Fed Rate Cuts? Yes…Only Question is “How Many?”

Recent statements by Fed Chair Powell and other Fed officials have telegraphed rate cuts “sooner rather than later”. Markets have priced in the cuts: stocks rallied, treasury yields dropped and gold prices are rising. The futures market is predicting two rate cuts, most likely in July and September. Next week’s June meeting should “set the stage” for the cuts, as Powell has a press conference scheduled. In fact, if he signals no cuts, look for some market volatility. This means that LIBOR should be down to around 2.00% by mid-September. Spreads: CMBS spreads have widened about 10 bps in recent weeks, mostly due to the drop in Treasuries. Fannie and Freddie have also widened slightly. All-in loan rates are still in the 4.00% range as the “perfect storm” scenario continues: low treasuries due to dampened inflation expectations and tight spreads. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners