The Fed's Latest Move, Interest Rates, and Property Market Valuations

Emerging from its final policy committee meeting of 2012, the Federal Reserve announced its latest interventions to support the economy. A new program of asset purchases – to the tune of $85 billion per month when combined with the Fed’s current mortgage bond program – was widely expected since maturity extension concludes later this month. Earlier this year, Fed officials had signaled that accommodative policy would remain in place absent a material improvement in the labor market. While the unemployment rate has fallen, it is nowhere near a healthy level. The rationale for intervention holds. 

What does the Fed decision mean for commercial real estate? It is unclear how much the recent playbook has done to support real economic activity. Capital markets are another story. By pushing inflation-adjusted yields into negative territory, policymakers do more than ensure low borrowing costs for well-qualified borrowers. In the hunt for even modest yields, investors redirect capital to other opportunities, which bolsters valuations for stock markets, real estate, and a range of other assets.