Emerging from its final policy committee meeting of 2012, theFederal Reserve announced its latest interventions to support theeconomy. A new program of asset purchases - to the tune of $85billion per month when combined with the Fed's current mortgagebond program - was widely expected since maturity extensionconcludes later this month. Earlier this year, Fed officials hadsignaled that accommodative policy would remain in place absent amaterial improvement in the labor market. While the unemploymentrate has fallen, it is nowhere near a healthy level. The rationalefor intervention holds.

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

As long as acquisitive real estate market participants rememberthat asset prices are being influenced by current monetary policy —and that current monetary policy will not last forever — we canmanage the distortion. Underwriting trends in some segments of themarket suggest we are struggling to exercise that much foresight.Rationalizations that depend on the spreads-to-Treasury argumentare flawed, as well, since they ignore that Treasury markets arenot functioning normally.