economy no longer needs as much stimulus as it did previously. However, by leaving the federal funds rates at or near zero, it is also saying that while the jolt provided by its quantitative easing program is no longer necessary, the U.S. economy does still need the stimulus provided by low short-term interest rates. If the Fed continues drawing down its monthly bond purchases as expected, it will eliminate its quantitative easing program by the end of this year and the focus will then turn completely to short-term interest rates and when the correct time to raise them is.
Analysts were also expecting the Fed to comment on the extreme weather conditions that affected hiring and economic activity during the first quarter and in its statement it did note that “Information received since the Federal Open Market Committee met in March indicates that growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions.” In an unusual bit of timing, on the same day that the Fed released its statement, the Bureau of Economic Analysis also announced that the nation’s gross domestic product had slowed significantly during the first quarter of the year and came in at only .1%. Analysts knew that economic growth was depressed by the harsh winter, but still expected it to be around 1%. However, neither they nor the Fed are panicking at this latest news because they both expect economic growth to pick up in the second quarter now that the weather has improved.
What This Means for Senior Housing
By continuing to keep short-term interest rates low, the Fed is stimulating the market for borrowing, investment, and capital purchases. While low interest rates help all borrowers they especially benefit borrowers in industries that require large amounts of capital for investments and other transactions. The effect that low rates have had in seniors housing this year has been evident by the increase in lending activity and mergers & acquisitions in the space. These types of activities are exactly what the Fed hopes to stimulate by keeping interest rates low, so in the senior housing sector, its strategy is working. While these conditions continue and interest rates remain low, senior housing providers, investors, and others who are interested in entering the space or growing their holdings in it, should continue to look to the successful financing firm Cambridge Realty Capital and the many different programs that it offers for their capital needs.
