Capital Alert: June 14, 2018

U.S. Economy Strong, Fed Raises Rates

As expected, the FOMC raised the Fed Funds Target Rate to 2.00%, up 25 basis points. More importantly, the committee shifted its rate projections for 2018 and 2019 higher, signaling that another two hikes this year are likely. In addition, the FOMC upgraded its projection for this year’s GDP growth and inflation and lowered its forecast for the unemployment rate. These actions are to stem an overheating economy at relative full employment as the short supply of labor may lead to wage inflation. However, the Fed believes some of the current economic strength may not persist as 2018’s fiscal stimulus “sugar-high” wears off. The 10-year U.S. Treasury has been trading in a narrow range over the last two weeks and is currently at 2.94%, 50 basis points higher than the beginning of 2018. Commercial real estate fundamentals remain strong and lenders are showing a healthy appetite to put out capital.