Because of the impact that increased interest rates will have on senior housing, industry participants paid close attention to the Federal Reserve’s December meeting to see if the central bank would give any clues regarding when it might raise interest rates. And although the Fed didn’t announce significant shifts in policy after its meeting, it may have signaled a slight change in its approach by altering some wording in its post-meeting policy statement.
Does New Wording Signal a Shift in Monetary Policy?
In its earlier policy statements the Fed stated that it would keep the federal funds rate at near zero for a“considerable time” after it ends it bond buying program, which it did back in October. In order to give itself maximum flexibility on monetary policy and the timing of any interest rate hikes, the Fed purposefully refrained from specifying just how long a considerable time is. This move frustrated analysts, but it also achieved the Fed’s goal of giving it maximum room to make interest rate changes based on economic data instead of self-imposed deadlines. However, in the statement it released after its December meeting earlier this month, the Fed dropped the “considerable time” language it had been using and replaced it with the statement –“Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.” This change has left analysts wondering if the Fed is signaling a change in it its thinking on interest rates, or if it isn’t and the change in wording has no real significance.
Although the Fed also said in its statement that its new wording on being “patient” with respect to monetary policy is“consistent with the previous statement” on keeping the federal funds rate low for a “considerable time” after ending its bond buying program, many analysts are skeptical of this. Because of the impact the Fed’s post-meeting statements have on economies and markets around the world, its members are always very careful when they produce these statements and changes are rarely made unless the Fed is trying to signal something. Furthermore, according to additional information that was released after its meeting, the Federal Reserve’s policy setting Open Market Committee’s median forecast for what the federal funds rate will be at the end of 2015 is now 1.125%, which is significantly lower than the 1.375% it had projected just a few months ago in September. This sudden decrease could be because of an inflation rate that at its current level of 1.3%, continues to be far below the Federal Reserve’s 2% target and isn’t likely to increase much next year because of continued pressure on wages and a steep drop in the price of oil which also helps keep prices for consumer goods low. Without the threat of inflation to justify interest rate hikes, the economy and labor market would probably have to improve at greater rates than they have over the past few years in order for the Fed to raise interest rates any higher than the 1.125% its members are projecting.
While analysts are left to ponder what the Fed’s changed wording means, just when exactly it will raise interest rates and how much it will raise them by, senior housing participants who are interested in taking advantage of today’s low interest rates before any increase should contact the Chicago-based financing firm Cambridge Realty Capital to learn more about the many different financing options that it offers for acquisitions, sale/leasebacks, joint ventures and other purposes as well.
