As expected, the Federal Reserve this afternoon cut its key lending rate by one-quarter of a percentage point. The rate at which banks lend money to each other is now 4.5%, down from 4.75% before the cut.
The Fed’s decision marks the second month in a row that it has trimmed interest rates. The cut comes as the 2007 credit crunch enters a new month.
“On balance, the Fed’s action should provide additional confidence to commercial real estate buyers, sellers, lenders, borrowers and tenants,” says Bob Bach, national director of market research at Grubb & Ellis.
Bolstering confidence is the key, and the results aren’t immediate. As Bach notes, interest rate cuts typically take six to nine months to work their way through the economy. So beyond a stray psychological boost, he doesn’t expect the news to buoy leasing demand for commercial property right away.
“But if the Fed’s action is successful in forestalling a recession or even shortening one, it will ultimately help support commercial real estate fundamentals such as vacancy rates, rental rates and net absorption of space,” Bach adds.
A statement from the Federal Open Market Committee reads as follows: “Today’s action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy.”
Gross domestic product (GDP) registered 3.9% during the third quarter, up 0.1% from the second quarter.