The Federal Reserve has announced its decision to maintain the federal funds rate at a range of 5.25% to 5.5% for the time being. However, the central bank has indicated its intention to implement three quarter-percentage-point cuts by the end of the year.
In its latest update, the Fed has revised its forecast for 2024 GDP growth to 2.1% from the previous estimate of 1.4%. It has also kept the forecast inflation rate steady at 2.4% by year-end. Despite expecting a more balanced growth and inflation scenario later in the year, the Fed remains cautious about inflation risks and is closely monitoring the situation.
CBRE, a prominent real estate services and investment firm, anticipates that the first quarter-point rate cut by the central bank will likely occur in June. The combination of high interest rates and economic uncertainties is expected to keep real estate capital markets activity subdued in the initial months of 2024. However, as markets adjust to the changing interest rate environment, investment activity is projected to pick up in the latter part of the year.
On the leasing front, activity is forecasted to maintain its resilience as economic growth surpasses expectations. Despite the potential for increased volatility in financial markets due to anticipated higher inflation, CBRE predicts that inflation will gradually ease towards the Fed’s 2% target as the year progresses.
While it may be premature for the Fed to claim victory over inflation, indicators suggest a softening in the labor market, providing the central bank with confidence to proceed with its first rate cut in June. CBRE’s outlook includes expectations of two additional rate cuts in 2024, resulting in a projected federal funds rate range of 4.50% to 4.75% by year-end. Additionally, the 10-year Treasury yield is forecasted to decrease to 3.7% from its current level of about 4.3%.
Although high interest rates are anticipated to limit investment activity in the initial half of the year, a rate cut in June is expected to boost investor sentiment and pave the way for a modest recovery in property sales during the latter part of 2024. The overall resilience of the economy is seen as a positive factor supporting leasing activity in the coming months.
CBRE Group, Inc., a leading commercial real estate services and investment firm, offers a diverse range of services to clients worldwide. With over 105,000 employees across more than 100 countries, the company provides integrated solutions in facilities management, property transactions, investment management, and various other real estate services.
